McCain got it Right!

By: AKA- Josh Raines

Prizes & Incentives

 

In June of 2008 John McCain fronted a plan in which the principles it is based on could be the solution to our energy problem and perhaps much more. On June 23rd, 2008 Senator McCain offered his vision on energy which will be utilized in his administration. The Senator’s plan calls for a $300 Million grand prize to the first person or company who can develop an automobile battery that far surpasses existing technology. McCain said such a device should deliver power at 30 percent of current costs and have “the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.”

            While this plan is most likely the best “government solution” we have had on the table, the Senator cannot take complete credit for the idea of incentives and prizes. Former Republican Speaker of the House Newt Gingrich outlines similar proposals in his book Real Change (This book was published before Senator Obama started his campaign for “Change’).

            “Prizes are powerful because they allow anyone to compete, opening the door to new ideas and new players. In addition, prizes stimulate the imagination and the competitive spirits of many who would never waste their time in a bureaucratic process” (Gingrich 189). Speaker Gingrich points to several examples in his book about private sector and government incentives that get jobs done quickly and effectively. He cites the examples of Charles Lindbergh who flew from New York to Paris in 1927 for a $25,000 grand prize. More recently he points also to more recent incentives such as the $10 Million Ansari X Prize which was offered for reaching space twice within fourteen days. Gingrich adds that various billionaires and other entrepreneurs spent over $200 million combined trying to win the prestige and satisfaction of victory, the winning entry spent $20 million to win the $10 million grand prize.

            It is clear Senator McCain is on the right track when it comes to forward thinking, however, when it comes to dealing with budget issues, the Senator would have the opportunity when elected to demonstrate the ability to do more than cut pork barrel spending and actually cut unnecessary government programs. Gingrich points to a big federal money sponge in his book, with a $450 billion budget to get to mars NASA, Gingrich argues will spend quite a bit of time and money, thinking, planning and studying. With incentives offered by the federal government we could reach our goals much more quickly and as Gingrich puts it, “with much more cost effectiveness”. In his book Gingrich lays down a plan to offer a $5 billion tax free reward for the first permanent lunar base and a tax free $20 billion prize for the first team to reach Mars and back. This plan would save the American tax payer an estimated $200 billion in projected NASA spending.

            I believe Senator McCain is on the right track and is in touch with the American people on this issue. We should continue this policy of reward, incentives and prizes into other aspects of government to help make it more efficient. According to Speaker Gingrich’s American solutions poll, just over 79% of the American people support prizes for key breakthroughs.      

             

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4 Comments

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4 responses to “McCain got it Right!

  1. snickerbites

    I guess you could say its a good start to have McCain “bribe” scientists to get a jump start on the energy solution for cars, but personally I feel that this issue should already be one of the top priorities of our most highly prestige engineers around the world. I mean sure the US will only have to spend $300 million dollars for the “grand prize” but what about all of the money that is put into making the actual product?
    If the scientists spend more than $300 million to make this energy sufficient battery then I would assume they would want more than what’s offered on the table and would sell their product to some other private company that is willing to pay more than $300 mill. This will make our new invention “out of reach” to the average American since its not delivered through the government and will only be available by those who can actually afford it.
    I just think its kind of risky to put a price on something that hasn’t even been made yet. The government should just be funding those who are actually trying to create this rather than giving out a bribe.

  2. Tony Robinson

    Provocative Post Josh–and I like the way you tie McCain’s “prize” idea into Gingrich’s book and theory about how to incentivize private innovation.

    I also share snickerbite’s concern that $300 million might finance a prototype, but there are many costs beyond that to make it a realistic mass market energy saving device, and government might have a role in covering some of those other costs as well, if we are serious about putting alternative energy on the fast track.

    $300 million won’t even come close to inventing, testing, mass producing and marketing solutions to our oil dependency. Obama is proposing a $150 billion “Green energy” plan to subsidize innovations like you are talking about, and to put Americans to work on green energy wind farms and the like here in America. You might not like those specific proposals–but I think the price tag is more realistic in terms of what government will have to spend if we are serious about catalyzing the kinds of structural reforms our economy will need to break our oil addiction.

  3. Steven Dell

    If you look at the $300 million as a way to offset the fixed cost of starting an industry then maybe this is truly a good incentive. If there is sufficient interest in the “alternative energy” industry then there should be a market to sell your product.

    Say it costs $6 billion to develop your product $300 million does not seem that much. The point is it costs $6 billion dollars regardless of an incentive. $300 million is better than nothing, right? So again if there is sufficient interest, my guess is that because it does not exist on a mass produced scale there isn’t, then people (investors) will make money far more than the 300 million won for the initial contest.

    The space contest mentioned in the post was again a way for an entrepreneur to start his space tourism business (If I remember correctly). $10 m was not enough to cover his initial cost, but if he is able to start a successful business then the initial investment is worth it. This is basic finance and economics.

    Incentives are a very good way to get people to innovate in new directions. The big issue that I have is that there has to be a demand for the product being innovated. If there is said demand then usually there is no need for the incentive because the incentive comes from the marketplace.

  4. Stephen Noriega

    So what if the Russians entered this contest and established a base on the moon and on Mars. Would we pay them for winning the next two legs of the space race?

    I don’t think prizes are as important as cultures. When Kennedy and Krushchev vowed to get to the moon, they shifted a paradigm trying to get to a place usually deemed impossible.

    I think Obama’s green plan is too small. His 150 billion dollar plan is stretched out over ten years. That’s 15 billion a year, not enough to change the infrastructure of America to handle alternative fuel vehicles or to deal with the power grid from solar and wind. If we are serious, the government should spend 100 billion a year in this endeavor. Then I would take notice.

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