Texas vs. the future

Bob Herbert has a decent column about how China is beating the U.S. in the race for solar energy. An excerpt:

Way back in 1979, in the midst of an energy crisis, Jimmy Carter had solar panels installed on the roof of the White House. They were used to heat water for some White House staffers.

“A generation from now,” said Mr. Carter, “this solar heater can either be a curiosity, a museum piece, an example of a road not taken, or it can be a small part of one of the greatest and most exciting adventures ever undertaken by the American people, harnessing the power of the sun to enrich our lives as we move away from our crippling dependence on foreign oil.”

Ronald Reagan had the panels taken down.

The column is only "decent" because it ignores an important fact: China is winning the solar race because of massive state (and state-backed) spending. Most of China's solar investment will take a loss. The government is willing to take that loss because it is gambling that it can force China to become a leader a technology that it thinks will be the wave of the future. It's a case of old-school industrial policy - a government trying to outsmart the market*.

In America, we generally take pride in the fact that we don't go in for such nonsense - we let the market decide which technology will win the day. If solar PV never becomes the cheapest form of energy - say, if fusion supersedes it, or resource limitations keep costs high forever - then China will have wasted a lot of coin. The instant solar PV looks like it will become economical in the forseeable future, goes the argument, we'll jump on the bandwagon, and not one second before.

There's a couple problems with this argument. First, of course, there's the global warming externality; it may be worth it to switch to solar even if that makes costs rise. But even more disturbing, from where I sit, is the unappreciated fact that America is subject to government market distortions - those distortions just happen to be in the opposite direction from China's. Our government is bent on holding back the adoption of renewable energy.

Note the quote from the Herbert column. Ronald Reagan didn't take the solar panels down because they were un-economical (after all, how much of spending on the White House is justified by a cost-benefit analysis?). He took them down for the sake of symbolism - to say "screw you" to everyone who thought solar energy was an important thing.

Why did he do this? Was it to promote optimism - to reassure Americans that no big changes were needed in order for us to preserve our traditional oil-powered way of life? Maybe. But maybe it was done in order to keep the faith with his political backers - namely, the state of Texas and its Oilocracy.

It is no secret that Texas oilmen and oil companies have long bankrolled the conservative movement. To this, add the fact that Texas is by far the most populous reliably conservative state, and is is pretty unsurprising that so many GOP leaders and opinion-makers of the last few decades (George Bush, Dick Cheney, Tom DeLay, Dick Armey, Phil Gramm, Ron Paul, Paul Ryan) have been Texans, and that oil companies like Halliburton and Enron have benefited quite visibly from their GOP connections. Anything that even vaguely threatens or derides the supremacy of oil as an energy source is a threat to the GOP's heartland.

The coming of peak oil will not necessarily be bad for Texas' oil industry. Many of Texas' "oil companies" are actually oil-services companies; Halliburton, Schlumberger, et. al. are tech firms that help the owners of oil fields find the black stuff and cheaply get it out of the ground. The big oil majors (ExxonMobil) have basically been moving in this direction as well, as nationalization of oil resources threatens their traditional business of buying and draining oil fields. This means that high oil prices have been great for Texas' economy, creating a bonanza that has spilled over into Texas' local economy and allowed many conservatives to trumpet the state as a success story for business-friendly and free-market policies. If peak oil drives costs and prices even higher, and makes oil ever more difficult (but still profitable) to get out of the ground, the world will depend for its daily bread on the skill and technology of Texas.

But if and when costlier oil finally drives us to adopt alternative energy, Texas' oil business will be out in the cold. And so will the Republican party, the conservative movement, and the myth of Texas as a paragon of good policy. A shift to solar will do to Texas and the Reaganites what Japanese car companies did to Michigan and the unions**. That is why Ronald Reagan took down those panels. That is why Republicans consistently oppose research into solar energy while dishing out billions in subsidies to the oil industry - not to signal devotion to the free market, but to hold back the tide of technological change for the benefit of a politically important regional economy.

Rich, successful societies can become wedded to their traditional ways of doing things, long after those old ways have lost their utility. Vested interests become entrenched, institutional momentum takes over. That's what gives newer, less vested civilizations the chance to leapfrog the old. This often plays out in the military arena, as when British battleships - the darlings of the tradition-minded naval elite - were blasted out of the water by shiny new Japanese aircraft carriers. But it can happen in the economic arena as well, such as when big Japanese companies pressured the government to help them resist the digital revolution in the 90s (to the nation's woe).

If and when oil finally goes the way of whale oil as an energy source, we may indeed find ourselves playing catch-up to the Chinese - not because we trusted in the free market, but because we distorted the market to preserve the power of Texas.

*Governments do occasionally beat the market in adopting new technologies ahead of the curve; usually, though, their record is poor, which makes one wonder how much of the successes was due to luck.

**Some may point out that Texas has diversified away from the oil industry, and in fact this is true. But they said Dubai had diversified too. Anyone who thinks a major shock to what is still Texas' biggest export industry will not make its way through the rest of Texas' economy is kidding themselves.