Spain's Failed Economic Experiment

Spain’s program to put 2000 electric cars on the road by the end of 2010 has failed. So far, despite massive government subsidies to encourage sales, only 16 electric cars have been sold in all of Spain.

The government invested almost $1 Billion into the program, including giving subsidies of more than $7,800 to buyers. Despite heavy government propaganda, a very “green” friendly populous and massive subsidies, the program still failed.

Why?

The answer is because the cars still cost $31,400 even after the subsidy and there have only been 20 charging stations built across the entire country (only 1 in Madrid). These two factors combined make the price of owning one of these cars very expensive, a killer in tough economic times.

Spain is also cutting in half its massive subsidies it provides to firms willing to invest in solar technology in the country. Spain says it is cutting the subsidies in order to save money. It also says that cuts are justified because the subsidies have allowed the industry to grow and it can remain profitable on its own.

Half of that story is correct: Spain is going bankrupt by trying to steer its economy towards green energy. This is a laudable goal and alternate energy should certainly be encouraged, but bankrupting your economy in order to get there is clearly the wrong tactic, as is evidenced by Spain’s current troubles.

If solar electricity was so successful, the demand for electric cars would be evident. If the demand were evident, charging stations would pop up all across the country in order to cash in. Cars wouldn’t need to be subsidized in order to get sold.

Spain is conducting a valuable economic experiment that we can all benefit from by paying attention. The lesson? A government that tries to control the economy and force it off of fossil fuels before it’s cost effective to do so is a recipe for failure.

This is no longer a debate suitable only for theoretical ivory tower discussion. Spain has provided a real-world example (yet again) that you cannot stifle market forces, that a command-and-control type economy will always fail, and that by just throwing untold amounts of money at alternate energy does not necessarily make it viable.