I recently came across a flyer in the Maui paper on Hawaii’s “Solar Awareness Program.” However meritorious and well founded our concern about global warming, we should be alert to the potential for gaming the system. While I invest personal resources in solar and wind power, I worry when taxpayer funds are promised as inducements. Why? Other people’s money (OPM) won’t be spent as wisely as our own.

The flyer by Allens Plumbing Inc. advertised:

Hurry!!! Expires 2008

Example for family:

System cost $5ooo

MECO (electric co.) -$1000

Fed Tax Credit -$1200

State Tax Credit -$1400

----------------------

Your Cost: $1400

Other People’s Money: $3600

Energy is expensive in Hawaii. Gasoline is $3.79/gallon. The Honolulu Advertiser reported on May 1, "Even before the recent jump in oil prices we still had the highest (electricity) prices in the nation…. power costs have increased nearly 40 percent over the past five years.” Folks in Maui have strong incentives to act responsibly and conserve energy. Why would they need OPM?

The poor surely do, but they are unlikely to receive OPM. Such benefits normally go to the well off. We can learn from a silly but persistent example, the mohair subsidy program.

The vast majority of mohair payments go to wealthy ranchers in West Texas. A few political poster people, like 4-H kids and Native Americans, receive a pittance; but when we follow the money, it leads to the wealthy. That’s the way the political game is played.

Here’s an important rule of life: people don’t spend other people’s money as carefully as their own. Politicians exploit this natural hazard. And of course this system makes political sense; that’s why it’s so common. Each taxpayer contributes a trivial, normally unnoticed portion of the cost, while the beneficiaries are well aware of, and indeed celebrate, their windfall.

Consider West Texas, where nearly all angora goats are raised, “Hey Dear, let’s spend other people’s money and go to Maui with our mohair incentive check!” But didn’t President Clinton eliminate this welfare in 1993 when he wrote:

“I (Bill Clinton) sent to the Congress ‘A Vision of Change for America’… Among the recommendations were reforms in the wool and mohair program; subsidies provided for nearly 40 years…. The legislation, which phases out the wool and mohair program, eliminates an outdated program….”

Alas, in 1998 Congress resurrected the payments. And in the 1999 and the 2000 Agriculture Appropriations bills, mohair producers once again got OPM. How much? In 2000, Congress allotted $20 million for these subsidies, plus an additional $16.9 million for an “emergency.”

I expect politicians to be opportunistic when a crisis appears. After 9-11, American Enterprise magazine noted, “This farm bill’s ghastly provisions include…. The once-extinct wool and mohair program has grown back at a cost of $202 million.” Rep. Larry Combest (R-TX) used the smoldering wreckage of 9-11 to drive the “Farm Security Act” through the House. This Republican congressman described the $167 billion slush fund in his letter to colleagues, “What’s in it for me? The 2001 farm bill: From Buffalo, Kansas to Buffalo, New York, there is something for everyone.”

Economists believe that prices give good information on how others value scarce resources. Prices also provide incentives for people to act as though they care about the needs of others, even if they don’t. When we distort or censor that information by subsidies or price controls, we warp the incentives.

Let’s learn from the mohair program. It has not created gross market distortions or artificial surpluses and shortages; it doesn't mandate production levels or set prices; and it’s not an international trade issue. It merely writes checks. While there is no economic, ethical, or ecological justification for it, there also is no constituency that cares enough to eliminate it permanently.

The mohair program is a small but persistent mistake. In contrast, energy programs won’t be small and will be even harder to eliminate once constituencies develop. Science and technology will surely evolve new conservation opportunities. Increased energy prices will provide strong incentives to adopt new technology, and we will evolve toward greater efficiency.

I suggest we be careful indeed before locking into subsidies to “solve” GW problems. Once in place, they will persist, inhibiting further efficiency advancements.