Three Mile Island Demonstrates the Value of Free Markets

In a political environment that increasingly pretends government-imposed fixes are the best answers to everyday problems, it sometimes feels like a rare moment when we can celebrate the problem-solving dynamism of the marketplace.

The reopening of Three Mile Island

Three Mile Island – specifically, the new 20-year agreement between Constellation and Microsoft to fire up the decades-old reactor and provide urgently needed baseload power to the electrical grid – is such a moment. This deal represents a genuine market-driven solution to a broader economic challenge: satisfying our unquenchable thirst for electricity.

Too many lawmakers propose government intervention to meet this need. Proposals traditionally use the carrot-or-stick approach: Politicians dangle tax breaks and subsidies (the carrot) to attract the businesses they like and penalize the ones they don’t with increased taxes and regulations (the stick).

That’s how our state ends up pushing authoritarian and arbitrary policy schemes like the Regional Greenhouse Gas Initiative (RGGI), the Pennsylvania Climate Emissions Reduction Act (PACER), and the Pennsylvania Reliable Energy Sustainability Standard (PRESS) – all of which burden industry and incentivize less-productive sectors.

Such misguided measures are, at best, a band-aid. These proposals offer superficial solutions to complex problems.

At worst, government intervention wreaks economic havoc. When the federal government injected billions of taxpayer funds to stimulate the pandemic-ravaged economy, record-breaking inflation was the unfortunate yet predictable result.

Government subsidies distort the market. Subsidies drive an unnaturally increased investment in low-yield economic activities, such as intermittent energy sources like solar and wind.

Nuclear power provides the base load

And these subsidy-reliant sources pale in comparison to nuclear power. Nuclear provides baseload power – the around-the-clock, easily dispatched electricity that powers the grid when weather-dependent wind and solar cannot.

Even with massive subsidies and regulatory advantages, solar and wind remain economically unfeasible on a larger scale. The solar industry has experienced a recent spree of bankruptcies. Unless taxpayers foot the bill, government-subsidized energy enterprises – from Solyndra to Titan Solar – lack the comparative advantage to compete. Government underwriting props up inherently flawed enterprises that can vanish as quickly as they appear – all at the expense of hardworking taxpayers.

Markets thrive on competition, not coercion. If the government removes or artificially restrains competition, the market will not produce the most efficient result. When it tampers and intervenes, the government picks the winners and losers, and the rewards become stratified. A few disproportionately benefit and shortchange the rest.

Most government intervention schemes lack the price system – the organic method of naturally defined production, distribution, and consumption of goods and services. The demand for electricity has steadily risen while the available supply has dwindled, resulting in higher prices. These higher prices send an urgent signal to the world of the need for more electricity, and quickly.

How prices signal that something is worth doing

This price signal doesn’t necessitate a government mandate. Instead, this organic incentive encourages the profit motive within the market. Though it sounds selfish and self-serving, the profit motive invites businesses to capitalize and invest.

Three Mile Island is an illustrative case study.

Five years ago, Exelon, the company that managed Three Mile Island, faced a significant economic downturn and lobbied for a $500 million bailout. Fortunately, Pennsylvania lawmakers did the right thing and balked at this massive subsidy, leading to the plant’s inevitable closure.

Now, the plant is on the cusp of something far more impactful. Rather than extracting millions of public funds through annual subsidies, the Constellation-Microsoft project at Three Mile Island will generate about $3 billion in state and federal tax revenues. When Exelon closed, the community lost about 600 well-paying jobs. Now, projections suggest the Three Mile Island revival will require 3,400 direct and indirect jobs to rebuild, operate, and service the plant.

What once could have been a drain on public funds now will contribute more than it extracts while producing much-needed reliable electricity.

Other Three Mile Island moments happen every day, though on a smaller scale

What’s happening at Three Mile Island isn’t an isolated example. Instead, this big-ticket, cutting-edge event represents the countless smaller economic interactions that occur in the free marketplace every single day: companies and individuals assuming financial risk, voluntarily entering into mutually beneficial contracts, and crafting enterprises that create well-paying jobs and provide essential goods and services.

Sound economics guide good public policy. This happens when we minimize unnecessary government intervention and allow free markets to do what they do best.

This article was originally published by RealClearPennsylvania and made available via RealClearWire.