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More on Obama's economically insane energy plan
Gerard Jackson
*Last week I explained why Obama's energy policy would be an economic disaster. This ruffled the feathers of some Obama groupies, according to whom "there are no such things as economic laws". However, someone by the name of James took a more intelligent stance, arguing that it was clear from my exposition that "to all intents and purposes" I was treating these so-called alternative energy sources as having constant returns to scale.
As anyone with a basic understanding of economics knows, constant returns mean that any increase in inputs results in a proportional increase in output. Therefore if one wishes to double a plant's output one must double the quantity of inputs. From this James concludes that average costs would remain constant thereby invalidating my criticism that rising average costs were unavoidable. James' response immediately brought to mind Alexander Pope's An Essay on Criticism:
A little Learning is a dang'rous Thing;
In other words, study a subject in some depth before pronouncing on it. As I explained in my previous article, because the density of solar energy and wind are so weak solar plants and wind farms require a vast amount of land compared with centralised power generating plants. (Let me make this as simple as I can: You cannot get a quart out of a pint pot). This in itself means that even if constant returns to scale prevail for solar plants their average costs must exceed that of their competitors. But constant returns do not prevail.
The textbook teaches, as do nearly all economists, that we can have increasing returns, constant returns and decreasing returns. All very true. Now students are taught, or they should be, that perfect competition involves constant returns because the factors of production are perfectly divisible. (However, that doesn't stop economists from sticking a u-shaped cost curve in the model). But these economists are assuming that the supply of factors, particularly land and labour, are perfectly elastic, meaning any increase in demand will not lead to an increase in factor prices.
This is impossible. Any attempt at expanding output must lead to an increase in average costs because land and labour cannot be expanded. They must be competed away from other uses. (I have assumed that savings have produced other factors at a rate sufficient to keep their prices constant). Therefore attempts to substitute solar and wind power for power produced by centralised generating plants will inexorably lead to ever rising long run average costs. This an immutable fact, even when we assume, as I did, that these plants would operate at 100 per cent technical efficiency. As we know, the nature of these energy source are such that the optimum output, even if it is achieved, cannot be maintained.
Land and labour is not all that would have to be competed away: so would savings because it is savings that give birth to capital. This means that for these plants to expand they would have to attract capital from other investments and do so at a higher rate of interest. But since they are grossly inefficient economically their construction cannot be undertaken unless they are underwritten by the state. And this is exactly what has been happening for years.
It follows that government intervention on behalf of these phony investments has had a negative effect on investment elsewhere. Eventually, energy intensive industries, underpressure from rising electricity prices, would have to completely close down. Hence the real costs of these alternative energy sources are the investments that would have to be sacrificed to fund them. In other words, there would be an enormous destruction of capital that would make the economy more labour intensive thereby impoverishing it. That Obama has some understanding of this fact was made clear when he confessed in an interview that
if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted.(San Francisco Chronicle, 17 January 2008).
And he has the nerve to call his destructive energy proposal "a jobs bill". In fact the loss of jobs will be staggering with the whole thing becoming the biggest man-made economic disaster in US history if fully implemented. People need to understand that in a free market capital flows to its most productive use as determined by consumer wants. Alternative energy sources fail this test and that is why they have to be imposed by politicians.
Consumers want cheap energy and rising living standards. These alternatives generate expensive unreliable energy that will lead to falling living standards. This means that Obama's energy policy is a recipe for skyrocketing electricity prices. He admitted this fact when he said that under his energy plan "electricity rates would necessarily skyrocket".
Obama's policy is truly insane and amounts to a full frontal assault on American living standards. Yet the media says nothing, which is understandable once we realise how thoroughly corrupt it is. It comes as no surprise to learn that Robert Gibbs, Obama's press secretary, thinks there is nothing wrong with this picture, leading to the conclusion that he is truly dense or simply very corrupt. As expected, Obama's adoring press choir have not seen fit to question it. (There is indeed something very, very strange here).
The response of the Democrats to criticism is to falsely argue that Obama's energy policy will cut pollution and create more high-paying jobs. These are outrageous lies. For starters Co2 is a nutrient. To label it a pollutant is a gross misuse of the language. (Out-and-out lying and weasel language is the order of the day for Democrats and their media clones). It is the ratio of capital to labour that raises living standards. Therefore the lower this ratio the lower will be real wages.
One can only wonder at what drives Obama to pursue policies that would devastate the American economy. Even more peculiar is the large number of Americans who have swallowed his toxic nonsense.
No matter how much self-deception and wishful thinking Obama cultists engage in the laws of nature and economics will always prevail over ideology.
*Why Obama's green energy jobs policy will be an economic nightmare
Study of the effects on employment of public aid to renewable energy sources was produced by Dr. Gabriel Calzada Álvarez PhD, a professor of economics at the Universidad Rey Juan Carlos. This paper destroys Obama's so-called economic claims for a carbon tax. As expected, America's corrupt one-party media chose to ignore it.
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 29 June 2009
Drink deep, or taste not the Pierian Spring:
There shallow Draughts intoxicate the Brain,