Here’s my question. How does a government decide which forms of alternative energy it should subsidize? Are there other types of power they could subsidize as well? I wonder if they could instead of choosing solar make a list of types of power they would subsidize. However, more options may dilute the effectiveness of the subsidy. It might be better to subsidize one industry to get it to grow and then try subsidizing another form of alternative energy once solar get going.

What do you think?

Besides the intrinsic interest of the idea, and the value of the hot water, it’s interesting that we don’t hear much otherwise about how long the panels are expected to last. It’s not in the interest of the manufacturers of panels to promote means to make them last longer, or (moreso) to call attention to limited life. It might give a competitive advantage to a manufacturer that only makes integrated water-cooled panels, but I don’t know of any.

California’s fiscal problems are a consequence of its peculiar Constitution, the ballot initiative system it prescribes, central ownership of media, and its miserably bad primary and secondary education apparatus.

I think it really depends on the form of the subsidy, the direction of the industry, and so on.

US auto industry quotas and subsidies: same question.

Or computers: how did Japan’s “Fifth Generation” project turn out? Or, heck: Japan’s protection of the domestic rice industry, or US protection of the domestic sugar industry. Did US beet sugar get more competitive with foreign cane sugar after we instituted that policy?

When the government props up a local industry in order to “make it more competitive” my impression is that this usually ends up making that local industry *less* innovative and competitive, not more. I’m undoubtedly suffering from availability bias, so: can you suggest some counterexamples?

(The Lockheed example only gets half credit because the point there was *buying a specific product or service, at any cost*; supporting local industry was a side-effect. Here you’re talking about a policy where supporting local industry is the main effect.)

My contrary intuition is that if you provide a subsidy, that reduces some of the competitive pressure that would otherwise tend to drive costs down. Without the subsidy, only the most super-efficient providers can stay in business; the less efficient companies and technologies go bust. With the subsidy in place, inefficient companies and technologies and workers can afford to stick around longer; the average level of cost and efficiency over the local industry will be much *higher* than without it.

Relative-money prices send messages throughout the economy about what is and isn’t worth doing based on the current level of available technology; taxes and subsidies tend to reduce the information content of those messages.

point taken. I was a bit confused about that for some reason.

Smart structured subsidies which avoid the corruption of “picking winners” does seem like reasonable policy.

But I do think it’s a gamble to massively subsidize specific forms of energy like Germany does now and many want the US to do. It could crowd out better forms of energy.

Given the basic fact that economies must innovate to stay healthy, it is stunning how little space intro economics textbooks devote to innovation — especially how to nurture it. To simply give homeowners money, as you propose, does nothing to increase innovation. So if you need innovation — as all economies do — that might not be the best use of extra funds.

Does solar power now require massive subsidies to be competitive? Yes, in the beginning all new ideas require subsidies to grow. If you’ve read a lot of this blog, you may realize that this is my explanation for art, ceremonies, gift traditions, and a few other things: our enjoyment and willingness to pay for this stuff had, long ago, the effect of subsidizing innovation. Xmas cards require fine printing, for example — so Xmas subsidizes fine printers. See my posts about human evolution for more examples.

Will solar power always require massive subsidizes to be competitive? Unlikely. As more experience develops, efficiency will go up and costs will come down. Not to mention the price of alternatives going up.