July 19, 2010
The economy remains weak and the administration’s stimulus has been a bust. To counter the growing unpopularity of his economic policies, the president is traveling around the country handing out government checks to anointed industries.
Last week, the president stopped in Michigan to herald a $150 million federal grant for a new plant that will produce advanced batteries for electric vehicles. The administration says constructing the plant will create 300 permanent jobs. That’s a pricey $500,000 per job.
The Michigan grant is part of $5 billion in subsidies to develop a domestic industry for advanced batteries and electric vehicles. The current U.S. share of the advanced battery market is only 2 percent, with most being built in Asia. But as a Washington Post article notes, there’s already a global glut of advanced batteries:
Major manufacturers have yet to sell electric cars in the United States. Hybrids, though they have been around for a decade, represent less than 1 percent of the nation’s roughly 250 million-vehicle fleet. “The battery story is highly questionable,” said Menahem Anderman, the founder and chief executive of Total Battery Consulting. “Basically, there’s really no proven market, neither electric vehicle nor plug-in hybrid electric vehicle – and there’s really no battery company in the United States that has a verified product.”
Although U.S. battery makers could export their products, the global market is glutted, according to analysts. Anderman said global capacity to build car batteries in 2014 will be three times greater than demand that year. Even some of the U.S. companies that have received the federal grants express concerns that their capacity to build parts for electric cars is far outstripping consumers’ demand.
To spur demand, the government is offering a generous $7,500 tax credit to purchasers of electric vehicles. The Obama strategy is reminiscent of Kevin Costner’s character in the movie Field of Dreams: “Subsidize it and they will come.” But will they? Right now there’s no evidence.
A Cato essay points out that energy subsidies “may even be actively damaging to our energy future by steering markets in the wrong direction, away from the best long-term energy solutions.” Both the Clinton and Bush administrations spent billions subsidizing the development of alternative fuel vehicles, but there’s little to show for the taxpayer money expended. What makes the central planners in the Obama administration think they can do any better?
The president told the Michigan audience that “Our goal has never been to create a government program, but to unleash private sector growth and we are seeing results.” The problem isn’t just that the administration is creating more government programs; it’s that the president apparently believes that the private sector can’t be “unleashed” without subsidies.
Unleashing the private sector to develop the next generations of vehicles requires that manufacturers take their signals from the marketplace rather than bureaucrats and politicians. If Washington insists on helping, it can start by lowering taxes and reducing regulatory barriers.
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