Private profit, social cost


Among the lessons we're supposed to have learnt from the banks falling over is that it's probably not a good idea to allow profits to be private while costs and losses are public and social. If bankers are to make fortunes then they should also lose fortunes when they screw up: not only is that fair it also correctly aligns the incentives. However, we do need to recognise that this doesn't just apply to bankers.

On the subject of solar panels we get:

For if households can properly insulate their homes and install small-scale renewable technologies – such as solar panels – they become independent of energy companies, and turn a tidy profit by selling electricity back to the grid. (...) A report backed by Lord Mandelson’s department last year concluded that under a “plausible policy scenario" nine million dwellings – about one in three in Britain – could be exploiting such “micropower" by 2020, producing as much energy as five large nuclear power stations. A less expensive programme could equip three million homes. (...) Hopes were high of a rooftop renewable revolution this year after the Government finally agreed (or rather was forced to do so by a Tory resolution in the House of Lords) to introduce “feed-in tariffs", the secret of Germany’s success. But the consultation documents show that rates for generating renewable power have been fixed at a level apparently designed to stop it succeeding.

When you unpack all of those assumptions there you get to something highly undesirable. That "less expensive solution" is that there will be fewer subsidies from taxation to install solar cells....that is, that there has to be a subsidy before anyone will install a set. Further, we've got price setting: as you can imagine, the price being set is above market for the clear and obvious reason that there's little reason to set it below market if you're hoping to encourage people to sell (to buy though is another matter).

So what we actually have here is the suggestion that there should be social costs (the tax funded subsidy) and also public costs (we all have to pay more for our electricity) so that others can have private profit. If we're not to do this with bankers then we really shouldn't be doing it with anyone else.

What does infuriate though is that those screaming loudest in opposition to bankers are those screaming loudest for this, exactly the same, private profit and public cost of their own preferences.

Is logical consistency too much to ask for in this modern world?

One final point: there is the defence (however partial) that we want solar cells so we should do this and we don't want banks so we shouldn't do that. One response is that living in a society without banks is vastly worse than living in one without solar cells. But the real argument is that, actually, we don't want  solar cells. At least not this generation of them. At the moment they're still more expensive then other forms of generation (yes, indeed including carbon costs) so they are a method of making us poorer. Another five to ten years and it's highly likely that they won't be more expensive at which point we'll all happily start using them: and at which point we won't require a subsidy to do so.