The housing bubble burst in 2008 and its disastrous consequences are still fresh in our collective memory, but aren’t we heading down the same road again? What is the next industry in danger of over-inflation? Our government may be on the way to creating a green energy bubble, contend Arnold Kling and Nick Schulz

Our government is doing a lot of ‘investing’ in the ‘industry of the future,’ the burgeoning green (energy) industry and along with it, green jobs. Green energy technology is still developing, is currently not widely profitable, and is generally inefficient. It is already significantly subsidized by and targeted for future government efforts. I enjoy Margaret Wente’s description: “…the wacky world of green power, where misguided governments have sparked a massive corporate feeding frenzy (at taxpayers’ expense) to achieve little or nothing of any social benefit.”

Perhaps ‘Investing in’ (subsidizing) inefficient and unprofitable alternative energy sources seems ‘socially conscious’ and ‘progressive’ (to use the liberal’s lingo), but in reality it is gravely irresponsible. This stifles real innovation and progress and misleads the public. And what about the jobs created? Don’t we need those green jobs? In reality, the number of jobs created by green jobs initiatives is negligible, temporary, and in many cases these initiatives are actually responsible for a net job loss.   

Legislative efforts like the stimulus bill, the jobs bill, and cap and trade/tax distort our markets-allowing government to pick winners, and therefore losers (IWF’s Carrie Lukas points out the specific dangers of government picking winners and losers in the financial sector here). This distortion lowers incentives for competition, innovation, and progress. After all, how can one be expected to enthusiastically and voluntarily compete in a fixed game?

Government chosen winners (perhaps receiving subsidies/tax breaks/funding/loan-backing) will operate knowing they have a failsafe. They will be apt to take more risks than they would without government ‘insurance.’ While risk taking is a normal part of enterprise and can produce substantial gain, it is what it is-a gamble. Chosen winners who take risks really aren’t risking much of anything-they’ve got a built in plan B. Chosen (or rather, un-chosen) losers who assume risk are going to lose out more often; they don’t have the built-in failsafe of government freebies. The playing field is tilted in government ‘insured’ ventures’ favor.

Government should create an environment for real, durable growth–conditions where unpredictable innovations can compete and prosper.  They shouldn’t try to shape the markets in favor of those who an incumbent administration deems worthy. Encourage competition, innovation, and entrepreneurship, and beyond that, let the markets be markets. Rely on them rather than government action.

Relying on markets does not mean everyone wins and advances at the same time or with the same levels of success. Some companies and business ventures will inevitably fail. This is not a flaw of markets, it is their nature. Not every business will succeed, but every business should have the opportunity to compete on a playing field unadulterated by government string pulling. Free markets (the freer the better) allow room for trial and error-for experimentation by businesses and individuals. In the long run, this kind of flexibility in the energy industry will fuel technological growth that is both financially and socially beneficial.