The subsidies are in the wind 

Among the economic miracles we have witnessed recently is this: Government creates jobs by, a) taking money from taxpayers, or borrowing, b) giving it to companies inefficiently manufacturing a product made more cheaply by other means, which c) government then forces us to purchase whatever the cost.

As they say in the business world, this is a pretty good gig if you can get it. This is the wind power industry. It is magic, and thriving. It could employ up to 95,000 people soon, its trade association estimates. It is responsible for 7,000 jobs in Iowa alone, according to the president of the United States. It generates much electricity, up to 3 percent of our national supply. “These jobs aren’t a fad, they’re good jobs and sources of pride we need to fight for,” said President Obama, who has spent time recently traversing the Midwest giving speeches in front of windmills. Washington Democratic candidate for governor Jay Inslee makes government encouragement of renewable energy like wind a cornerstone of his economic policy, to create jobs that in turn will increase government revenue and at last balance the state budget. Green, clean energy jobs, are the wave of the future, he says. The clean energy industry is poised to explode, to be as big for Washington as software, as big as the Internet.

There are reasonable people who share this view. Others are skeptics, who wonder what economic value there is in subsidizing expensive, intermittent energy production. Government can create jobs by paying people to dig holes and paying others to fill them in, or it can create jobs by paying people to build industrial wind farms designed for the collection of taxpayer subsidies. Holes don’t make expensive electricity. Beyond that, there isn’t much difference.

In a blustery August this is a campaign issue. The federal production tax credit for new wind energy, 2.2 cents per kilowatt hour, will expire at the end of the year. The president, many Democrats, many Republicans, many states and the wind power industry are anxious it be renewed. Republican presidential candidate Mitt Romney says he would let it expire, and let the windmills compete in the marketplace. If wind energy is economically competitive, then great.

With no tax credit, supporters say, disaster would ensue. Companies that build windmills, that make parts, that transport them and erect them and bring them into production, would lose business and cut jobs, because without the tax credit far fewer wind farms would go up. When the tax credit expired briefly in 2004, that’s just what happened. Not necessarily, say the skeptics, because now half the states have renewable portfolio standards, which force utilities to obtain a certain percentage of power from “renewable” sources, wind being the only source close to feasible. Government creates the market for wind power. That should be plenty.

But government should “jump start” a good job-creating industry, say supporters. The last 20 years of subsidies is a good enough jump, say critics. But government subsidizes oil and gas and coal in many ways, say wind supporters. Right, say skeptics, let’s cut those, too.

Last year in the economics blog Marginal Revolution, economist Alex Tabarrok reported on a briefing memo to President Obama outlining government support for the large, 845-megawatt Shepherds Flat wind farm in Oregon. The federal grants, tax credits, accelerated depreciation, loan guarantees, and the premium price paid for the power because of the state renewable mandate, totaled $1.2 billion. This gave investors a 10 percent equity stake (small) and a 30 percent return (large), with little risk. It’s “corporate welfare masquerading under an environmental rainbow,” he said.

There’s a lot of corporate welfare going around lately. It “creates jobs” in a sense. But if it takes money away from more productive and competitive endeavors, it costs jobs, too. Soon we may know which way the wind blows.