Saturday, February 20, 2010

Going Nuclear And Wasting More Taxpayer Money

Anyone who loves freedom and desires a much smaller, less intrusive and less expensive government, has not had a good year or so. The political class, under both Bush and Obama, have made a sham out of our economy and our free market system. Someone once said that: "Capitalism without the threat of bankruptcy and ruin is like Christianity without the threat of Hell." However, that is not what we have in America today. Tens of billions of taxpayer dollars were spent on the bailouts of Chrysler and GM even though it was the mismanagement of those companies that caused them to fall into financial ruins. Major banks took wild, high risk actions on loans that were highly questionable only to have the Federal government bail them out. Insurer AIG has already sucked up almost $200 billion of taxpayer money and was likely used as a funnel for taxpayer money to the big banks balance sheets for their non-due diligence in insuring risky real estate loans. The Federal government had to bail itself out because of its mismanagement of Fannie Mae and Freddie Mac, again wasting billions of taxpayer dollars.

The one thing that all of these entities had in common, the car companies, the banks, the insurance companies, and the government housing entities, was that they took unnecessary risks and made very poor decisions but did not go to business/financial hell, they simply got taxpayers to foot the bill. And we are about to do the same thing again. According to an Associated Press report from February 12, 2010, President Obama will soon announce that the Federal government, using taxpayer money, will provide $54.5 billion in loan guarantees to companies that will build the next set of nuclear energy plants in the country. This amount of money is enough to build about 6-7 new plants and serve 1.4 million people. It should also support full time jobs for 850 people and employ 3,000 construction workers.

Supporters of the loan guarantee state that without the government backing the construction of new nuclear plants, nothing will get done because of the high upfront costs. Critics of the plan state that it is nothing more than another government subsidy of a private industry and that given the history of cost and schedule overruns in the industry, the $54.5 billion price tag might be too low. Some environmentalists also oppose the plan since new nuclear plants will result in additional dangerous nuclear waste, for which the government does not have a plan for safe storage and removal.

The fact that the plants will not get built without a Federal guarantee of loans, as the supporters of Obama's plan claim, should tell you something from a free market perspective. If no one in the private sector is willing to put down the capital and effort to build a new nuclear plant because of the high risks, why do we think it is such a great idea for the Federal government to support and guarantee it with taxpayer money? The economics are still the same and if private industry does not like the economics, it certainly will not be better economics if the Federal government is involved. It sounds a lot like the past year's bailouts, "don't worry, if you fail, we will keep you whole with free taxpayer money." Remember, capitalism without the threat of bankruptcy is like Christianity without the threat of hell.

Plus, is this really the right way to go from an energy strategy perspective? Let's do some math:
  • The Federal government will be on the hook for $54.5 billion which comes out to a per household cost of about $420. Thus, is it a good deal for those millions of households that will not be served by these 6-7 new nuclear plants to put up this amount of their money to subsidize the energy costs for 1.4 million?
  • According to the U.S. census organization, the average U.S. household consists of 2.61 people so that the 1.4 million people that will be served by these new plants will live in only 537,000 homes. Thus, 130 million U.S. households will be theoretically paying $420 each to subsidize 537,000 households, which represents only .4% of all households.
  • As with all government programs, the economic positives, i.e. more jobs, will be focused around the sites of the new nuclear plants. Thus, 6-7 local areas will see new jobs at the expense of the rest of the country.
  • And worse of all does, this make any sense relative to other energy formats? According to an online PBS article associated with its Nova television show, a complete solar energy retrofit they did to a house in southern California cost about $61,500. This retrofit made the house completely solar powered and actually returned excess electrical energy generated by the retrofit into the utility's power grid. Now if we assume that this real life example is a good estimate of the cost to solar retrofit a typical American home, then that $54.5 billion loan guarantee would be able to make about 866,000 U.S. homes cleanly energy independent, 65% more than the number of homes served by the 6-7 new nuclear plants. Seems like a better deal to me.
There a number of additional advantages of using that money for solar retrofits than trying to build highly complex, dangerous nuclear power plants:
  1. First, you can effect more homes than the nuclear approach making any use of taxpayer money more efficient.
  2. Second, you do not have that pesky increase in dangerous radioactive waste that you would have the nuclear power plants.
  3. Third, you would still have a lot of jobs created, countering the jobs needed to run and build the nuclear plants, but those solar manufacturing and installation jobs would be more fairly spread around the country and not focused just around those 6-7 plants.
  4. Fourth, the costs used in the above calculation was for one retrofit. However, if it became worthwhile to do thousands of retrofits, the cost of materials and installation would likely fall dramatically, allowing for more retrofits.
  5. Fifth, what if the $54.5 billion was used to only pay for half the cost of the retrofits and the homeowner was required to put some equity into the retrofit? If so, then the number of clean, solar retrofitted homes could be as high as 1.7 million households, much more than the 536,000 homes served by the nuclear plants.
  6. Fifth, if the taxpayer was going to foot the bill for these retrofits, the costs would be spread out over years and would be incurred as the work was done, it would not be risked in an all or nothing up front bet like the back the nuclear plants. If households wanted to retrofit their house for solar, than part of that $54.5 billion could be used to pay for the retrofit. Money paid when the costs were incurred as opposed to money paid to the nuclear power plant builders, in the form of loan guarantees, before any costs were incurred.
  7. The impact on the nation's energy situation could be almost immediate as home owners started their retrofits with today's technology while it would likely take many years before these nuclear plants are up and running.
As with most government programs, I always wonder if anyone in the political class does the simple math to figure out what the true picture of spending taxpayer money is. (Remember our calculation the other day showing that the Obama stimulus plan cost the country about a quarter of a million dollars to create one job). Same thing here, why risk billions of dollars for an enivornmentally risky solution when some simple math would show a far better, quicker and fairer solution exists? It all comes down to the political class not knowing how to solve any problems. Thus, that is why Step 23 in "Love My Country, Loathe My Government" is so important. Step 23 would put together a panel of smart American experts (akin to historical panels that actually got something done in Washington including the Manhattan Project, the Apollo space mission, the Grace Commission on government, the military base closing commission, etc.) to develop and implement a comprehensive energy strategy for the country, i.e. do the math and analysis.

The political class has been looking at the energy situation in this country since the oil embargoes of the 1970s and has accomplished nothing. Throwing tens of billions of dollars at nuclear power plant construction companies accomplishes nothing without the context of an overall energy strategy and understanding the trade offs between all types of factors. Step 23 would accomplish that feat and if done right, would solve the problem and not waste the taxpayer money doing so.



Visit our website at www.loathemygovernment.com to order an autographed copy of the book, "Love My Country, Loathe My Government -Fifty First Steps To Restoring Our Freedom and Destroying The American Political Class" and to sign up for the cause. The book is also available online at Amazon and Barnes And Noble.

No comments: