"Government would have us believe
that a new regulation is the result of some great, objective, and careful
investigation. But mostly these regulations and spending programs are
foisted upon us by the people who only yesterday were nothing more than
lobbyists for some fervently held cause. There has been no new data, but
yesterday's lobbyists are today carrying the mantle of great authority
and prestige because they have become high-level government
bureaucrats.
"We economists call such lobbying "rent seeking" and those
who engage in it are "rent seekers." Rather than seeking the
cooperation of other men in the free market, a rent seeker lobbies
government to impose some special privilege. The cost of the rent
seeker's efforts is greatly reduced because he need convince only a few
elected officials or government bureaucrats rather than the entire
market. His job is made all the easier by the knowledge that the elected
official or government bureaucrat can grant the privilege with no cost to
himself."
A 132-Year Payback on the All-Electric
Car
Tuesday, September 28, 2010
by Patrick
Barron
The term energy encompasses a plethora of technologies, and each
attracts the gimlet eye of Big Brother. In recent years environmental
groups have been very successful in insinuating themselves into the halls
of government so that today there is a revolving door between government
and the environmental movement. And it's just like the revolving door
between the government and other key industries, such as banking and the
military-industrial complex.
Government would have us believe that a new regulation is the result of
some great, objective, and careful investigation. But mostly these
regulations and spending programs are foisted upon us by the people who
only yesterday were nothing more than lobbyists for some fervently held
cause. There has been no new data, but yesterday's lobbyists are today
carrying the mantle of great authority and prestige because they have
become high-level government bureaucrats.
We economists call such lobbying "rent seeking" and those who
engage in it are "rent seekers." Rather than seeking the
cooperation of other men in the free market, a rent seeker lobbies
government to impose some special privilege. The cost of the rent
seeker's efforts is greatly reduced because he need convince only a few
elected officials or government bureaucrats rather than the entire
market. His job is made all the easier by the knowledge that the elected
official or government bureaucrat can grant the privilege with no cost to
himself.
When a rent seeker gets a job in government itself, well, the fox is in
the henhouse. Officials move billions of dollars and coerce millions of
people with no responsibility whatsoever. If a program fails to achieve
its grand design, no government official suffers the consequences.
Furthermore, failed regulations are seldom repealed, because, despite the
net burden to the economy, a few new constituents do benefit and lobby
mightily to keep them in place.
A Revolving-Door Lobbyist for the All-Electric
Car
Such is the case, as recently reported by the
Associated Press, of a lobbyist for an all-electric car.
"Leading
the Charge" glorifies Mr. David Sandalow, a US Department of
Energy assistant secretary and an avid advocate for the all-electric car.
Hybrid cars usually recharge their batteries only while operating on
their gasoline-powered engines, but Mr. Sandalow has converted his Toyota
Prius hybrid into a plug-in hybrid at the
cost of $9,000. Now he can recharge his car's battery from his home
electrical outlet.
Mr. Sandalow is very proud that his daily five-mile commute (a ten-mile
round trip) can be accomplished with a gasoline-refueling stop only
"about once every month or two." Nevertheless his car needs to
recharge after only 30 miles of travel, so he advocates that the
government pursue developing a battery that will allow 100 miles between
rechargings.
The government itself estimates the cost of such a battery at around
$33,000 per battery. How the government knows this when no such battery
yet exists was left unclear.
The article reassures us that government tax credits and stimulus funds
will reduce the cost to the consumer to around $10,000 per battery. (But
we Austrian economists know that government subsidies do not lower costs;
they only change who pays. So it is disingenuous to say that government
subsidies will lower the cost of such a battery.) Mr. Sandalow estimates
that his electricity cost is equivalent to buying gasoline at 75¢ per
gallon.
Recoup Your Investment in Only 132 Years!
One does not need to be a Brookings Institute
scholar like Mr. Sandalow specializing in "oil dependence,
electric vehicles, and climate change" to see why no one will
willingly purchase an all-electric car, much less the one million that
President Obama wants on the nation's highways in five years. (Call me
cynical, but this number does not sound as if it were the result of a
scientific analysis either.)
First of all, the cost of anything is that which is foregone by the
purchase. In other words, when we buy something, we cannot spend this
money on other things. That is what our cost is. In the case of Mr.
Sandalow, his $9,000 investment cost him 3,000 gallons of gasoline at the
current price of roughly $3 per gallon. Assuming Mr. Sandalow's Toyota
Prius gets only 20 miles per gallon, he could have driven his car for
60,000 miles. Since his commute is 10 miles per day, Mr. Sandalow's
conversion cost is the amount of gasoline he could have purchased to
drive to work for 22.7 years.
But that is not the only cost; the cost of electricity, which Mr.
Sandalow estimates to be the equivalent of 75¢ per gallon gasoline, has
yet to be considered. This expense adds an additional $2,250 to his
commute 60,000 miles divided by 20 miles per gallon times .75 = $2,250.
Stated another way, he could have purchased another 750 gallons of
gasoline and commuted to work for another 5.7 years, or 28.4 years
total.
Now let's move on to the $33,000 battery. Hold onto your hats! At $3 per
gallon, Mr. Sandalow could have purchased 11,000 gallons of gasoline and
driven his Toyota Prius for 220,000 miles. But, again, he would have had
to buy electricity at the equivalence of 75¢ per gallon, which would have
cost him another $8,250. With this additional money he could have driven
another 55,000 miles, or 275,000 miles total. This would allow our
intrepid energy saver to drive to work for 104 years. (Of course, this
cost assumes that one $33,000 battery will last for that many miles. If
two batteries are required, you can double the cost and the years
required to break even.)
So, by converting his car to a plug-in hybrid for $9,000, buying a
yet-to-be produced 100-mile range battery for $33,000, and buying
electricity for the equivalence of 75¢ per gallon of gasoline, Mr.
Sandalow could have purchased enough $3 per gallon gasoline to enable him
to drive to work for 132 years!
Trust Only the Free Market
I have looked at the all-electric car calculation
only from the point of view of the consumer. I have not touched upon the
nation's capacity to generate enough electricity to recharge those one
million batteries so desired by President Obama. And one can merely
speculate on whether producing this additional amount of electricity will
cause more smokestack pollution than the tailpipe pollution it supposedly
will prevent. Certainly this is not a debate in which Austrians would
engage.
As Ludwig von Mises makes clear in chapter 8 of
Human Action, the only basis of economic calculation is money
prices via a free market. This does not mean that unlimited pollution
from power plants or automobile tailpipes is permissible. Property rights
and one's health may not be abridged by another's pollution. But it does
mean that a basis already exists for deciding upon the wisdom of an
all-electric car the free market.
MP3CD
Each man strives to improve his own condition by seeking the cooperation
of others. Entrepreneurs who believe in the all-electric car are free to
invest their own money and lobby investor capitalists for more. But right
now the all-electric car appears to be a black hole for wasting more
taxpayer money.
We must disabuse ourselves of the propensity to believe that anything can
be accomplished as long as government throws enough money at it. We have
been down this road before with the
fast breeder
nuclear reactor that was supposed to produce more fuel than it
consumed. Billions were wasted. We seem to be doing the same thing today
with wind and solar power, too. There may be an economically rational
niche for these energy technologies, but only the free market will give
us the answer.
Patrick Barron is a private consultant in the banking industry. He
teaches in the Graduate School of Banking at the University of Wisconsin,
Madison, and teaches Austrian economics at the University of Iowa, Iowa
City, Iowa, where he lives with his wife of 40 years.
http://mises.org/daily/4714
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- A 132-Year Payback on the All-Electric Car MJ
