Rudy and Romney's Big-Government Energy Plans

Think we need billions of dollars of government spending on energy independence or climate change? First, think about stem cells. The apparent breakthrough in stem cell technology—it appears skin cells can be reprogrammed into stem cells—is not-so-good news for some half-dozen states that have invested in embryonic stem cell research, including California, which has committed to spending $3 billion over 10 years. Essentially, what those states decided to do was engage in a bit of industrial policy. They decided to let government rather than private enterprise and the market decide what the most promising stem cell technologies were. And now they appear to have bet on the wrong technological horse.

Indeed, the history of such efforts has been quite poor. Take Japan, a country many central-planning advocates used to point to as an example of how government can aid certain industries—at least they did before the country's two-decade economic funk. But as William Lewis of the McKinsey Global Institute notes in his marvelous book The Power of Productivity, the success of Japan and its Ministry of International Trade and Industry is mostly myth.

Across a broad of range of manufacturing and service industries in Japan, there are only . . . two instances when MITI's intervention was a significant cause of good economic performance . . . the standardization of the machine tool industry in 1956 . . . and the requirement that to enter the Japanese market in the 1960s, IBM had to share its computer patents with Japanese companies. . . . However, these steps were a long way from the conventional view that MITI was identifying and supporting a broad array of "strategic" industries, and that this action was giving Japan a strategic economic advantage over the United States.

Yet the United States seems bent on following such a path in energy technology, whether to battle "global warming" or to gain energy independence. Both Mitt Romney and Rudy Giuliani, for instance, have called for a government-led national effort akin to the Apollo moon project to gain energy independence. Here is a bit from Romney:

It's going to take what I think Tom Friedman coined as a Manhattan-style project, an Apollo-style project, where we as a nation become serious about investing in technologies that allow us to become energy secure and energy independent.

And a bit from Giuliani:

I think we have to accept the view that scientists have that there is global warming and that humans contribute to that. It's frustrating and really dangerous for us to see money going to our enemies because we have to buy oil from certain countries. We should be supporting all the alternatives. We need a project similar to putting a man on the moon.

"Investing" is government-talk for spending, by the way. No cost estimates yet from those campaigns, but the Apollo Project would cost some $100 billion in today's dollars, while the Manhattan Project (which built the atomic bomb) would cost $140 billion. Hillary Clinton has also put forth an "innovation agenda" heavy on government action. Yet most innovation experts I have talked to think government's role should be limited to ensuring maximum competition and perhaps very broad investments in things like science education.

Indeed, some cynics might see the push for massive energy projects as a high-tech excuse for more corporate welfare or for new government spending that, in reality, is nothing more than the sort of old-fashioned Keynesian "pump priming" that helped lead to out-of-control inflation by the 1970s. Take the Apollo Alliance, which is pushing a $300 billion effort to achieve energy independence. Here is how it describes itself:

The Apollo Alliance is a broad coalition within the labor, environmental, business, urban, and faith communities in support of good jobs and energy independence. It has been endorsed by the AFL-CIO and 23 international labor unions as well as a majority of national environmental organizations. ... The Apollo Alliance is pursuing a $300 billion, public-private program to create three million new, clean energy jobs to free America from foreign oil dependence in ten years. It is a program that reinvests in the competitiveness of American industry, rebuilds our cities, creates good jobs for working families, and ensures good stewardship of both the economy and our natural environment.

You would think that with oil at nearly $100 a barrel, that would be incentive enough for new energy technologies. And, by all accounts, it is. Even $60 a barrel is high enough for that. But it's tough for any politician to say, "Don't worry. The market will provide." Voters demand action. And the 2008 presidential candidates seem intent on providing billions of dollars' worth.

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