Saturday, October 08, 2005

Raucous House Vote:
Question About Corporate Welfare

The forces of environmentalism won a rare victory today, as an amendment to a House bill was removed at the last minute. The bill was produced under the guise of responding to the devastation wrought by Katrina, and helping consumers get lower gas prices. This is to be done by subsidizing the construction of new refineries for production of petroleum products. The amendment in question would have relaxed standards for the upgrading of pollution controls.
In Raucous House Vote, G.O.P. Oil Refinery Bill Squeaks By By CARL HULSE Published: October 8, 2005 Even before bringing the refinery measure to the floor, its authors had to strip out language that the White House sought to make it easier for utilities to expand without installing new antipollution equipment, a provision that Republican leaders acknowledged would have doomed the bill. But stiff resistance remained among Democrats and a handful of Republicans led by Representative Sherwood Boehlert, Republican of New York, who is chairman of the House Science Committee. Mr. Boehlert complained that the bill promised federal subsidies to the builders of smaller refineries but did nothing immediately about pump prices. "We're enriching people, but we are not doing anything to give the little guy a break," said Mr. Boehlert, who campaigned hard against the measure.
There are several issues raised by this congressional action. There are some who argue that we should not be building refineries now, since the rate of oil production may decline soon, as the world runs out of accessible oil reserves. Instead, we should either make do with what we have, expand existing refineries, or find ways to increase their efficiency. Clearly, though, such technicalities were not a big part of the congressional debate.

Another issue here is that of the appropriateness of corporate welfare. The free-market folks would have us believe that if the market needs more refineries, then industry will build them. Perhaps the fact they are not being built, is an indication that they are not really needed, or that the industry fears that they will not get used enough to recoup the investment before the oil runs out. But that kind of economic rationale seems to be outside the scope of our congressional process.

What I want to know, is this: Why should government be giving handouts to the world’s most profitable industry? Yes, there are times when such things may be appropriate. An example would be a subsidy to build more vaccine-production facilities. The public good would be sufficient to justify such a thing. Although pharmaceutical companies generally are doing well these days, vaccine production is economically risky, and it is not where the profits come from. But this argument does not hold in the case of petroleum products.

It is possible that some public good could come from the subsidizing new refineries, so long as they are environmentally sound, and the employees and construction workers get good wages. But why make it a subsidy? Why not give them government-backed loans? Industry could build the refineries, and then repay the loan. If it turns out that the refinery goes out of use because of a lack of raw product, they could stop paying back the loan. That would be bad, but not so bad as an outright subsidy.

I argue this case from the position of a perpetual sophomore. As far as I know, there are good economic reasons for not proceeding in this manner. But I cannot imagine what those reasons would be.

Categories: politics, rants