Deregulation before subsidies: Order matters

One not-so-simple trick to ensure infrastructure deployment success

Sometimes, the order in which you do things matters. 

As Elon Musk explained in an interview with Tim Dodd (Everyday Astronaut), manufacturing success at Tesla and SpaceX relies on a very specific 5-step process that must be completed in order:

  1. Make the requirements less dumb
  2. Try very hard to delete the part or process
  3. Simplify and optimize the design
  4. Accelerate cycle time
  5. Automate

Watch Elon’s self-described “laborious explanation” here.

As Elon noted, it’s easy to do things in the wrong order. 

“I have personally made the mistake of going backwards on all five steps multiple times. So I have to repeat this. Multiple times on Model 3. Literally, I automated, accelerated, simplified, and then deleted.” 

By recognizing and correcting the mistake of going in the wrong order, Elon ensures that his companies don’t waste resources prematurely automating or accelerating cycle time on an unoptimized design or optimizing a part that shouldn’t exist.

Likewise, among tech startups it is well known that companies are supposed to find product-market fit before they scale. If a company scales based purely on the founder’s vision, it risks losing an enormous amount of investor funds on a product that doesn’t meet a market need. If, instead, the company finds product-market fit first, the money needed to scale is less likely to be wasted.

Order matters.

The Biden administration is planning to massively scale our country’s infrastructure as part of his clean-energy agenda. This infrastructure deployment is just like a production line or a tech startup entering a new market. Order matters. 

We need to deploy all kinds of new clean infrastructure in the coming years: new power plants, transmission lines, charging stations, and more. Each kind of infrastructure is different, but the two main steps for moving forward with scale are the same for all of them:

  1. Remove regulatory barriers, inefficiencies, and red tape so that deployment can rapidly scale.
  2. Pay for the infrastructure, either directly or through subsidies.  

Remember, order matters.

We live in a funny era, in which money is cheap. Interest rates remain low, and the public doesn’t seem especially concerned about increased government borrowing or taxes. Politically, it’s easier than ever to spend a few trillion dollars on the administration’s priorities, including clean infrastructure deployment.

What remains politically hard is the regulatory reform needed to ensure that infrastructure deployment can scale. It’s relatively easy to extend production tax credits. It’s harder to simplify permitting so that it’s straightforward to actually deploy geothermal energy. It’s relatively easy to subsidize new direct-current, high-voltage transmission lines. It’s harder to revise the siting regime for transmission so that it doesn’t have so many veto players.

Order matters. If we subsidize geothermal without fixing the paperwork burden, subsidies will be wasted on unnecessary applications and bottlenecks as the Bureau of Land Management struggles to keep up with permit approvals. If we subsidize transmission lines without fixing the siting regime, we will be paying people to wade through the delays and legal expenses associated with vetocracy.

In these cases and in others, it makes sense to address the major bottleneck to scaling first, then add the subsidies as necessary. It may turn out that by doing so, fewer subsidies are needed and that money can be reallocated to do greater good elsewhere. But even if the same amount is spent on subsidies, the money will go further if the obstacles are removed first. 

Order matters.

The tendency of our political system, of late, to take only the easy steps is troubling. It reflects a lack of seriousness and a genuine dysfunction. Unlike an Elon Musk company that optimizes parts that shouldn’t exist to fulfill the wrong requirements, the US government can’t fail. By necessity, there is no way it can become deprived of funds because of its poor decisions and therefore be forced to make way for a better government that makes smarter choices.

We can vote a particular party out of office, but that is cold comfort when the dysfunction is shared by all parties and when the voters themselves care about culture war issues far more than the current mismanagement.

Congress just passed one infrastructure bill implementing the Biden agenda, and it may pass one more. Like most significant legislation, these bills reflect a lot of compromises.

If the parts of the agenda that rely on building new things in the physical world are to succeed, this legislation should be quickly followed by another bill—one that strives to eliminate the bottlenecks to building in the physical world. This third bill could cover, among other things, NEPA reform, transmission siting, creation of new categorical exclusions, and incentivizing state governments to decrease land use regulation.

This prescription is a tall order because the work to achieve consensus on these issues is challenging. But it is necessary—and because it should have happened first, we are already behind.

Order matters.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.

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