Business Ethos Blog

Free Markets versus Subsidies

Dr. David Mielke, Retired Dean, College of Business at Eastern Michigan University

We have heard a lot about the huge increase of natural gas production in the U.S.  This has resulted in lower cost heating and cooling for consumers and a switch from coal fired electricity to natural gas.  Menards has just started flying 50 people to Minot, North Dakota from Wisconsin on a weekly basis to work in their store because the gas and oil boom has created such a worker shortage.  The company pays all expenses including food and housing and $13 an hour.  In the meantime, we continue to hear of the problems in the subsidized car battery, solar, wind and ethanol industries.  As we look forward to the ongoing need for energy at reasonable cost what is the “Right Thing to do”, allow the free markets to work or continue to provide subsidies to alternative energy projects?  Let’s look at some issues:


1. The surging gas industry has led the drilling industry to look for new markets and one of the most promising is transportation.  We have all seen buses around our area run on natural gas.  Natural gas is a cheaper, cleaner-burning alternative to gasoline and diesel.


2. The economics for natural gas as a transportation fuel are compelling.  Natural gas costs about $1.50 to $2 per gallon equivalent less than gasoline and diesel.


3. Fleet managers such as AT&T, Waste Management and UPS are converting all or parts of their fleets to natural gas, as are transit agencies, municipalities and state governments.


4. Waste Management, the nation’s largest trash hauler, has committed to replacing 80% of its fleet with trucks powered by natural gas.  One district manager states that the converted vehicles are quieter, easier to maintain and cut fuel costs almost 50%.


5. Natural gas powered vehicles are not new and the technology is not subsidized.  This is not experimental.  The biggest roadblock now for widespread use is the in-availability of fueling stations.


6.  We have heard about the bankruptcy of one of the “poster child” electric car battery companies, AA123.  The company received millions in tax credits.  The Johnson Controls battery division in west Michigan, again subsidized by millions of tax dollars, has not opened.  Battery powered vehicles are not selling despite up to $10,000 in tax credits for those who purchase the vehicles.


7. We have heard of Solyndra and the solar company’s bankruptcy.


8.  We are using almost 50% of our corn crop at a time of high prices and shortages to produce mandated ethanol—at higher prices.


By comparison, let’s look at the difference between what the free market has developed versus the government subsidized energy companies.  We have a highly successful natural gas boom producing thousands of new jobs, producing a fuel that burns cleaner and cheaper at no cost to taxpayers.  In the meantime we have government subsidized failures that have not only cost taxpayers millions, but those that do operate are subsidized and in many cases increase the costs to consumers.  What is the “Right Thing to do”, allow the free markets to operate and develop energy solutions that are viable, or have government interfere, subsidize projects which are not economically viable and cost taxpayers millions?  I think the answer is obvious.