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Tuesday, June 24, 2008

You Make the Call

[I wrote this last night, then decided against posting it, but the issue is getting more attention than I expected and I don't have much else right now...]

John McCain proposes government intervention - industrial policy - intended to direct private investment into a particular area:

McCain Proposes a $300 Million Prize for a Next-Generation Car Battery By Michael Cooper, NY Times: ...Senator John McCain is suggesting a new national prize: He said here Monday that if elected president he would offer $300 million to anyone who could build a better car battery. ... Mr. McCain ... [also] called for ... big tax credits for nonpolluting cars. ...

John McCain (a) recognizes that markets can work imperfectly, and that government intervention to correct incentives can fix the problem (even though, in this case, the private market probably does provide the correct incentives - so this would be yet another demonstration of poor economic reasoning from the McCain campaign), or (b) whether he gets economics or not, and I'll take his word that he doesn't, he has no real commitment to "core" principles such as his belief in free markets and their ability to provide the optimal level of investment in goods like batteries, and is instead a political opportunist who will propose or agree to whatever is convenient at the moment.

Here's more since I first wrote this (and feel free to add an option (c)). First, we have Cafe Hayek:

John McCain's proposal that Uncle Sam offer a $300 million prize to whoever develops a battery ... is silly -- as explained well by the Denver Post's David Harsanyi. ... Here are Mr. Harsanyi's closing paragraphs:

But when McCain peddles prize money, he also feeds the perception that industry and scientists aren't already working diligently on energy breakthroughs — with batteries and areas unknown — or that the market doesn't incentivize them to do so.

Worse, McCain makes it seem that a cure for oil is just beyond our grasp. Around $300 million away.

In this arms race of goofy ideas between the candidates — windfall taxes and gas-tax holidays, to name two — we're sure to see more poorly thought-out plans in the near future.

Let's hope they are just empty promises. ...

Tom Lee, through Ezra Klein, echoes this theme:

A Better Battery? or a Better Candidate?, by Ezra Klein: I didn't blog about John McCain's $300 million prize for a better car battery yesterday because it seemed too banal. But as Tom Lee points out, it also suggests a basic ignorance of the economic rationale for "prize" proposals:

I should be able to avoid saying anything as dumb as McCain's battery-prize proposal. Not that I don't like batteries, mind you! But if someone were to invent a better one they'd already be poised to make a huge amount of money through its commercialization. Offering prizes for innovation isn't always a terrible idea - for pharmaceuticals with a limited market of potential users it can make sense due to the huge costs associated with developing and testing a new drug. But everyone in the developed world needs better energy storage technology, and they need it right now. And while it's important to make sure your new batteries are safe and robust (e.g. they don't explode too much), that's still much easier and cheaper to do than it is to conduct a set of double-blind human trials. So sweetening the pot is unnecessary. Anyone who has a good idea about how to build a better battery is already working on the problem.

Over the past couple of days, McCain has come out with a couple of these small bore proposals. Today he promised to make the government use more fuel efficient cars. ...A bunch of micropolicies meant to demonstrate attention to the issue without, you know, solving it. ... To the average person, a $300 million prize for a better car battery sounds like a lot of money. But it's a big pot of nothing in the face of climate change.

    Posted by on Tuesday, June 24, 2008 at 01:53 PM in Economics, Environment, Politics | Permalink  TrackBack (0)  Comments (37)

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