Economics & Finance

Subsidy Farming

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This is the kind of thing that happens when governments distort market incentives.

The above-market prices, called feed-in tariffs because panel owners feed power into the grid at premium prices guaranteed for decades, are high enough in Italy to generate average revenue of 35 euros ($48) a day for a 100-square-meter (1,076-square-foot) roof, according to Bloomberg calculations.
 
“The feed-in tariff drives our business plan and profitability,” said de Vergnies, whose plans include two photovoltaic plants in southern Italy that will generate enough electricity for 25,000 homes.

The gist:

The solar industry is “built on subsidies,” said James Britland, an alternative energy analyst at Allianz RCM in London. “This is a non-competitive industry that has to be subsidized.”

The investment capital that’s diverted by taxes into subsidies for politically-correct tech fads, and by investors themselves in response to the distorted incentives created by such subsidies, is capital that doesn’t get invested in productive ventures in biotech, medical devices, etc., etc. Keep this fact in mind the next time you or someone you know needs advanced medical treatment. Those chemotherapy agents and other wonder drugs don’t invent themselves. Fewer of them get invented to the extent we allow our reckless political class to divert precious capital to unproductive solar-energy schemes and other financial sinkholes.

The Sacred Fools of the Market Economy

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Tim Cavanaugh at Reason, observes that the peak of the dot-dom bubble was reached ten years ago today. The dot-com bubble and other technology bubbles are often held out as examples of the irrational nature of market economies by those who think they could do a better job of running the planetary economy than the rest of us can.

This is myth. Booms and busts represent two equal and necessary phases of technological development. A bust looks ugly but so does the birth of child. The busts are every bit as necessary as the booms and every bit as good for the general society and economy.

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We’re the Second City (part of the Second State)

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Whoo hoo! We are definitely the Second City, or maybe I should say, the second state, according to this Bloomberg article:

ILLINOIS, the second-lowest-rated U.S. state after California, will take bids on March 11 from banks seeking to underwrite $300 million of Build America Bonds and $56 million of non-subsidized taxable notes. The deal will finance school construction, according to John Sinsheimer, director of capital markets for Illinois. The state, which last sold Build America Bonds in a $1 billion deal on Jan. 28, is rated A2 by Moody’s, A+ by S&P and A by Fitch. A statutory requirement calls for 25 percent of all state debt to be bid competitively, Sinsheimer said. Banks led by William Blair & Co. will negotiate the sale of an additional $700 million in Build America securities in mid-March, he said. (Added March 2)

Not only is Illinois poorly rated from a credit perspective, we often don’t do a good job of selling the debt. This post described how a Chicago government entity issued bonds and sold them for an uncompetitive price, generating instant profits from the purchasers of that debt. You’d think that since the state of Illinois issues so much debt, at least we’d be good at it, but perhaps not.

Cross posted at LITGM

An Architect of Hyperinflation

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Even if you’re a very-well-informed individual, I bet you’ve never heard of Rudolf von Havenstein–I certainly hadn’t until I read this piece at Isegoria. (Follow the links for much more detail.)

Havenstein was a “decent, hard-working, intelligent and well-intentioned public servant” who, as president of the Reichsbank, had much control over Germany’s financial policies during WWI and in the early interwar era. These policies ultimately led to the great hyperinflation of 1922-23. Sebastian Haffner, a teenager during this era, describes what it was like:

By the end of 1922, prices had already risen to somewhere between 10 and 100X the pre-war peacetime level, and a dollar could purchase 500 marks. It was inconvenient to work with the large numbers, but life went on much as before.

But the mark now went on the rampage…the dollar shot to 20,000 marks, rested there for a short time, jumped to 40,000, paused again, and then, with small periodic fluctuations, coursed through the ten thousands and then the hundred thousands…Then suddenly, looking around we discovered that this phenomenon had devastated the fabric of our daily lives.

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Why Alternative Power Is and Will Remain Useless

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Here’s a fact you won’t see mentioned in the public policy debate over “alternative” energy:

There exists no alternative energy source, no combination of alternative energy sources, and no system of combinations of alternative energy sources that can fully replace a single, coal fired electric plant built with 1930s era technology.

Nada.
Zero.
Zilch.

Yet many want to make this group of functionally useless technologies the primary energy sources for our entire civilization.

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