RateWatch #334 – The Hydrogen Economy
December 14, 2002 By Dick Lepre

Tax Cuts

A lot is starting to be said (and this is just the beginning) about tax cuts. It is obvious from the recent changes in the administration's economic leadership that a new group is being put in place to sell whatever package is assembled. The difficult thing is figuring out what sort of fiscal
policy is going to lead to stimulation of the economy.

What Not to Argue About

What we should not spend one minute arguing about is how to engineer an income tax or estate tax cut. It is not the case that individuals are not spending and need a break.  An income tax cut would give folks a bit more money to buy a few HDTV's. What we need to get going is business.  Business is not investing enough in the stuff that will become the economy of the future.

What is needed is tax cuts in the form of investment tax credits, in short, Reganomics 2.0.  (Having typed that sentence, I looked at it for 10 minutes and thought "I'm gonna regret saying that.")  Let me clarify.  Economics has a supply side and a demand side. Benefits to the demand side in the form of lower interest rates are finished (more or less). There is no room for significant lowering of rates.  What we need is stimulation of the supply side.

It is not investment tax credits that we need but the result of investment tax credits.  That result is new industries that supply new technologies that create economic activity and real social benefit.  As for "Reganomics" the problem here is that this is such a politically polarized term.  In retrospect, Reganomics was a good idea that was relatively poorly executed.  If we are going to do Voodoo 2.0, we need to do a better job than we did last time.

Investment tax credits are incentives to spend money on R&D (research and development).  The allow companies to spend money on R&D rather than pay taxes.  In essence, the government
(i.e. all of us) are subsidizing R&D out of a belief that it can produce economic benefit well beyond the expense.

An Example

In October 1957 the Soviet Union launched Sputnik - the first artificial satellite.  The reaction in the US (in case you were not around at the time) was utter shock.  We could not believe that "those Commies" had beaten us to space.  American's believed that we had a huge technological gap to overcome and the space age was born.  Without that shock the technical revolution that
was ushered is by the space race may never have taken place.

With the events of the last 16 months having taken place we might do well to "snap out of it" and start a massive investment tax credit subsidy for hydrogen based economy.

Hydrogen Economy

A area of R&D that has significant potential is hydrogen fuel cells.  In brief these are devices that manufacture electricity from hydrogen and oxygen.  They have the advantage of producing only electrical energy, heat and water.  If technology is able to find a way to manufacture hydrogen in a cost effective and near-zero polluting process the major hurdle would be overcome.

A good starting place to learn about hydrogen fuel cells is the Department of Energy website

Two obvious uses of fuel cells are vehicles and buildings. Small fuel cells could power cars.  Large fuel cells could power buildings. The advantages of fuel cells in cars are obvious: no OPEC oil and no pollution.  The President (especially because he is from Texas) should have no difficulty convincing citizens the we may be better off by not sending money to countries that seem to be intent on blowing us up. The advantage of fuel cells in buildings is less obvious but, potentially, more dramatic to the way folks live.  It would enable people to build homes and commercial structures in locations where there were no power lines.  This, combined, with cellular telephony might redefine our approach to development.  It would become a “just add water” proposition.

Not the Only Thing

I am not stating or implying that the Hydrogen Economy is the only hope.  The nice thing about JFK stating that we were going to put a man on the moon by the end of the '60's is that
it had utter clarity.  The moment that it had been accomplished we knew it.  The "success" of a hydrogen economy would not be something akin to a step onto the moon.

What we need is tax incentives to encourage the new technologies of the future.  We need to have the attitude that the "tech boom" is just beginning. 

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