Monday, September 8, 2008

Negative Externality, The Spanish Prisoner, and "The Plan" Part 2

T Boone's plan. Shut down the natural gas power plants. Convert cars to compressed natural gas (CNG) and replace the 22% of electricity we get from natural gas with wind power from the plains. In plain terms this is a confidence scam in which some people (investors in wind power and conversion specialists) will become very rich by filling in the hidden costs with massive taxpayer support.

Negative externality is a term used to describe the costs not paid by the producer or consumer of goods. Wind energy is the definition of negative externality. I know, most people say that oil is the definition because of the environmental costs...but bear with me.

Wind power on this scale is only viable with massive government subsidies that force (encourage) the producer and consumer to use something they would not otherwise choose. Some people will lose jobs. Others will become very rich. No matter what, an entire industry would be created that never knows what it really costs to produce it's product or what to charge customers to make it a stand-alone enterprise. This disconnect has never worked before because the government is controlling prices. I have heard the "plasma TV" argument and it's total garbage. There was a free market competing to lower prices. For wind energy, this plan lets the government choose winners and losers.

So how is this whole plan like the Spanish Prisoner confidence trick?

The United States plays the role of the wealthy prisoner held hostage by nefarious oil barons.

The confidence trickster (Pickens) has offered us a way to release the US from these barons, IF we supply some of the money to build his scheme. Of course there is a promise that we will be rewarded generously when the prisoner returns. However, once the victims (taxpayers) have turned over our money, we will learn that further difficulties have arisen, requiring more money, and then the trickster continues attempting to get more money until the victim is cleaned out and the process ends, presumably with the victim realizing he has been robbed and that there is neither free electricity, nor any easy rewards.

And what are these difficulties?

1. The natural gas power plants were built where the electricity was needed. The transmission and distribution lines are short and the total system costs are contained within a measurable unit called a utility. So how do we get the power generated in the plains to where it is needed in the big cities that are thousands of miles away? Who pays for this negative externality? What happens to the billions spent on these natural gas plants - many of which are very early in their life cycle? The answer is we do, we do, we do. Billions upon billions in transmission and distribution paid for by the taxpayer while perfectly good natural gas power plants rot in place.

2. Our cars. According to our friends at Car Talk, converting cars to CNG will cost $3,000 to $5,000 dollars. New cars with the CNG upgrade are an extra $3,500 to $7,000. So in this plan, guess who pays for the upgrades. That's right, a magic fairy comes and *poof* free money drops in from the government.

3. While CNG is currently cheaper than gas, only a Marxist would forget that massive adoption of CNG would change the market. And what about the other transmission and distribution market...gas stations? That doesn't currently exist either.

4. Finally, the trickster has us chasing a moving target. Twenty two percent of our electricity is a real number that grows every single year as our economy and population expand. There will never be enough windmills to catch up.

T Boone is a smart man and he has built a coalition of people looking to get rich in a hurry. This scheme is brilliant and plays on so many fears. I think he might just pull it off.

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