Mr. Obama has promised us a “New New Deal” as he prepares to
launch his mega-billion-dollar infrastructure program, his plan
for nationalizing health insurance, and other ambitious
government programs.
We might get an idea of what’s likely to happen by reflecting on
experience with Franklin D. Roosevelt’s most ambitious
infrastructure program — the Tennessee Valley Authority. It was
heralded as a program to build dams that would control floods,
facilitate navigation, lift people out of poverty — and help
America recover from the Great Depression.
Back in 1933, David Lilienthal, one of the founding directors of
the TVA, vowed that “The Tennessee Valley Authority power program
is not a taxpayers’ subsidy. It is a business undertaking.” In
fact, for more than 60 years, Congress appropriated funds to
cover the TVA’s losses.
Although the TVA stopped requesting such appropriations a decade
ago — perhaps to avoid Congressional scrutiny — it continues to
be heavily subsidized. The TVA pays neither federal, state nor
local taxes that private businesses must pay; and as a government
entity similar to Fannie Mae and Freddie Mac, it can borrow money
more cheaply than private businesses. Currently, the TVA has
about $26 billion of debt.
The TVA also doesn’t have to incur the costs of complying with
myriad federal, state and local laws. By one researcher’s count,
the TVA is exempt from 137 federal laws, such as workplace safety
and hydroelectric licensing. The TVA can set electricity rates
without oversight by the Federal Energy Regulatory Commission
that has jurisdiction over private utilities. The Securities and
Exchange Commission has limited jurisdiction for oversight of the
TVA. The TVA is the biggest New Deal monopoly, but is exempt from
federal antitrust laws. It is exempt from many federal
environmental regulations, as well as from hundreds more state
laws and regulations. When the TVA wants more assets, it doesn’t
have to haggle, because unlike private businesses, it has the
power of eminent domain.
The Tennessee Valley Authority was established by Franklin D.
Roosevelt in May 1933 — one of his Hundred Days measures — but
it really goes back to 1918. Woodrow Wilson decided that the
federal government should get into the gunpowder business because
German submarines had sunk some ships bringing nitrates from
Chile. E.I. du Pont de Nemours, the world’s most experienced
gunpowder manufacturer, wanted to build a gunpowder manufacturing
facility at Muscle Shoals, Alabama, on the banks of the Tennessee
River, and the company proposed building a hydroelectric plant to
provide the power that was needed.
“Progressive” politicians were wary that du Pont might make money
on the deal, so the decision was to have two gunpowder
manufacturing facilities: one built by du Pont and the other by
the federal government. The du Pont facility was finished for
$129.5 million and produced 35 million pounds of canon powder
before the Armistice (November 1918), but the government facility
didn’t produce anything at all. The Muscle Shoals project became
the starting point for the TVA.
As a remedy for the Great Depression, the TVA didn’t work. No new
wealth was created. Through taxation, the TVA transferred
resources from the 98 percent of Americans who didn’t live in the
Tennessee Valley to the two percent who did. Money spent in the
Tennessee Valley was offset by spending that didn’t happen
elsewhere because taxes needed to pay for the TVA reduced
people’s net incomes.
The building of TVA dams, like any other complex public works
projects, proceeded slowly. Only three TVA dams were completed
before the New Deal period ended and war mobilization began in
1940. The TVA dams were small — less than one-twentieth the
power-generating capacity of big western dams. Although building
TVA dams provided work for engineers and skilled construction
workers, who earned above-average incomes, the dams really came
too late to have much impact on most people in the Tennessee
Valley during the Great Depression.
To the degree the TVA had any impact at all, it appeared to be
negative. The most important study of the effects of the TVA, by
energy economist William Chandler, estimated that in the
half-century after the TVA was launched, economic growth in
bordering states, where people didn’t get TVA-subsidized
electricity, equaled or surpassed economic growth within the
Tennessee Valley. Chandler concluded, “Among the nine states of
the southeastern U.S., there has been an inverse relationship
between income per capita and the extent to which the state was
served by the TVA….Watershed counties in the seven TVA states,
moreover, are poorer than the non-TVA counties in these states.”
In the non-TVA southern states, there was a greater exodus of
people out of subsistence farming into manufacturing and
services, which offered higher incomes. Ironically, electricity
consumption grew faster in the non-TVA southern states, because
it tends to correlate with income. Subsistence farmers might be
able to afford light bulbs but not the electrical appliances that
people in non-TVA southern states were buying. Furthermore,
despite the millions spent building TVA dams, water usage grew
faster in the non-TVA southern states.
In any case, it was delusional to believe that TVA-subsidized
electricity was the one “key” to eradicating poverty. There never
was a single key. Subsistence farmers needed equipment like
tractors, trucks and hay balers, powered by diesel fuel — not
electricity. They needed to develop more skills, more
sophisticated farming practices, and so on.
Backed by the power of the federal government, the TVA promoted
electricity for home heating — even when oil and natural gas
were cheaper. To the extent the TVA’s home heating campaign was
successful, it squandered resources.
As for flood control, the TVA seems to have flooded more land
(behind the dams) than it protected downstream. One economist
estimated that TVA dams flooded about 730,000 acres — more land
than there is in Rhode Island. Most directly affected by TVA
flooding were the 15,654 people who were forced out of their
homes to make way for dams. Farm owners received cash settlements
for their condemned property, but black tenant farmers got
nothing.
As one might expect with a monopoly that can ignore so many laws,
there have been reports of waste and possible corruption at the
TVA — lucrative executive perks, cozy consulting contracts,
costly building leases and much more, according to the TVA’s own
inspector general. The TVA spent $15 billion building nine
nuclear power plants, and none of them worked. The TVA hired a
former Navy admiral to fix them, but he was charged with cronyism
and bad judgment. There were congressional investigations.
Although the TVA was established to build dams, it has expanded
relentlessly as bureaucracies do, and it went on to operate 11
coal-fired power plants and three nuclear power plants as well as
49 dams — apparently with ambitions to expand the TVA’s
power-generating monopoly beyond the Tennessee Valley. Among
other things, this has raised environmental concerns. Ralph Nader
charged that the TVA “has the poorest safety record with
[nuclear] reactors.” On December 22, 2008, at the TVA’s Kingston,
Tennessee coal-fired plant, the dike of a 40-acre holding pond
broke, spilling as much as a billion gallons of coal sludge with
elevated levels of arsenic. The sludge covered some 300 acres up
to six feet deep, damaging homes and wrecking a train. This spill
reportedly was more than 50 times bigger than the oil spill from
the Exxon Valdez tanker that went aground in Alaska.
As experience with the TVA suggests, what voters think they’re
signing off on with a big new government program can end up being
very different from what they actually get. A program expands
over the years, it morphs into a powerful interest group and
becomes politically unstoppable despite harm done. The TVA might
be compared to the kudzu vines it imported and urged farmers to
plant for controlling erosion. Kudzu turned out to be among the
most invasive weeds, growing a foot a day, a pest that is almost
impossible to get rid of — surviving fire and poison, and often
reappearing after it was thought to be gone.
