McCain Wins the Prize

Fund prizes, not research.

One of our favorite themes here at Scragged is the topic of perverse incentives and government boondoggles.  From ethanol to Amtrak and bureaucracy in general, government has a longstanding record of encouraging people to do exactly the wrong thing.

This shows up not only in red tape, onerous regulations, and silly lawsuits; it also imposes direct costs on the national treasury.  Our Congress has developed the habit of picking the winners: they have decided that ethanol Shall Be the wave of the future, that windmills Shall Be preferred, and that nuclear power Shall Not Be - at least until the next law change.

A moment's thought shows how absurd this is: if you were truly able to predict which company or technology was going to be the right solution to our problems, would you waste your time in Congress?  Of course not!  You'd go to Wall Street, raise money, sell the solution, become enormously rich, and then run for Congress.  Or retire to the islands...

As you'd expect, the specific technologies that Congress has seen fit to help out with subsidies and tax breaks almost uniformly fail.  Your tax dollars are dumped down a rathole; worse, the market is distorted and resources which could better used elsewhere chase after the government subsidies.  We aren't just harmed on tax day by the ethanol subsidies, we're ripped off every time we go to the supermarket because so much of our corn is turned into ethanol instead of being eaten, for no good reason beyond the will of Congress.

But the fact is, government really ought to encourage certain things.  There are any number of developments, inventions, technologies, and refinements that would be very nice to have.  It's just that for the government to try to figure out what will work by itself or pick someone who can doesn't work very well.

There is a better way.  To our surprise, John McCain has made an excellent proposal which, unlike almost every other politically-inspired "solution" to our energy problems, would most likely workHere's what he said:

In the quest for alternatives to oil, our government has thrown around enough money subsidizing special interests and excusing failure. From now on, we will encourage heroic efforts in engineering, and we will reward the greatest success. I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. -- a small price to pay for helping to break the back of our oil dependency -- and should deliver a power source at 30 percent of the current costs. [emphasis added]

Ponder if you will, the revolutionary brilliance of this idea.  It is an inarguable fact that super-cheap, super-efficient batteries would be enormously helpful.  They'd make electric cars far more practical; they would also have untold benefits elsewhere, many of which we can't even imagine yet.

A super-battery is an end result that would benefit all Americans not to mention all users of electricity all over the world; it makes perfect sense for the government to try to encourage such a development.

There have been research grants for years, but giving money away has gotten nowhere for well-known reasons which we've discussed before.  No government has the ability to know who to spend money on; the best it can do is figure out who writes the most plausible grant application or who has the best political connections.

Do you suppose Thomas Edison, Albert Einstein, or George Washington Carver would have been able to put together an appealing PowerPoint presentation explaining why they should get a grant?  No, they'd be too busy working in the lab actually solving the problem.

This is why McCain's proposal is so spectacular.  $300 million is a very, very large amount of money for any one person, or even for a team of researchers.  It would instantly catapult an inventor into the Lifestyles of the Rich and Famous, and that's before any royalties from selling the batteries.

But to the U.S. government it's petty cash.  More tax dollars than that are spent just reading the grant applications that come in and arguing over who should receive what.

And if nobody ever does invent such a battery, it doesn't cost us one red cent.  No solution, no prize.  What could be better?

Not a New Idea

The technology prize has a long and glorious history.  Perhaps the best-known is the Longitude Prize of the British Empire.

In the days of sailing ships, navigation was a severe challenge.  There were no satellites, GPS, or radio-beacons to tell captains where they were.  Considering the many enemy or pirate vessels, foreign waters, submerged rocks and reefs, and many other hazards, just blundering around until you found a shoreline was no fun.

The British Navy urgently needed a method whereby a ship could know its exact position on Earth, in the form of latitude and longitude.  The latitude (distance from the Equator) was easy enough, but longitude (location east or west) was far harder.  After an entire fleet was lost due to a navigation error, Parliament offered up to 20,000 British pounds, a vast amount in those days, for whoever could come up with a solution.

The parliamentarians probably expected a mathematical formula, or procedure in astronomy whereby sailors could figure it out by looking at the stars and planets.  Instead, they got a clock.

John Harrison, after years of research, developed the marine chronometer which can remain accurate despite violent seas, constant upheavals, and damp conditions.  With an accurate clock, it's easy to calculate your longitude by comparing high noon of the sun where you are, with "official" noon on the clock.  Problem solved - and though the official prize itself wasn't technically awarded, Harrison actually wound up getting more than the nominal amount in thanks from Parliament.

Could Parliament have found the solution itself and funded the research?  Of course not!  They might have funded observatories, mathematicians, and all manner of useful and interesting science, but that wasn't where the solution turned out to be.

Will tomorrow's cars use ni-cad batteries?  How about dry cells?  Maybe nickel-metal-hydride?  Flywheels?  Compressed air?  We don't know - and that's exactly the point.

The government should never declare how a problem Shall be Solved because government bureaucrats will always get it wrong.  Government should simply encourage the problem to be solved, never mind how, and the best encouragement we know is to offer gobs of money.

That's what McCain's prize proposes to do.  When we've offered prizes in the past, the results have always been extremely effective and utterly unexpected.

Nobody expected Charles Lindbergh to win the race to be the first solo nonstop pilot across the Atlantic - but he was, and went on to consult Pan Am in founding the first great globe-spanning commercial airline.

Nobody expected the X-Prize-winning rocket to be fueled by rubber and laughing-gas - but it was, and now Virgin Galactic has ordered newer, bigger versions built for a burgeoning space-tourism operation.

Why Give Prizes?

Opponents of the idea of the government offering such prizes point out that the inventor stands to get rich from selling the invention, so why offer the prize?  Many inventions lead to great fortunes, but the man who makes the money is seldom the inventor.

Isaac Singer founded the Singer Corporation to make sewing machines and made a huge fortune, but he wasn't the inventor.  In this case, the various manufacturers formed a patent pool and ended up paying royalties to Elias Howe who held one of the key patents.  Mr. Howe didn't get any money until years after making the invention and he had to file a number of lawsuits to force the manufacturers to pool their patents and pay him royalties.

At the end of the day, Mr. Howe profited from his invention, but other inventors such as Charles Goodyear suffered great poverty and the loss of his patent ownership during litigation.

The problem is that the ability to invent and the ability to run a profitable business are not always combined in one person.  Unless an inventor is fortunate enough to find a trustworthy partner to run the business or to manage the lawsuits, there are seldom any profits to the inventor.

The point of Sen. McCain's prize is that the inventor need only invent, he need not commercialize the invention.  From an inventor's point of view, eliminating the uncertainty of commercialization makes invention much more attractive.

There's another reason to give a prize - if someone figures out a truly wonderful way to store energy, it may not be patentable at all.  Patent law is extremely complex and there are many reasons why the current patent law might exclude the winning process or device.

If the device can't be patented for some reason, the inventor stands to gain nothing from the invention.  The prize eliminates the uncertainty of whether the device might be patentable in addition to eliminating business risk.

If somebody invents or simply discovers the super-battery and earns $300 million, hopefully tax-free, that will probably be the best-spent taxpayer money since the American Revolution.  Nobody loses, except the lobbyists, pork-barrel politicians, lawyers, consultants, and "favorite sons" that make out so well on government research.  So much the better.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments
Right on. The ONLY thing the government should do is to recognize its own protection/tyranny paradox and get out of the way. I've long wondered why prizes weren't par for the course. Suggest standards, put up prize money, keep the playing field fair - all good things. Build departments and hire the works? Bad, bad, BAD!
July 4, 2008 1:15 PM
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