John Hood: Politicians can add but rarely subtract

Sunday, November 15, 2009 3:00 AM  |  Printer friendly version | E-mail to a friend | RALEIGH — It never ceases to amaze me how some politicians do math.

Given North Carolina's recent budget woes and massive federal budget deficits as far as the eye can see, it should be obvious that many lawmakers never learned how to subtract. They just know how to add. But that's not the only computational problem.

There are many North Carolina politicians who genuinely believe that the best way to make our state a more attractive place to do business is to increase the cost of doing business here. They believe that if we raise the price of land, labor, raw materials, and energy, we'll get more business to locate, expand or start up in North Carolina.

These politicians have spent the past decade enacting policies they admit will raise all of these prices. They've raised state and local tax rates, mostly recently by more than $1 billion a year. They've jacked up fees and other regulatory costs to make land development more expensive. They've raised the government-mandated minimum wage and tried to strengthen labor unions, both policies designed to increase the price of labor.

Here's another egregious example. A couple of years ago, the General Assembly enacted a bill requiring that one-eighth of the state's future energy needs be met by "renewable" sources such as wind, solar and firewood. In the meantime, the state is supposed to meet an initial goal of 3 percent "renewable" energy by 2012.

The reason I put "renewable" in quotation marks is that the legislation's definition excludes hydroelectric, which is the only such significant power source at the moment, as well as any future nuclear plants that reprocess their spent fuel, which would be pretty close to a renewable — not to mention a carbon-neutral — source of power.

The reason the state had to mandate the use of "renewables" is that the energy they produce costs a lot more than that currently generated by coal, nuclear and natural gas. For years, companies specializing in solar panels and wind turbines have been lobbying strenuously for Congress or state legislatures to compel electric utilities to buy their products. As Carolina Solar Energy CEO Richard Harkrader candidly told the Triangle Business Journal, "We wouldn't be here" without the 2007 legislation. "For years, utilities wouldn't even talk to us."

Right. It made no business sense. Now, thanks to the General Assembly and former Gov. Mike Easley, the utilities have to talk to generators who charge relatively high prices for relatively unreliable power. Of course, the utilities don't really mind — since the 2007 bill allows them to pass the entire cost of "renewable" energy to their industrial, commercial and residential customers.

Interestingly, supporters of these renewable-portfolio standard don't deny that they've made it more expensive to buy electricity in North Carolina. Their claim is that the state's economy will prosper anyway because of the new "green jobs" that will be created.

That's a lot like saying that it's economically beneficial for street punks to break the windows in your neighborhood, because of all the jobs it will create for glaziers and window-repair firms. Indeed, this way of thinking is actually known as the broken-window fallacy, based on the original insight by 19th century French economist Frederic Bastiat.

He observed that if you consider only what is easily seen, you will conclude that breaking windows is an economic stimulus. But what isn't so easily seen? The money homeowners must pay to replace their windows is money that they can't spend on groceries, clothes, transportation or other goods and services. These industries lose income and employment at the same time that glaziers and repairmen gain income and employment.

In the case of energy, policies that create an artificial demand for "renewables" make some people wealthier at the expense of everyone else. They help raise the cost of doing business in North Carolina, taking us in precisely the wrong direction.

Big-government politicians know how to add cost and divide fixed economic pies.

What we really need are politicians who know how to subtract cost and multiply the number of pies.

- - -

John Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.