Beacon Hill Institute Weekly Dispatch: Public Choice Explains Budget Addiction; & Other News

Congress and the President are congratulating themselves on cutting $38 billion from the upcoming federal budget. That’s an infinitesimal amount given the nation’s unsustainable budget deficit. Taking a page from Public Choice Economics, BHI Senior Economist Ben Powell (who teaches the topic at Suffolk University) explains how hard it is to cut even that much from the budget in the above LearnLiberty.org video. That’s because voters choose to be rationally ignorant while special interests choose to be especially keen on which legislators support their particular line item. Moreover, the costs of the special program such as farm subsidies is so widely disbursed no one — except the farm lobby, for example —  even notices it.

On Tuesday, U.S. Interior Secretary Ken Salazar was in town to give the federal government’s final blessing to the ambitious Cape Wind project that will site 130 turbines in Nantucket Sound. The controversy about how much ratepayers will be forking over is something that Sec. Salazar can’t make disappear.

Last year the Patrick Administration cut what some said was a sweetheart deal that brought National Grid to the table to buy half of the power to be produced by Cape Wind. The other half remains unsold. What is known today however is that the National Grid is paying a hefty premium for the right to be a green energy player. That’s a high price to pay to be green. The utility is doing its best John Kerry imitation however. In the face of sound economics, National Grid said the benefits from Cape Wind outweigh the $1.2 billion in costs to ratepayers.

As David Tuerck wrote last summer along with co-author Jason Armstrong the so-called savings are illusory:


Cape Wind has tried, with a straight face, to say that the project will save ratepayers money by making them spend money. The authority for that wished-for magic comes from a Cape Wind sponsored study that predicts $4.6 billion in reduced wholesale prices over the life of the project. The idea is that the expensive electricity produced by Cape Wind will push down the prices charged by other suppliers and will keep their prices lower for decades.

By this logic, the state should subsidize the opening of a Morton’s Steakhouse at Fenway on the theory that doing so will push down the price of Fenway sausages! In reality, any cost savings that Cape Wind might confer will disappear in a year or two after it goes online, with ratepayers left holding the bag for the handouts needed to get Cape Wind’s investors and National Grid’s management to play ball.

The whole episode has come about solely as a result of the fetishistic importance that Cape Wind has acquired in the halls of state government. Nothing else could explain the willingness of the governor and the legislature to kowtow to a group of faceless investors at the expense of their constituents

Meanwhile, the Boston Herald quoted David Tuerck, in its report on Salazar’s visit.

More BHI research on Cape Wind can be found here and here.  

The institute’s work sometimes extends beyond scholarly research. Each year BHI is an active participant in the Boston Private Industry’s Job Shadow Day. This year, Frank Conte, director of communications and information systems, conducted four “mock interviews” with Boston Public School students preparing for their first job interviews.

To learn more about BHI visit its web site at www.beaconhill.org

About Beacon Hill Institute

The Beacon Hill Institute engages in rigorous economic research and conducts educational programs for the purpose of producing and disseminating readable analyses of current public policy issues to voters, taxpayers, opinion leaders and policy makers.