CHRIS EDWARDS, CATO INSTITUTE
A damaging effect of government expansion is the “crowding out” or displacement of private‐sector activities. Governments often think that they can do better than businesses, and they take over industries or intervene to set things right. But they misjudge, and government‐dominated industries usually become bloated, stagnant, and distorted.
In infrastructure, governments over the past century have displaced private‐sector airports, urban transit, passenger railways, and other facilities. America is a land of entrepreneurs, but we effectively bar them from many important industries. An entrepreneur could start an airport, for example, but it would be hard to compete against subsidized government airports that do not pay taxes.
President Biden’s infrastructure plan threatens to further crowd out private activities. It includes hundreds of billions of dollars in subsidies for electric vehicles, broadband, manufacturing, and the electricity grid that would partly displace private financing and decisionmaking. Once the subsidy spigot got started, it would be hard to turn off and the resulting distortions would get entrenched.
Consider Biden’s $174 billion in subsidies for electric vehicles (EVs) and charging stations. The money is unneeded because the private sector is already pouring billions of dollars into EV research, production, and infrastructure. GM, for example, says that it will invest $27 billion in EVs over the next five years. If Washington stays out of the way, such investments will advance innovation while competition will continue to drive down costs.
If you type “EV charging stations” into Google maps, you will see that they are sprouting everywhere: at hotels, garages, office and apartment buildings, and Target and Walmart parking lots. This source says there are already 30,000 EV stations nationwide, while this source says 40,000. New retail chains for EV charging include EVgo with 800 sites, Electrify America with 570 sites, and ChargePoint with sites at 4,000 businesses.
There is no market failure that needs Biden’s huge intervention. As Treehugger.com explains, Target and Walmart want to “lure electric vehicle drivers in to shop, eat, drink and hang out while their vehicles get juiced.” In their search for profits, these retailers are making green investments. There is no need to subsidize them.
Juicing EVs with $174 billion in subsidies would bloat the industry’s cost structure. That was part of the Solyndra story—subsidies bloated costs and made the solar company uncompetitive. Biden’s “strong labor standards” attached to his EV subsidies would further increase costs. Biden claims that his plan would help America’s EV industry “compete globally,” but his subsidies would make businesses weaker and less nimble.
The Biden plan “will establish grant and incentive programs for state and local governments and the private sector to build a national network of 500,000 EV chargers by 2030.” What is the point of that? It would just substitute for investment that EVgo, Electrify America, ChargePoint, Target, and Walmart are already making. Or worse, it may induce state and local governments to take the federal money, set up their own charge stations, and squeeze out the private companies.
EVs raise concerns that still need to be worked out, so forcing the technology on us as Biden wants to do is unwise. Fifty‐nine percent of electricity generation comes from coal and natural gas, so the greenness of rapidly switching to EVs is debatable. We can increase the wind and solar share of generation, but that will require major changes to the grid, including new transmission lines that will face large regulatory and NIMBY barriers.
There are other concerns. Offshore siting of windmills faces resistance. Half of the world’s supply of a key part of solar PV panels comes from an area in China known for human rights abuses. And the lithium‐ion batteries in EVs have a nasty fire problem and their production harms the environment.
All that said, these problems are probably solvable, and EVs appear to be the future of surface transportation. I’m a fan of internal combustion engines and rebuilt one as a teenager. But EVs have many advantages, and market competition is making them better all the time. They will probably takeover, with or without subsidies.
What should federal policymakers do? They should shelve Biden’s corporate subsidy plans for EVs and other industries and get out of the way. Subsidies would crowd out private activities, undermine competitiveness, and supercharge the corporate lobbying frenzy in Washington.
Finally, this Cato forum on Monday features infrastructure experts Bob Poole and Randal O’Toole. Bob, Randal, and I will critique the Biden plan and offer alternatives.
Chris Edwards is the director of tax policy studies at the CATO Institute and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.