Sunday, September 26, 2010

China & Green Energy

One of my libertarian friends is up in arms about this morning's piece in the NYT by Thomas Friedman. Friedman is disappointed that more money in this country isn't being invested in producing electric cars. He notes that Europe has implemented much higher taxes on gasoline than we have here, and argues that higher taxes here would spur that industry as well.

My friend says that China's protectionism amounts to their "trying to predict the future," and he's right: by subsidizing one industry, they're in effect penalizing others. That strategy gets lucky from time to time, but letting the market make choices almost always works better. However, the market needs correct information to function properly, and if the US is in effect "subsidizing" gasoline by failing to charge users for the full set of costs they impose on society, then the market can't be expected to provide the right outcome.

A few weeks ago, the NYT published a sort of exposé on the Chinese green energy sector, claiming that the government is in effect subsidizing exports, a no-no under World Trade Organization rules. Although in the short term it will lead to cheap solar panels for everyone, which sounds pretty good to me, ultimately it too should lead to inefficiency, as potential competitors are driven out of the industry by the cheap prices. Driving those folks out means fewer jobs here in the US, among other places, which is why the US Steelworkers challenged China at the WTO just a couple of days after the article.

Interesting tradeoffs: cheaper green energy now, subsidized by Chinese taxpayers, at the cost of fewer jobs for us now and potentially higher costs on down the road. "Made in China" sure isn't just for cheap plastic toys anymore!

No comments:

Post a Comment