Uncle Sugar Bets on Green
The ideas that Bill Gates is positing go against basic laws of economics and finance. Many of those laws aren’t “written law” but hard-wired into the human conscience. That’s another reason why they won’t work which is separate from the question of whether global warming is an issue or not.
Capital Thinking · Issue #786 · View online
I was reading today’s Term Sheet from Fortune. Here is a salient paragraph.
Cleantech is staging a comeback with investors seemingly the most bullish they’ve been on the sector since perhaps the bust from roughly a decade ago.
But a major problem from the cleantech boom of the late 2000s still persists today: The cost of many clean options remains expensive. The price of running an airplane on jet fuel costs about $2.22 per gallon, for instance, while clean biofuel costs a significantly higher $5.35 per gallon, notes Bill Gates in his guest essay for Fortune published Tuesday.
To solve the problem, Gates is proposing an ambitious change not only in the mindset of governments and technologists, but also in investors and financiers.
While investors have long been praised for eking out the highest returns possible, Gates is calling for acceptance of lower monetary returns to benefit the climate.
He wrote in his article: “For example, lenders will need to be willing to finance innovative ideas—with low-cost capital and other financial concessions—that could make clean solutions cheaper.”
Do You Take Less Return to Save The Planet?
Jeff Carter | Points and Figures:
Let’s unpack that a little bit as we think about the states in the US that are without power right now due to a deep freeze. There are rolling blackouts in many states that have embraced green energy.
As I joked with friends yesterday, Milton Friedman said if the government managed the Sahara Desert, in a few years you’d run out of sand. Texas has more energy than any other state and the electrical grid is shut down or sputtering in many places. It proves Friedman’s point.
First, with a Democratic administration that will pass all kinds of regulatory and tax breaks for solar and wind energy, it’s not a surprise that all kinds of funds are being raised to take advantage of Uncle Sugar. I have looked at a fair amount of clean energy deals over the last 20 years, and none of them are profitable unless the government kicks in a subsidy of some kind.
Second is the fact that nuclear energy is the cleanest and greenest of them all. For an on-demand information economy energy source, nuclear cannot be beaten. Hey, it can also heat your home!
The benefit is that it’s cheaper per kilowatt than any other energy source so that if you are a poor or middle-class person, your take-home pay doesn’t go to powering your life and can go to other things. Gates has an error of omission there because the green energy fanatics can’t think out of the box.
Third, is the idea that people will accept less return. What if Gates is 100% wrong about global warming?
What if the planet is just warming because of long natural cycles? What if it has nothing to do with man’s actions? Gates’s idea plunges people into artificial poverty while doing no good.
It’s pretty easy for one of the richest guys on the planet to say something like that. It’s also easy for one of the richest guys on the planet to call for taxes to subsidize the energy he desires (and is probably invested in) so that we all pay.
Higher taxes have no effect on him. He is bulletproof.
The fourth concept is a bit more academic and goes to the core beliefs of many people in Bill Gates’s religious circle-and believe me when I tell you it is a religious circle.Free markets and free-market solutions will solve this problem a lot quicker than any government effort.
Free enterprise, capitalism and the arms-length transactions created by it will solve the issue. That is, if it exists in the first place. If there isn’t a problem, any effort will fail.
Gates tips his hand. He has no core belief in the decentralized free-market system. Especially now that he is one of the Masters of the Universe. I suspect a 20-year-old Bill Gates was fond of the free market system.
I would encourage Gates and anyone to read the old essay, The Economics of a POW Camp by R.A. Radford. Radford was a POW in Stalagluft One. He wrote about what happened after the war.
Essentially, a free-market economy grew out of Red Cross donations. There was no fiat currency, no government-mandated medium of exchange. That shows that people are hard-wired to get gains from trade. We are all utility maximizers.
It raises our standard of living and we have engaged in commerce like this since the beginning of time. When the market economy was made “fair” and regulated, it fell apart. No surprise there since the price system and invisible hand do a much better job than a centralized authority.
As an example, communist countries don’t innovate, they steal from us and implement.
Gates believes in centralized regulated decision-making. That will almost certainly fail when it comes to solving big problems.
Photo credit: Dan Meyers on Unsplash