Always for the good of mankind, you see. Milton Friedman used to note that there are always two groups pushing for a public policy: the public front group which was supportive of a particular cause, and the private interest group that would benefit. No one ever advocated for government benefits to enrich themselves, rather there must be a “public interest” rationale offered. In this latest blog post from Mr. Branson over on the Huffington Post, he is concerned over a number of problems:
our planet faces a broad range of enormous challenges. How can we feed an ever-growing global population? What can be done to lift the world’s poor, still well over a billion people, to a higher standard of living and a better life? How can we turn the tide on climate change?
I can’t help but not share much of his concern–at least in these areas. Globalization and free markets are increasing the living standards of the world’s poor, and enabling far greater farm production and agricultural output. The classical economist Thomas Malthus’s fears that population would increase until it starved itself has been overwhelmingly rejected by history. With climate change (conveniently no longer referred to as global warming), the evidence is clear that whatever is really happening with global warming, it is certainly at a much slower pace than predicted by the climate alarmists. So what is Mr. Branson’s solution to these problems?
Challenges exist to be tackled head-on…. As so often, entrepreneurs have a major role to play. The good news is that many are doing it already and at greater scale than ever before. It is one of the reasons why, last June, we launched the B Team, a global group of business leaders which aims to deliver a new way of doing business that prioritizes people and planet alongside profit — a “Plan B” for businesses the world over.
We can all applaud socially responsible business professionals; indeed it is a large part of what our business school is trying to create in our graduates. Yet, it doesn’t end there; after extolling the problems of capital formation for some of the new green energy technologies, Mr. Branson opined that
This also means that the world needs to start a conversation about energy subsidies.
Here is the problem. We are led to believe these are incredibly risky investments that have huge potential payoff, and yet private investors cannot seem to make it happen. Call me skeptical. One thing Wall Street is very good at is raising capital–often too good, for too risky propositions. We see funding readily available for very high risk and long term payoffs in the biotech industry, but with green energy, we have to reconsider subsidies. Here is my thought: failure to generate private sector funding suggests that these investments are not simply too risky, but they are unlikely in the aggregate to pay off. If we increase subsidies for more green energy “investments,” why would would expect the result to be any different from Mr. Obama’s last green energy stimulus fiasco? And if we have reason to expect a different result, what is the rationale that private equity cannot come up with the resources?
bluntj
January 22, 2014
As you correctly pointed out, wall street is very good at raising capital for risky investments. The problem with green tech is that there is no market for the technology. Brown tech has, and probably always will, produce more power at a cheaper cost than green tech. Brown tech drives green tech out of the market.
I think this is a clear case of a market failure. The negative externality of brown tech (the carbon emissions) are not properly paid for by either the producer or consumer of energy. Hence government action is warranted.
Create a market for green tech, provide incentives, and Wall Street will provide it. Subsidies would be one way, but a more efficient way would be a carbon tax (NOT CAP AND TRADE) severe enough to make most carbon-based energy usage unprofitable. Obviously, such a policy would be initially recessionary. I’m a strong environmentalist. I’m all for this. I actually voted last election almost solely on environmental issues.
Australia implemented a carbon tax. After a few years, solar panels abounded because consumers had sought cheaper energy.
Steve Adams
January 22, 2014
Thank goodness the government has long been in the forefront of clean brown energy. Even today there is grey smog over some of our cities on hot summer days. Every one of our cars has multiple devices that limit the amount of pollution they emit. The auto industry didn’t provide this additional equipment because of their concern for the public and clean air. Government has its place in promoting the welfare of all, on the other hand, businesses often care most about stock holders and making the number for the quarter.
We all know we are not in the Middle East due to weapons of mass destruction. It’s about oil, cheap oil. Shouldn’t we consider our huge military expense to maintain our presence there as subsidizing oil? Would we be better off spending that money in the US hiring our people to do research on whatever we need to be energy independent?
Jeff Haymond
January 22, 2014
Two cheers for subsidies so far, but are you at all troubled by our previous failures at green energy subsidies; at enormous cost to the taxpayer? Re energy subsidies to big oil; the largest subsidy to oil is simply the U.S. navy; if we develop our own North American oil, that subsidy could go away. And to Steve; even if we grant your point (and there is some validity), why would we not eliminate those subsidies rather than add more?
Joe Morley
January 22, 2014
One action that I am somewhat surprised to have not seen in the US government’s efforts to advance green policies is offering carrots for innovation instead of sticks for the lack thereof. CAFEs are set on automobiles, taxes are placed on emissions, certain practices are simply banned outright, and subsidies are granted to companies in order for them to develop green technologies.
I have yet to hear of the government offering rewards to those who develop viable ideas. To use a somewhat antiquated example, in the seventeenth century, England offered a reward of 2,000lbs to whoever could develop a mechanism/system that would enable ships to determine their longitude at any point on the globe. Eventually, this award led to the development of a new time-keeping mechanism capable of losing minimal time even when shaken. Historically, this system seems to have worked well, although it may be more difficult in today’s world in which technological advancements are the fruits of billions of dollars of research and development rather than the tinkerings of hobby-inventors in their garage.
Still, this method for encouraging innovation rather than subsidizing failure seems to take better advantage of the market forces and merely amplify them towards a specific goal. The closest action I have heard to this is tax deductions for certain environmental activities, although I have only heard of them being applied to those who use specific green technologies rather than toward those who develop green technologies.
Joe Morley
January 22, 2014
Dr. Haymond,
Do you think that it would best that governments not be involved in promoting environmentalism? How would you see market forces directing economic resources into “green” projects? Do you think that “green” projects should be pursued beyond what market forces would induce? Thank you.
Jeff Haymond
January 22, 2014
I think environmentalism is best served by private citizens voluntarily cooperating to meet their objectives. For example, when the Sierra Club buys land to reserve it for conservation. There is of course a role for government when there are negative externalities, i.e., when someone is violating the law with a negative spillover as a result of their production. In this case, while it is perfectly obvious to many environmentalists that greenhouse gases are a form of pollution, there are many others who would disagree with this characterization.
Nathan D.
January 23, 2014
There are extremes on both sides of the environmental clean energy debate and some of those extremes lead to failings.
Living in West Virginia, I have seen the failings of government on the energy debate and environmentalism.
As some may have seen, we had a recent chemical spill in the State. The facility where the leak occurred had not been inspected for many years, and the chemicals it stored were not covered by any regulations, etc. Meanwhile, the EPA, under direction from Obama, is constantly using their energies to over-regulate, punish, add tons of new restrictions, etc. on the coal industry.
The problem with government regulation of environment, etc. is not that it is not necessarily needed, but that it is used for partisan purposes. Obama is using the EPA to attack coal, natural gas, etc in his political agenda for more government control over every aspect of the economy. But while they are using their time and resources for partisan purposes, they missed catching something they actually should have been inspecting, etc. While Freedom Industries is likely to take the fall for the spill, the real blame should go to the government who decided to play politics with the energy industries rather than doing what needed done.
There is a place for government in these matters, but it cannot become partisan or selective in nature. It should not favor one industry over another or over-regulate one in order to help another. The determination of which industries or companies or business succeed or fail should be left, as much as possible, to market forces.
Steve Adams
January 23, 2014
Jeff:
I am not in favor of subsidies for green or brown energy, to oil direct or indirect (the mid-east military actions). What I am in favor of is becoming energy independent. We may be able to stay out of the next war. There are lots of ways government can help lead the way, such as grants for research, CAFEs, opening land for exploration, research into clean coal, etc. If all we had were unsupported prices for domestic oil, the price increase to meet the demand would lead to all kinds of innovation for all kinds of energy and we could stop these crazy wars. It’s because of the artificially low oil prices, caused by cheap Mid East oil that there is no interest in exploring or investing in other options. If government weren’t involved in oil and the free market kicked in, corporations would be scrambling to invest in all sorts of alternatives.
Get the government out of supporting cheap imported oil and let the free market kick in.
Kayla Paney
January 23, 2014
Reading through some of these comments I definitely agree that green business funding shouldn’t be apart of the governments rule. I feel like things would be more efficient and productive if they left these types of improvements to the corporations themselves. Don’t get me wrong I think that the government should be able to set up quotas and standards, but I think that they should allow businesses to meet these standards in their own way. They should also allow businesses to gain their own funding. Every business is different so they will all have different ways that are most efficient for their particular situation financially and economically.
Jesse Froese
January 23, 2014
I agree with Dr. Haymond that while global poverty and hunger is an enormous problem, Branson is approaching a solution to these problems in the wrong way. The problems of global poverty and hunger did not come about as a result of a growing population and a lack of food to feed them. I was raised on a farm in Canada, and can say first hand that there is a plethora of beautiful empty land in the world that could be used in order to house this supposed “ever growing population”, and that modern farming implements have made it possible to harvest much more food than the world can consume! The enormous problems that Branson speaks of do not need large amounts of government intrusion in order to be solved.
Anonymous
January 23, 2014
The problems of poverty and hunger, like all problems man faces, came about because of sin, plain and simple. Until Christ reigns on this Earth and sets up His kingdom no “war on poverty” or any man-initiated project will ever solve these problems. It is the unhappy truth of the reality of this fallen world and the solution is not found in man, and certainly not in government.
Steve Adams
January 24, 2014
True, the solution to poverty is not found in man; however, God’s glory is reviled when His followers through the Holy Spirit minister to His poor. See: Acts 9:36, Acts 10:31, Acts 24:17, Romans 15:26, 2 Cor. 9:9, Gal. 2:10 and James 2:14. Not the governments job the churches job.
Sarah
January 24, 2014
The government should not specifically fund environmental projects because it redistributes wealth in less useful areas. If the private sector cannot or will not raise capital for risky environmental venture, this is a market sign that resources could best be utilized in other areas. Despite the market, the government seems to invest in environmentalism anyway, as almost to beat the system. While in the name of the public good, this redistribution of wealth only lowers market productivity, raises prices (no matter how small) for the general populace, and increases the regulations and therefore money placed onto manufactures and other organizations. High environmental standards may also increase the entry barriers for a company, therefore hindering new organizations from entering the market. If environmentalism is treated on the market or voluntary basis, environmentally conscious consumers will reward companies who they view as “green.” If the market as a whole grows very concerned about environmentalism, then more companies will begin to notice this trend and make adjustments in order to maximize profits (more market-orientated approach).
Anonymous
February 2, 2014
Good point. When the government attempts to control things that are best left up to the market, it results in the misallocation of resources. From my observation, the market is growing more and more concerned with being “green.” Participation in recycling and low energy solutions is the popular thing to do. However, there is still a maximum people are willing to pay for the “green” label and this amount is, in most areas, lower than what it needs to be for the sector to be profitable for private companies. I think companies will eventually discover successful green solutions at a lower cost because that is what the market demands. Government interference is not necessary for this development.
Steve Adams
January 24, 2014
Whatever we do or say it is important not to paint with too wide of a brush stroke. For example, if you like clean water you will be happy that the government is involved in the environment and funds clean water practices. If left up to farmers and manufactures none of it would be fit to drink.
Crae Jackson
January 26, 2014
“Going Green” is rather expansive and always has been. Whether it be different chemicals or building those huge fans. It was briefly mentioned that the pay off is slow or unlikely. I would have to agree. Until we are able to make going green more affordable for the common person to do it is not something that will catch on. Along with creating green projects.
C Ericson
January 27, 2014
In my understanding by reading the comments and my own exposure to the whole green energy “movement” it seems that clean energy is too costly to rely on as opposed to “brown.”
I would argue that green energy has been marketed as “cool” and desirable but signs point that people are more concerned about their bottom line.
Because of this, government has to take a role in promoting the development of green energy technology and resources because private individuals aren’t “promoting” it themselves.
My question is: what would it take to get the population on board with green energy so that the cost isn’t burdened on the government and subsequently, the people anyway?
Jeff Haymond
January 27, 2014
Economists start with the assumption that people act in their individual self-interest, so the only way to get the population “on board” is to show them its in their self-interest. Since green energy absent subsidies is manifestly more expensive and less reliable, that is a difficult sell.
Jordan Lee
January 28, 2014
I have always been skeptical about green energy. While it has promise, it has always seemed like the “cool” option as someone above mentioned, not the practical one moving forward. I think that it will take something drastic for green energy to become a viable option, but it is possible. One break through and green energy could become the best, most cost effective option very quickly. However, since this is not the case, do we continue to fund the effort, in hope that this breakthrough will happen, or do we continue to improve effectiveness and use of “Brown” energy?
Michael Miller
January 30, 2014
There are methods out there for clean energy, but they are far too expensive to implement on a large scale, and yet we are still trying. Electric cars cost a fortune to buy with few “refill stations”; Nuclear is “too dangerous” and Wind is barely making a scratch. Not to be a conspiracy theorist, but I might as well embrace it, there must already be some sort of solution, but a lack of technological efficiency to implement. Sort of like how Avatar as a concept was created in the 80s, but was actually made into a movie a few decades later. We all know the government is ready to spend a fortune on the next “big idea”, but no one wants to support a bad idea or one that is not ready, like electric cars. There needs to be more support towards technological advances and less support on the ideas that are failing.
Jameson Hale
January 30, 2014
Although green energy has many good benefits, it is way too expensive to invest in. Gas and coal are much cheaper options and they are more abundant. I think we can invest in green energy a little bit, but we need to be focused on what we can make that is really inexpensive and abundant. The government is spending too much of its time and resources on green energy and not enough on gas.
Katie Daniels
March 12, 2014
Through out history, this country has provided a system of government and free markets to spur some of the greatest achievements in mankind in healthcare, communications, defense and transportation to name a few. Achievements in all of these fields came at extreme risk to their undertakers, but the system allowed the risk takers to reap bountiful rewards. When a government attempts to support an undertaking from its infancy, does it allow those who are successful at new enterprises reap their rewards by not penalizing their successes in the form of taxes or trying to choose for the people which enterprises are better? Let the people choose to support enterprises with their own money.
Travis St. Ores
March 28, 2014
Getting funding from private equity is very difficult because to put it straight, that is people’s hard earned money that they are counting on for retirement and other purposes. So when these green energy IPO’s come to market and people may be skeptical, there is a reason for it. These projects are high risk and maybe a potential average payoff. The people investing in these projects are the one’s who either care about the earth or are able to take on the high risk in their portfolio. Green energy is an emerging sector that needs improvement in lower risk, and when companies can start to prove this, their IPO’s will become more successful and the overall health of the company will become better also.
Isaac Moss
April 22, 2014
It does not make sense to me that America is dependent on foreign countries for oil. I would like to see America energy independent. In the case of a war, we would not be in fear of being cut off from our oil supply if we were energy independent. I see nothing wrong with the government helping out any private citizen that wants to quicken the process of helping the US to become energy independent. If we could get it to the point that we are exporting oil becuase we have too much, that would be even better
bethanygustin
May 1, 2014
I agree that committing a significant amount of the American budget to maintaining a green earth potentially benefits an elite few at the expense of many others. This whole premise has been shown to be based on flawed “science.”