Risking Other People's Money

Before Justin's economic blogposts fall too far down the front page, I'll just bop out a quick post about the economics of nuclear power. I wanted to point out that the nuclear industry in America is a fantastic example of the twisted, selective use of economic thought which we had been debating last week right here.

An 'Anonymous' commenter left with a parting shot that my exhortation to take un-economic risks for the greater good "is actually none of your business unless it is your own money being risked."
The American nuclear "industry" (scare quotes intentional) is a perfect counter-example showing how real-world economics is rife with the same evils which its philosophical adherents claim that it prevents.
In the nuclear case, government subsidies go towards uneconomical ventures -- risking other people's tax money against their wishes, as well as inviting the cronyism which the same 'Anonymous' also tried to tar me with.

The supposedly 'for-profit' nuclear industry is completely a creature of government subsidies.


Nuclear power plants have very cheap daily operating costs -- "marginal costs" -- that is, if you ignore the environmental consequences of mining the fuel.

But their startup/construction costs, and decommissioning/clean-up costs, are astronomical. The entire business plan of the nuclear industry is to get the taxpayer to pay those astronomical start/stop costs... under which I include, the costs to secure operating safety insurance, and to guarantee Cyclopean loans that a private industry could never possibly obtain on its own.
Investors buy a small stake in the construction, the government backstops the inevitable cost overruns, the risks and the cleanup -- and then the business plan is to make a big profit for a private company by selling the supposedly cheap, "marginal" daily electricity to ratepayers.

This is particularly pronounced in America, but it is true worldwide. The nuclear power private industry would not exist at all, were it not for this concept of "marginal rate", a high-finance concept. But in this case, the taxpayer antes up, while generally speaking, private businessmen collect the winnings. As Noam Chomsky so often says: "Public risk, private profit".

People who say nuclear power is cheap -- (to borrow a phrase) -- are basically saying that owning a Rolls Royce is cheap... because gas is only $3 per gallon. You have to count the startup costs, or else it's fallacious economics. One would think that more economists would object to nuclear power, if econo-thought produced such clear-headed, rational analysis as its proponents claim it does.

Yet where are the Mises economists denouncing nuclear power as socialism? I have indeed seen a few economists raise the point that wars are too expensive, (a point that Consumatopia raised), but where are the ranks and rows of sign-waving economists protesting nuclear power alongside the environmentalists? They're not there. The economists who are truly knowledgeable about nuclear power are working at nuclear reglatory agencies, working for GE, or working for the huge chunk of the media which is owned by GE and therefore will brook no negative reports on nuclear power.

Literally thousands of scientists, engineers, construction firms, security guards, PR-men, and even economists make their living off of nuclear power, despite its consistent failing of economic tests. The country and the world would be much better served, in an economic sense, if all these clever people were working on alternative power.
Why are these thousands of people still employed in a multi-billion-dollar, yet completely un-economic, field of business?
Because we can foist those losses off onto the taxpayer. Because we've always done it, and because the government will always be there to backstop nuclear power (due to the national security issues associated with radioactive material), and because we've spent so much money on it already. Nuclear power is the "sunk-cost" economic dilemma writ large.

Ironically, this nuclear-"industry" model is pretty much exactly the one I was describing with my talk about "positive freedom". Deriving electricity from the nuclear chain reaction is an achievement. It's not something that a lone businessman simply decides to do one morning because the option has not been outlawed by an Evil Gubmint. It requires societal support. It requires a high-tech mining and refining industry, devoted specifically to the endeavor; an existing, well-regulated and sophisticated electricity market and a well-maintained distribution grid (because nuclear power is uneconomical at the small scale... only when selling massive, massive quantities of power does it supposedly become profitable). It needs a highly educated workforce. And it requires gigantic capital investment, and guarantees at a scale that only a government can make. It requires not only personal choice, drive, business acumen and devotion to bring about a nuclear power plant; it also requires a web of massive societal support.

So by 'Anonymous' logic, that web of support is taking away my tax money and risking it on something I disapprove of. It is a chance, a risk, that I do not wish to purchase. It is robbery, by 'Anonymous' standards. Risking other people's money.

Nuclear power is a giant, expensive risk that I don't approve of, paid-for by my tax dollars.

I would prefer society to subsidize other risky and expensive, un-economic explorations, in order to get us out of the trap of our own thinking -- new energy options, new transportation options -- to "break the paradigm". Breaking the paradigm is a risk and expense that I would like society to undertake.

So what is the difference?

First of all, the difference is that nuclear proponents are constantly lying to me, telling me that nuclear power is cheap, trying to get me (the public) to ignore and forget the large subsidies. At least I am willing to admit up-front that achievement is expensive, and requires massive societal support.

What is the difference?
The difference is that if I propose that the wider society make sacrifices for environmental, or social causes -- economists are the first in line to shout me down as being "irrational". Since nuclear operators profit off the "marginal rate" resulting from massive government investments, howcome we can't use the "marginal rate" concept to justify large government investments that would pay off for the citizens directly? Why don't more economists classify nuclear power as a government "handout", instead of carping on the much smaller expenditures for many social and entitlement programs?

Why is this a critique of the entire discipline of economics, rather than just one corrupt industry?
Because the vast majority of industries require that web of social support, that web of "positive freedom". Almost any business in America today requires a web of high-tech raw materials extractors and distributors; a well-regulated marketplace, physical (and electronic) infrastructure, educated workers and relatively affluent consumers, and social guarantees. We ignore that web of "positive freedom" support at our own peril -- and I believe that is why it seems so obvious that our society is coming apart at the seams today. The people who are well-connected politically get that web of support; and they have an army of economists making apologia for them. The broader needs of society do not. We have been ignoring that web of public support, letting it atrophy, because it does not graph well in economists' equations. We ought to start paying attention to that web of societal support once again, because it's the only possible way we can hope to survive coming disasters such as Peak Oil and large-scale climate change.

If sustainable energy and sustainable economic practices had the massive societal backstop that nuclear power enjoys today, we would be in a much better position to face gigantic disruptions such as those. We'd be in a much better position to remake our society, our economy, according to the needs of its participants rather than a small elite. But those are environmental and social goals. The economists are in the forefront of shouting such things down.