Tuesday, April 12, 2011

California Descends Deeper Into Self-Destruction

California — it’s the best place to live and it’s the worst place to live. The physical climate is almost ideal and the political climate, if you’re a conservative, is surreal. Through their politicians and bureaucrats Californians seem hell bent on destroying the state’s vast potential. It’s a painful sight to witness.

The latest, all too typical, example is a law signed by Governor Jerry Brown last week mandating new renewable energy requirements for electric utilities in the state. The new law requires that 33 percent of electricity generated be done with “renewable” sources, essentially wind mills and solar panels, by the end of the year 2020. What’s the objective of this “ambitious” new regulation?

To answer that question you first need to understand that California has a wildly inflated sense of self-importance. Californians actually believe they have the ability and duty to save the planet. Humility is clearly not their strong suit.

California has a population of roughly 37 million. That is barely half of one percent of the world’s population. If Californians reduce their “carbon footprint” by a third (a very tall order), that will reduce humanity’s carbon footprint by one sixth of one percent. I hate to tell my fellow Californians, but there is no way on earth that will make an iota’s worth of difference.

Some Californians will point out, however, that that misses the point. Because they think California is the center of the universe, what happens here will change behavior and attitudes throughout the world. California is a place where self-esteem has run amok.

At the signing ceremony Governor Brown said, “It’s about California leading the country. It’s America leading the world. There are people who think we can drill our way to happiness and prosperity. Instead of taking oil from thousands of miles away, we’re taking the sun and converting it.” Brown went on to say quite proudly, “I didn’t get my name ‘Governor Moonbeam’ for nothing.”

A recent Public Utilities Commission study found that previously imposed renewable energy regulations have added $6 billion to what utilities have had to spend generating electricity since 2002. Has there been any measurable or identifiable benefit for spending that unnecessary $6 billion? The benefit-cost ratio of those expenditures is a close to zero as it’s possible to get. This has been absolute folly and we are about to multiply it by who knows how much.

Such costs are even worse than increasing taxes. Taxes at least have the potential to create value when spent on, for example, teachers’ salaries. Taxes redistribute wealth, mandates destroy wealth.

When the utilities are forced to buy several times more power generated by windmills and solar panels, the price is bound to go through the roof. Not to worry, however. The new law further requires the utilities commission to place limits on how much can be spent on renewable power. When one kind of coercion isn’t enough, follow up with another kind of coercion. Of course, the only real result of a price ceiling is to create shortages. Shortages do even more economic damage than rising prices. Keep passing laws until the entire economy is in a straightjacket. One interference with the market always necessitates another, as Fredrich Hayek demonstrated long ago in The Road to Serfdom.

As is usually the case (Obamacare, for example), the spineless lawmakers left the ugly details to the bureaucrats. According to public utilities commissioner Mike Florio, “Our staff is already figuring out what we’ll need to do. It’s clearly a priority for the state, so we’ll get it done as fast as possible.” The politicians and the bureaucrats have not the vaguest idea what they’re doing. They know nothing about what’s involved in providing electricity to the state’s residents and businesses, and they don’t really see why they need to.

The legislation demonstrates the liberal faith in and willingness to use force. The assumption is that solar panels and windmills can suddenly increase their output just because a law has been passed. It’s not that simple. The politicians have no more understanding about how technology works than they do about how the economy works.

If it’s California’s responsibility to save the world, and if force works, why such a modest target? Why not, for example, a 100 percent renewable requirement by 2015? The 33 percent mandate by the end of 2020 is totally arbitrary. How was it arrived at? When you’re operating in a realm where costs don’t matter and objectives are utopian, numbers are a mere afterthought. The targets are unlikely to be achieved even after billions of dollars have been squandered. According to Gino DiCaro, spokesman for the California Manufacturers and Technology Association, industry in California already pays electricity rates about 50 percent higher than the rest of the country. That, of course, is one of the reasons for the exodus of businesses from the state.

Although California politicians fail utterly in their basic responsibilities—balancing a budget, for example—they arrogantly believe they can save the planet. Their attitude is, “We can’t possibly focus on the state’s economy. We’re too busy stopping global warming!” Just as they recklessly overpromise on government-employee pensions, they overpromise on their ability to cure the world’s maladies.

In a spot-on Wall Street Journal column last year entitled “California: The Lindsay Lohan of States,” Allysia Finley (a former resident of California) pointed out that our government here is being “run by a brothel of environmentalists, lawyers, public-sector unions and legislative bums.” Her article followed the November elections that made California a one-party state. She said the state is like “a prima donna who once showed some talent but is now too wasted to do anything with it.” I fervently wish her words weren’t so true. As a resident of California, it breaks my heart to see the state’s vast potential being squandered. As an economist it pains me to see resources so grossly misallocated and wasted on such a massive scale.

I wish this self-destructive behavior were confined to California. Ominously, the renewable mandate signing ceremony was attended by U.S. Energy Secretary Steven Chu. It isn’t often a state-level bill signing is attended by a U.S. cabinet officer. The Obama administration obviously believes California’s lunacy is just what the rest of the country needs. God help us.


California Descends Deeper Into Self-Destruction April 21, 2011

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

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