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NO MORE CORPORATE BAILOUTS

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NO MORE CORPORATE BAILOUTS
by Peter Roff, January 17, 2019
Nobody has yet figured out the opportunity costs associated with keeping failing companies afloat. There are plenty of politicians who shortsightedly call for an infusion of cash from Uncle Sam anytime an industry is threatened. Surprisingly enough, President Donald Trump is among them.

Unlike his recent predecessors, Trump lacks a clearly articulated economic policy. One could say he’s for “what works,” but that’s not exactly correct. It’s more nuanced than that. He’s for an activist role in economic matters, which explains his support for tariffs against goods coming in from other countries he says harm the U.S.. He believes, therefore, the only way to establish a balance of free trade is to strike at the tariffs imposed on imported U.S. goods with as big a hammer as can be found.

Likewise, there’s the matter of corporate bailouts. While campaigning for president, Trump promised to help bring the coal industry back from the oblivion Obama’s environmental policies had consigned it. Nothing wrong with that, per se. America was once a coal nation. The industry provided good jobs at good wages and was part of the nation’s critical industrial base.

What Trump didn’t mention was the estimated $34 billion price tag that went along with his plans, all of which would be borne by taxpayers.

A leaked U.S. Department of Energy memo from May 2018 described plans to have the government bailout uncompetitive coal and nuclear plants across the country. Companies like FirstEnergy Solutions, which filed for bankruptcy last year, asked the DOE to use its emergency powers to bail out plants. These plants have been rejected by utilities, consumers, and the market for being uneconomical, making any plan by the president to subsidize them a circumvention of the market and public opinion.

The effort to keep these uncompetitive assets functioning is, at best, muddle-headed. The plan to mandate regional energy distributors to prioritize the sale of energy from specified coal and nuclear plants over cheaper options like natural gas or oil is a clear example of the government doing something it shouldn’t.

The idea of a bailout has received considerable pushback. In January, the Federal Energy Regulatory Commission unanimously rejected a proposal by Secretary Rick Perry that asked for preferential treatment of some generating facilities over others, namely nuclear and coal.The White House National Security Council and National Economic Council are also said to be leaning against it, especially the idea that it be done for reasons of national security.

Some in the government are attempting to justify the bailout by insisting “grid resiliency” is lacking across the nation, and that nuclear and coal plants have unique advantages against cyber threats. An assessment from the summer of 2018 from the North American Electric Reliability Corporation says otherwise. Hindering competition is a threat to the nation’s economic security and less competition means higher prices for all.

Picking winners in the marketplace is beyond the scope and authority of the government, or at least it ought to be. Unfortunately, someone may now have their thumb on the scale. Bernard McNamee recently became a member of FERC – a body now divided two to two between Democrats and Republicans following the untimely passing of Chairman Kevin McIntyre.

McNamee’s refused to recuse himself from the discussion should it come before his panel again when, because he worked on the bailout plan while head of policy at the Energy Department, he probably should.

It’s the free market, not government favoritism that creates lasting prosperity. Unleashing America’s natural gas development, as Trump has done, has led to drastically cheaper prices for consumers. As a result, natural gas has become the country’s leading energy resource for power generation. This is simply a function of the market and its success has been reflected in employment and capital investment growth.

It is unfair to disadvantage the domestic energy market by taking opportunity away from leading resources through preferential treatment of uncompetitive plants. The proposed Department of Energy plan undermines American principles of fairness and free market hopes by dumping the cost on taxpayers. Trump should withdraw it.

 

1 COMMENT

  1. Good article. Let’s add cities and states that never funded their pensions and bonded themselves to the limit to the “dont bail out” narrative.

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