That observation was celebrated last month around the blogosphere, perhaps rightly so. Here is one such claim:
For example, in the same month that the Prius became the best selling vehicle in California, the Chevy Volt set a new monthly sales record. www.plugincars.com/chevy-volt-sales-set-record-october-2012-nissan-leaf-rises-occasion-125104.html. And the same people who predicted confidently that the Prius would flop have said the same about the Volt.
Down in the comments someone raised questions about the wisdom of government picking winners:
But that’s not the point, We could take money from taxpayers and gave it to people who made, and bought, cars running on yak dung. The result would be more cars running on yak dung and fewer on oil based fuel. It’s obviously possible; the point is, does it make economic sense? I’m happy to see taxes on oil products to account for external costs, but subsidising specific technologies (and therefore effectively penalising others) is not how to help true innovation.
To which the response was:
How about the US government developing nuclear energy and commercializing it? How about government’s role in electrification? How about government’s role in developing the internet? Just about all innovation is rooted in major public private collaboration. And government protects intellectual property and creates monopoly power for patent holders. Is that a bad idea? The US reliance on oil puts our national and economic security at risk. Money wisely invested–pulic or private–that accelerates a reduction in the use of oil pays back many times over.
This point deserves more serious attention. But in the interest of time, I reprint verbatim most of what I posted in response.
There is an empirical literature in economics that addresses some of these claims. Beyond directly evaluating “how true” any of those are (I tend to agree with you), that is missing the ball a bit on what the legitimate concerns are.
First, the right probability is not to point out the success of those projects and then infer that government investment is a good thing. But rather the probability should be examined the other way: what is the likelihood of a government investment producing a valuable outcome? Those are very different. To take an analogy, one would not want to point to the current economic success of China as evidence that Communism produces economic growth.
A second issue is that which is harder to see. Take nuclear. While I support that technology (despite it, as you know, being costly), it is surely the case that the massive resources poured into nuclear could have been put to better use, and that government investments in nuclear came at the expense of developing other clean and cost effective alternatives. It also is no small irony that one can “blame” the government’s nuclear promotion for an increase in carbon and other pollution emissions in the 1980s as the 1970s crisis encouraged us to burn more coal to ensure energy efficiency since nuclear was demonized due to some accidents.
I think Alex was making a serious (and empircally supported) observation that output based standards are more efficient and more consistent with the rule of law and the limits of human cognition than government picking particular standards to invest in. And it is surely plain as day that by picking winners, that creates interest groups that make it hard to do away with them.
Government is also responsible for the ethanol boom, to make just one dramatic comparison.
Finally, while I’d like myself to be able to afford a Volt, it is just not possible right now. The car still relies on an outdated “3rd world country” electrical grid (how well did the government maintain and innovate the grid in partnership with the private sector) and the effective mileage and emissions of the Volt vary greatly in different regions in the country. I don’t think a Kentucky Volt can save the planet.
Finally, some people are legitimately reasonable to point out that the projections for the Volt by GM and the government are far greater than even the “record” sales we see today. They were projecting, for this year, 60,000 in sales. They are going to be nowwhere near that. Just because sales tanked a year or so ago and are now rebounding nicely, it makes it easy to point to the astonishing growth and success of the vehicle. But it is still massively underselling based on the original projections – projections which are likely to have been used to influence the amount of support we give to that car, the consumers and the company.
There are other issues too …
WINTERCOW Update: Remember I could set a sales record selling you things that I’ve been subsidized to produce and you get subsidized to consume. I would really love to know the “all-in” cost of a Volt, and its true environmental impact, even assuming it is not powered by coal… I am not sure you’d want to be celebrating sales records for a car that has embedded in it over $100,000 of cost per unit.