Let the Market Build EV Stations

President Biden's recent Jobs Act proposal  includes $174 billion to "win the EV market." This money will go towards supporting domestic supply chains for EVs, updating factories, and building batteries and EVs, replace 50,000 diesel transit vehicles and electrify 20% of school buses. Interestingly, it will "establish grant and incentive programs...to build a national network of 500,000 EV charges by 2030."

First some facts. There are currently 1.8 million EVs on US roads, and 100,000 charging points at 41,000 public locations. This does not include the primary way EV owners charge their car, at home. 80% of car charging takes place at the driver's home. EVs make up less than 1% of the 276 million cars in US. 

Granted, EVs make up a larger percentage (3%) of annual, new car sales, and a percentage that is expected to grow. Some experts predict there will be 35 million EVs on the road by 2030.

There's no question that there will be a need for additional charging stations as the decade progresses, but there's a huge question as to why it's necessary for the federal government to spend money to build them. To begin with, there's no market failure here; the market can solve this problem and it's done so before. There's another type of vehicle that can transport 1-5 people across roads which requires periodic replenishments of a fuel source. Unlike an EV, though, the fuel source it runs is not available in everyone's home, but must be obtained at special stations that are designed to supply it. 

There are more than 100,000 gas stations in the United States. These gas stations were built by private companies across the country to satisfy the demand for gasoline. They were a natural evolution of market forces. As more people bought cars, more people needed gasoline, so more gasoline stations were built. The stations weren't distributed evenly across the 50 states, but were distributed according to demand for them so that the current network provides enough gasoline at just the right places so that drivers can drive as they please.

This was all done without a $174 billion dollar jobs plan providing incentives and grants. There is no reason one is needed for electricity charging stations. This is contrary to Noah Smith who claims that there's private companies cannot do on their own.

The only reason one may be needed is because the market won't solve this problem as fast as some people want. I would quibble with whether that is a need, but that at least is a rationale. In fact, one could make the case that it's a good idea to front money that we know will be spent anyway, but that's only under very narrow circumstances. The fronted money must be allocated in a way to ensure that it is merely accelerating what would have already happened and not direct funds wastefully.

From Business Insider:

EVgo's Levy, who has held positions at the Department of Energy and in the Obama White House, says there are risks to building too many charging stations too quickly. Charging infrastructure needs to stay just ahead of EV ownership and demand, not drastically outpace it, he says.

That's because overbuilding can crater the economics of the charging business, he said, leading to large numbers of stations that are underutilized and unprofitable to operate.

It's a mistake that's been made in the past — with significant consequences. As part of the 2009 Recovery Act, the Department of Energy allocated $100 million in grants to a company named Ecotality to construct more than 10,000 charging stations. Four years later, Ecotality filed for bankruptcy. An audit from that year found that demand for EVs hadn't grown as quickly as anticipated, and that the majority of the commercial charging stations Ecotality had built suffered from low usage.

No one can predict the future, especially ten years out. Perhaps there will be this much demand for electric cars, but it may be significantly lower or higher. Different areas of country will have different levels of take-up. Different areas will have different propensities for short-distance travel versus long-distance travel. The former can be accommodated through at-home charging. There are a thousand questions that must be answered to know how many charging points will be needed and where they will be most beneficial. The market answers those questions. Government cannot possibly simultaneously consider all of these factors and evolve as rapidly. This is why there must be a high bar for government involvement and someone needs to consider carefully whether the benefits will outweigh the costs.

To ensure alignment with demand and supply considerations, the best way to structure this money is in the form of loans, not grants. With loans, the borrowers have a much stronger incentive to choose carefully. As the above shows, even with loans, many companies went bankrupt. Does anyone believe that throwing money at companies will lead to better results than loans? Does anyone have confidence that the government has learned from its mistakes and that it won't let political considerations cloud investment decisions? 

$174 billion comes out to more than $500 for every American. If money had to be allocated by asking each American to put in $500 to achieve these goals, how many would vote yes? What lesson should we learn from the idea that Democrats want to pass something that a majority of Americans wouldn't pay for themselves if they had to? To be sure, Americans don't think the costs will come out of their pocket; they support the proposal because the benefits are $500 and the perceived costs to them are much lower.

Why We Don't Build

Ezra Klein is out with a characteristically one-sided take on 'Why We Don't Build'. A question that Marc Andreesen asked.

Klein's answer can be summed up with:

1. Too much agreement is needed for action
2. Local Interests have too much veto power.
2. Republicans want government to fail so build poorly.
4. Corporations are too short-term oriented.

1. While Klein begins by talking about how the branches of government need to be aligned and then on the filibuster, he eventually comes to the real reason: there is very little compromise between the parties. When one party has power, the other party doesn't deal with them. Both prefer to do nothing rather than let the other side have its way. He points out several, bipartisan examples: privatizing Social Security and funding vouchers for Republicans and the left can't increase the federal minimum wage or pass a climate bill. Neither side can pass immigration reform. (Side note: the closest Congress came was in the second term of George W. Bush. He had a compromise ready that Republicans would sign onto but Democrats poisoned the bill to prevent it). When both sides prefer complete obstruction in hopes that they'll eventually have power, the ability to progress is severely hampered.

2. There's too much resistance from locals to any sort of change and from special interests. Klein packs a lot into this and elides some of the other issues involved here. "This is representative democracy at its worst: A democracy that only represents those who know to show up at meetings most people never hear about, and so ends up handing power to special interests and aggrieved NIMBYs." The problem here is that the powers that be are too focused on making a narrow segment of the population happy. He cites both the Himalayan costs of the California high speed rail project and NYC subways to build. Both are famously outrageous. While he concentrates on their veto power, it isn't just the veto power at play. They also have the power to increase costs. Part of the reason the California rail project was so expensive was that local politicians wanted things to run through their area, which prevented the ideal rail line from being built. This increased costs. Environmental impact studies and preventions. Laws that required union labor at higher costs or American equipment. All of these increase costs without increasing the value of what's being built. Another problem here is that it's public money and everyone views it as an infinite resource that they deserve a piece of.

He's right though that this is fundamentally a product of too much democracy and. He says "government power is now spread so thin that places...cannot get good projects off the ground." It's not that power is spread too thin, it's that political pressure is coming from narrow interests and does not reflect the public interest and the government is too conciliatory to it. Klein speaks of Robert Moses, but the benefit of his style of government is that he could bypass the special interests and ignore them. The special interests are the groups damaging the system and need less stature in the public arena.

3. Unhappy that he has criticized the left as much as he has, he goes on to criticize Republicans in an act of moral equivalency. He claims that Republicans want government to fail so act to sabotage it. He gives one example, so I only need to give one example to counter him. While President Trump has been in office, the IRS has worked to make American's lives easier: they restructured the 1040 form so it would fit on one page and also restructured the Withholding forms. These were not attempts to make government work poorly. In fact, if Republicans really wanted bad governance to make people lose faith in government, there would be myriad examples and studies. Does Texas, the exemplar red state, really have worse governance than other states? Yet millions of people move there anyway? This is a canard that the left loves to throw out with anecdotal examples, of which there are probably examples of Democrats making government worse.

4. Finally, he bemoans capitalism. It is unclear what his point is here. First he points out that private interests don't build things they don't need like masks and ventilators pre-2020. Then, he discusses Obama's "wildly successful" loan program for renewable energy. It "turned a profit to taxpayers" despite its publicized busts. This example seems extraneous so he can talk about the government being a smart lender and Obama being a brilliant person. His point is that the government is too conservative an investor and therefore private industry is too. This is another anecdotal piece of information. Corporate investments fail all the time and are accepted as a part of doing business, while government investments fail and are typically ignored. Again, no study here, just a hand-picked example.

"Short-term shareholder capitalism acts as a kind of vetocracy on public companies." The fact that corporations are too short-term oriented is another canard put out there by the left. On hearing it, it's extremely easy to nod in agreement because it makes sense at a very superficial level, but when you really sit and think about it, there's no way it can be true. He even gives a great counter-example himself, maybe the best--Amazon. Amazon is famous for eschewing short-term profits in hopes of long-term growth. He dismisses this as an "exception that infuriates the rules." Amazon is not an "exception", it's an extreme. Most companies are looking long-term. Look at the Dow Jones Index components. How many of those companies have been there for a decade? Think of a corporation off the top of your head. Think of ten. Do you really believe that they put short-term growth over long-term growth? While you can think of examples of corporations making terrible, costly errors, it's doubtful you can think of examples that they put short-term growth ahead of long-term. Boeing made an enormous error recently. But the error they made was not that "We know this is unsafe and will lead to huge losses in a year, but, hey, we'll make money this quarter!" They made the error of thinking that their plane was safer than it actually was. There's no way they expected that the problematic plane was going to end up costing them billions of dollars. Imagine you could ask a Fortune 500 CEO (and get an honest answer) if they would fire a significant portion of their workforce in charge of developing new products so that they could focus on their current hot-product. I would venture that no CEO would sacrifice their long-term growth capability for the short-term boost. The left loves to believe otherwise.

Underlying these arguments from Klein and Andreesen, though, is the false assumption that America doesn't build anymore. There is no place in the world as innovative as the United States. A lot of that innovation is digital, but not all of it. Even if all of it was digital, though, what would be wrong with that? As far as physical goods, the US is manufacturing more than it ever has before. High quality, US-made clothing has found a large market selling online. While some goods have moved overseas, the argument that the US doesn't build anymore simply isn't true. Look at Tesla, just as one example.

Klein and his ilk think that insofar as the government or private industry don't build or invest in what they think we should, it's a market failure. Klein wants the US to spend more money on infrastructure and green energy. It's important to question whether Klein is unhappy because America doesn't build or because America doesn't build what he wants us to build. He ignores the issue that what he wants is costly. Neither high speed rail nor subway systems are market-driven. Their usage will never pay for their construction, but need to be subsidized even while in operation. Electric cars are subsidized; green energy is subsidized. Even with these subsidies, Klein believes there needs to be more. Where infrastructure makes economic sense--broadband and 5G networks--these things are being built, without government assistance. Klein should consider why this infrastructure gets built while other does not.

Finally Klein ignores one last important detail about infrastructure--the fact that politicians have expanded spending at all levels of government for items other than infrastructure, leaving less money for it. Infrastructure is built both at the federal level and state level. Another question he could ask is why aren't states building more infrastructure? The answer is likely because a growing portion of their budgets is going to Medicaid, and no state wants to raise taxes. At the federal level, more and more money goes to Medicare and Medicaid and Social Security. The federal debt increases every year. He has committed the same error that every Democrat commits-calling  for increased spending without considering the fact that without calling for tax increases, budgets are finite.

Spend More on Infrastructure - Now Now Now

Liberals have continued to beat the drum about infrastructure spending. Basically the argument is that our roads and bridges are in extreme cases of disrepair and interest rates are bargain-basement level, so we should do it now.

There's a great edition of EconTalk with a debate between libertarian Russ Roberts and Keynesian Robert Frank. There's one major point that Russ kind of hinted at, but didn't develop enough. The point is that the government (all levels) spends $350 Billion/yr on infrastructure and to make the case that Orszag and Frank want to make, they have to argue that what we currently spend isn't enough. Instead, they just say that infrastructure needs funding.

A reasoned argument would be we need to spend $X on infrastructure, and we're currently spending $Y so we need to increase spending by $(X-Y). Their argument is "We need to spend $X on infrastructure and it doesn't cost very much to borrow $X right now, so let's do it."

On top of that, as Russ alludes to, at all levels of government we spend $5-6T, the pro-infrastructure argument has to include the point that we can't afford to reduce spending on anything else--infrastructure spending is the least important item we spend money on. Otherwise, we should reduce spending elsewhere and reassign it to infrastructure.

This is another trick Democrats use when talking about spending. They never, ever compare spending on different programs; everything's urgent and critical--healthcare, social security, infrastructure, research, education--and all equally so. Libertarians have to change the terms of these debates to include prioritizing budget items.