Thursday, October 25, 2007

Nuclear Energy and Loan Guarantees, Part III

In our final installment on nuclear energy and loan guarantees, Richard Myers, NEI's Vice President of Policy Development, explains why subsidies aren't a four-letter word in American political history.

Subsidy Is Not A Four-Letter Word

Can we talk about subsidies?

In our last post, we took issue with the anti-nuclear refrain – “massive subsidies for the nuclear power industry” – and showed that the energy loan guarantee program is self-financing and clearly not a subsidy.

But this unrestrained use of the word “subsidy” troubles me. I can’t think of another word in the English language that is so overused or so misused. Overused to the point of being meaningless, misused as a slur, and employed selectively when it suits the user’s narrow self-interest.

Think about it: Is there anything in American life that is not subsidized, and appropriately so? We subsidize higher education and production of agricultural products. We subsidize home ownership through the mortgage interest deduction. We use loan guarantee programs to subsidize exports of U.S. goods and services (through the Export-Import Bank and the Overseas Private Investment Corporation). We also use loan guarantee programs to subsidize shipbuilding, steelmaking, rural electrification, and construction of critical transportation infrastructure like subway systems, toll roads, waterways and airports. In fact, the federal government manages a loan guarantee portfolio of approximately $1.1 trillion which, on balance, returns more to the Treasury than it costs the taxpayer.

We use the tax code to subsidize certain forms of behavior that deserve encouragement. The 2005 energy legislation provided several billion dollars of investment tax credits to certain clean coal technologies (because it’s in the public interest to deploy technologies that burn coal with lower emissions). The same legislation reduced the depreciation period for investments in new electric transmission facilities (because the nation desperately needs additional long-haul transmission to maintain the reliability of electric service across the country). And it allowed shorter depreciation for pollution control equipment on power plants (because it’s in the public interest to have cleaner air).

We provide subsidies in various ways either to offset market imperfections that preclude the flow of capital to certain activities that serve the common good and general welfare, or to encourage activities that are in society’s general interest. Are there abuses? Probably. But the benefits far outweigh those costs.

So be on your guard the next time you hear someone start tossing around the word “subsidy.” Odds are that he or she has an ax to grind. Odds are that he or she is perfectly content to accept subsidies that work to his or her benefit, like the mortgage interest deduction. They selectively pick and choose, opposing only those subsidies they don’t like for whatever reason.

One final thought: “[I]t is the interest of the society … to submit to a temporary expense, which is more than compensated by an increase of industry and wealth, by an augmentation of resources and independence, and by the circumstance of eventual cheapness ….”

That was written by Alexander Hamilton in his Report on Manufactures, published in December 1791. The same Alexander Hamilton who was first Secretary of the Treasury under President Washington, founded the national bank, and was one of the two chief authors of the Federalist Papers. The same Hamilton whose likeness appears on the $10 bill.

When Bonnie Raitt, Jackson Browne or any of the other anti-nuclear activists who are so concerned about “massive subsidies” say anything, write anything or produce anything of sufficient value to earn a place on the $10 bill (or even the penny), then I might be inclined to credit seriously their opinions about nuclear power, loan guarantees, subsidies, and energy and economic policy.

But until then …

Previously:
Part I
Part II

No comments: