Last week, General Motors revealed that its new plug-in hybrid Chevy Volt would cost at least $41,000. With a $7,500 government credit, that price will drop to around $33,500. That price, however, still puts it out of reach for many Americans. Via Slate, Charles Lane wrote a scathing article last week about the government consequently providing a pricey subsidy to wealthy Americans. But Daniel Gross, also through Slate, says that the process of innovation often requires such government assistance, and the poor will ultimately be better off because of it. Who has it right?
Here's the heart of Gross's argument for why the credit makes sense:
We're in a period of slack demand and low capacity utilization, with lots of empty factories, buildings, and stores. Companies are sitting on hoards of cash. In a time like this, they need special inducements--bribes, incentives, tax breaks--to make large new investments. In such a climate, the government has to give industry a nudge to get off its rear. And there are signs that the $2.4 billion in grants that the Department of Energy made to spur electric vehicle production is doing just that.
And that pretty much describes the motivation behind all stimulus. The government intends to get the factories humming again by giving them some free money. But in the case of a new innovation, isn't the equation a little different?