The infant-industry argument claims that tariff protection is needed so that fledgling industries can grow up and fend for themselves. History taught us that these industries rarely, if ever, grow up. Today, due to the rules of the World Trade Organization, tariff protection is no longer a viable policy tool. So what’s an infant industry to do? Seek subsidies, of course.
The year 2012 marked the 20th year of subsidies for the U.S. wind-energy industry. After twenty years of subsidies, the industry remains in diapers. I became personally involved with wind energy when I explored the installation of a wind turbine on my property in northern Minnesota. Turns out that even with a 50 percent subsidy—30 percent from the federal government and 20 percent from the state—the personal investment would still lose money.
The infant solar cell company, Solyndra, cost taxpayers around $385 million in losses from federal loan guarantees. Fortunately for taxpayers, Solyndra lasted only a few years before going belly up otherwise she might have been on the public dole for years to come.
Energy subsidies do not stop with the infants. Subsidies go to the mature gas and oil industries and are estimated to be around $41 billion annually. Ivan Eland estimates in No War for Oil (The Independent Institute, 2011) that adding the cost of “protecting” the Persian Gulf to our price of gasoline might add another $5 to each gallon.
All the subsidies going to the energy sector, both hidden and explicit, have two things in common. First, they distort the true cost of energy, lowering the price and leading to inefficient overconsumption. Second, they provide politicians with grateful friends who fill campaign coffers with cash to keep the bad-policy machine well lubricated.