The Obama administration should take a hint from General Motors’ temporary moratorium on the production of the Chevrolet Volt: Stop using taxpayer dollars to prop up an electric car industry that is not profitable.
1,300 GM employees are in the midst of a five week layoff, not because they are inherently unproductive, but because government has incentivized these workers to stay in an industry that consumers do not want to support.
The problem is that most consumers are unable to afford the Volt, which is not surprising given the Volt’s price of just below $40,000. Indeed, the average household income of a Volt buyer is $170,000, more than three times the 2011 median household income of $51,413.
Not to be deterred by the fact that the Volt’s producers have not found a way of making it affordable for most potential buyers, the government has subsidized the Volt’s producers and those consumers that buy the electric car. Some of these subsidies include a $7,500 rebate for the purchasers, which President Obama wants to increase to $10,000, and a $105.6 million subsidy for battery assembly from the Department of Energy.
Giving subsidies in the form of rebates for purchasers of the Volt and funds to encourage its production sends bad signals for the economy. GM has been told by government that the Volt is what must be produced, and they have put (our taxpayer) money where there mouth is. It’s no wonder there are an abundance of workers in Detroit working to produce the Volt. The steady stream of subsidies flowing from Washington, D.C. to Detroit incentivizes workers to stay in Detroit and produce what the Obama administration is pushing. After all, these workers might as well benefit from being in an electric car industry that has the support of Washington politicians that are willing to dole out funds at the expense of American taxpayers that ultimately end up footing the bill. Unfortunately, most of these taxpayers will not even be able to afford a Volt.
Moreover, government subsidies discourage labor from moving into industries that can actually be profitable. If government did not pour taxpayer money into the Volt’s production in the first place, the skills and talents of this labor could have been utilized in other parts of the economy. What could have been produced if taxpayers were able to invest their own money into projects that they thought were needed, and labor could have moved their freely, without being drawn into government subsidized industries? What innovations have been sacrificed? These are all opportunities that have been lost so that Washington can keep sustaining the electric car industry.
The sad part is, despite all of the subsidies, the Obama administration still can’t make the Volt profitable. The 1,300 autoworkers in Detroit that are out of work are the evidence. If Washington truly wants to do right by these workers, it will stop doing what is politically expedient and allow the market to choose what industries will be profitable. Yes, this will mean that people lose jobs as the market clears out formerly government subsidized ventures that will not survive without government funding. This will, however, provide an incentive for people to find employment in, improve, or even create a different business that will actually be profitable, independent from government.