Republican plan: The government should just pick losers, not winners and losers

Where there are free markets, last year's winners are constantly limited or even run over by competition from nimbler and hungrier new entries that, in a modern industrial economy, often bring disruptive new technologies to market. But, as Adam Smith pointed out, the wealthy are motivated to conspire to restrain trade and limit competition in order to protect their privileges. They don't want to have to compete because that's too much work and too risky. When the Republicans complain about the Democrats and liberals wanting "government to pick winners and losers" what they really mean is that the government should just pick losers that don't want to face fair competition. Anywhere in the US economy where you can find a highly profitable company that is badly run or selling a harmful or obsolete product you'll nearly always find Republican politicians protecting that company from competition or risks via subsidies or legal barriers to competition. Oil companies are the most obvious beneficiaries: Exxon with $30+billion in profits and ZERO US taxes is a great example. Exxon has special tax benefits that wind turbine and electric car companies don't have, it has many exemptions from environmental laws, and it relies on a hugely expensive taxpayer funded military effort to protect its operations in the Middle East and elsewhere. Why are alternative energy sources not displacing the oil companies? Because oil companies get a lot of help from the government. Same for health insurance companies that the Republicans have exempted from ordinary contract law applies to other businesses. Or "defense" companies that get contracts to make things the military does not want. President Obama's budget proposal for 2012 asks the Congress to remove special tax breaks for the oil companies
Obama’s budget request will call for eliminating a series of oil industry tax breaks. The Department of Energy estimates that such a repeal will save $3.6 billion in fiscal year 2012 and a total of $46.2 billion during the next decade.
The bought and paid for Congress is going to ignore this without some serious popular pressure. One of the most successful venture capitalists in America, responsible for a number of highly successful startups, says that American Capitalism has become incumbency capitalism.
We fundamentally support what I call incumbency capitalism. We don’t support innovation capitalism. What’s the difference? Every rule around tax credits in the oil industry is set up by, and influenced by, the lobbyist from the oil industry. The royalty rates aren’t free auctions for offshore drilling; they are influenced by the oil industry. Depreciation policy is incumbency policy meant to benefit large capital expenditures instead of R&D investments. So, we can easily change a few of the rules, encourage more R&D and maybe less capital investment or other things. And almost all policy, because it is influenced by incumbents—and not just in oil and gas, but in nuclear, in solar, in wind—is influenced and shaped by incumbents. And I call that incumbency capitalism.”
The Bipartisan deficit commission said that special tax breaks in the tax code mostly favor the rich and powerful (the "incumbents") and that they cost the public $1.2 trillion a year. Those tax breaks are really tax shifts: companies making wind turbines, electric automobiles, solar panels and so on, and people who pay income tax all have to carry the load that Exxon manages to avoid. The Commission said tax rates could be lowered so that most people would pay less, and the budget deficit could be closed if only everyone was forced to pay their fair share. But that would mean that oil companies would have to compete on a level playing field against alternative energy companies and how would they fund things like the $400million they gave their last CEO as a parting gift? Here's a timely example as we wait to see if the Japanese nuclear reactors can be shut down: in state legislatures around this country this spring, utilities are trying to get rate-payers to take the risk on nuclear power plants - the financial risk in addition to the safety risk. One of those states is Missouri.
Missouri's utilities are asking the Legislature to allow them to charge customers for the cost of an early site permit from the U.S. Nuclear Regulatory Commission. A state law approved by voters in 1976 currently bars utilities from charging customers for the costs of a new power plant before it starts producing electricity. Power companies and other supporters of the legislation contend the early site permit is needed to move forward toward possibly expanding nuclear power in Missouri. However, consumers and industrial energy users are concerned about protections for ratepayers.
So the voters (remember them?) pass an initiative that sensibly says utilities cannot charge them for electricity that is not being generated. Regulated utilities are guaranteed profits for the electricity they sell, but their investors (who earn the profits) are asked to take the risks of building plants. The voter passed law puts some market forces into play for the utilities and the companies that sell energy solutions. The utilities want to build nuclear power plants, but the upfront costs are enormous because of the complex safety issues. The market might push them to invest in wind turbines or solar or even conservation, but they have an easier path to a bigger rate base and bigger profits if they can buy nuclear and make the ratepayers pay the finance costs and take the risk. All it takes is for the government to override the will of the people and pick losers. Incumbency Capitalism is easy. The health insurance business is also a good example of picking losers. If you read all the right wing squealing about the recent health reform bill, you'd have the impression that the bad Democrats have brought the heavy hand of government down on a flourishing free market - but that's dishonest. You cannot have a market for anything unless there are clear and enforceable contracts. Without contracts, unscrupulous companies can sell products and services and just keep the money without delivering. But when Clarence Thomas wrote a Supreme Court opinion that invalidated Texas Contract law (and all other states contract law) for health insurance companies nobody said a word. Under Texas law, the insurance policies were actually binding - and if you showed up in the emergency room with a heart attack and the insurance company refused to live up to their contracted obligations, they'd be liable for damages. The damages give them an incentive to live up to their contract. But Judge Thomas said that Texas law does not apply and so if you show up in the emergency room and the insurance company bails, unless you have a lawyer on tap who can file an emergency legal order you are pretty much out of luck. There's no penalty, ever for the company that wrongly denied benefits. If you want to know why your insurance company can make money while being so incompetent and while stiffing its customers and vendors so often - there's your answer. Picking Losers with Republican Economics. So the next time some tea bag buffoon tells you we need to do something about the deficit and get the government out of the business of running the economy, ask him to support abolishing tax breaks for oil companies or Federal incentives for nuclear power or coal and see what excuse he has for continuing Republican loser economics.

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