17 May 2008

Sachs the Planner

Jeffrey Sachs, friend to Bono, travel buddy to Angelina, has got some screws loose. In this article he advocates not only industrial policy (government money will save the day! governments know how to pick winners!) but also makes a number of factual errors (e.g., limited supplies of coal). After mentioning his favorite "solutions" (solar power, plug-in hybrids, carbon capture and sequestration), Sachs goes on to lament a lack of investment into his babies, i.e.,
For all of these promising technologies, governments should be investing in the science and high costs of early-stage testing. Without at least partial public financing, the uptake of these new technologies will be slow and uneven. Indeed, most major technologies that we now take for granted – airplanes, computers, the Internet, and new medicines, to name but a few – received crucial public financing in the early stages of development and deployment.
In this paragraph, he is wrong twice. First, because government need not make any investment in any technologies. New energy technologies will receive a flood of investments (and already are) in response to higher energy prices. Government investment will not only crowd out private investment (the government doesn't want a return on its money) but will also (probably) back the wrong technologies -- giving us distorted results and screwing everything up (remember the ethanol "solution"? Yep -- it's still screwing things up.)

Second, Sachs's examples (airplanes, computers, internet and medicines) are mostly examples of technologies related to military spending. (Did the government back Viagra?) The military is not known for its investment prowess or usefulness -- witness the $billions thrown at nuclear weapons that have not made life better for any of us.*

Bottom Line: Sachs, as usual, thinks that big projects by central planners paid with your tax dollars are the solution to problems with energy supplies and global warming. He's wrong. The solution is to tax carbon and allow competition in the free market to find ways of minimizing those taxes.

* Unless you include 40-years of mutually-assured-destruction. If you want to go there, let's start talking about CIA-backed coups, etc. On second thought, let's not.

1 comment:

  1. David,

    Without going into specific part of your criticism of Sachs, I want to point out that "technology" or "technological progress" in a broad sense is a public good. Public goods can never be efficiently supplied by private markets. A similar and related example is education.

    The ONLY solution is for a central co-ordinator to step in and correct this failure. You, as a recently certified PhD economist, should know this.

    As regards to your ethanol example, it is misleading. A subsidy to a specific industry is not the same as competitively granted funds for R&D (e.g., through NSF).

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