Nathan Tankus is a student and research assistant at the University of Ottawa. You can follow him on Twitter at @NathanTankus
The give-away boys in Washington
Are busy as can be.
They’re giving away the TVA
And the U. S. Treasury.
They’ve robbed us of the tidelands oil
And brother, they’re not done.
The give-away boys, the give-away boys
Way down in Washington.
There’s many a way to rob and steal
If ever you get the yen,
You can do it with a forty-four
Or with a fountain pen.
President Obama adopted a reflective tone to mark the passing of Maggie Thatcher. Commenting on her death, he stated “the world has lost one of the great champions of freedom and liberty.” In Obama’s proposed budget, we found out what the terms “freedom” and “liberty” mean: the freedom for the old to go hungry and the freedom of the poor to go cold.
The headline issue, cutting Social Security benefits by changing the measurement of inflation (the “chained CPI”), is something that writers on Naked Capitalism have been predicting for a long time. What has come as a shocking (but not surprising) twist is a bombshell buried in Obama’s budget: the proposed privatization of the Tennessee Valley Association. At this point I think it’s important to quote a part of this section of the budget at length:
TVA is a self-financing Government corporation, funding operations through electricity sales and bond financing. In order to meet its future capacity needs, fulfill its environmental responsibilities, and modernize its aging generation system, TVA’s current capital investment plan includes more than $25 billion of expenditures over the next 10 years. However, TVA’s anticipated capital needs are likely to quickly exceed the agency’s $30 billion statutory cap on indebtedness. Reducing or eliminating the Federal Government’s role in programs such as TVA, which have achieved their original objectives and no longer require Federal participation, can help put the Nation on a sustainable fiscal path. Given TVA’s debt constraints and the impact to the Federal deficit of its increasing capital expenditures, the Administration intends to undertake a strategic review of options for addressing TVA’s financial situation, including the possible divestiture of TVA, in part or as a whole.
Notice how nonsensical the justification for the “divestiture of TVA” is. The authors clearly acknowledge that the Tennessee Valley Authority is a “self-financing Government corporation”. The TVA issues its own debt and also has income from electricity sales. Yet because its capital expenditures are counted as part of the federal deficit for accounting purposes, privatizing the TVA supposedly counts as a “spending cut”. This is the willful blindness of orthodox thought taken to extreme levels. Privatizing the TVA doesn’t shrink the amount of debt in the economy one cent; all it does is bring that debt onto private balance sheets. In fact, private investors will buy the Authority on mainly on credit, increasing the amount of private debt.
Additionally, these capital expenditures are being made to modernize the TVA, or in other words, increase the amount and value of government assets. Even from an orthodox perspective, what’s important isn’t just the liabilities of the federal government, but also its assets. Businesses account for capital expenditures, transfers and expenditures very differently, but since “the deficit” is the headline number Washington is obsessed with, Obama and congress are obsessed with shrinking that headline number rather then doing things that make sense economically for the federal government.
What this will change is the lives of over nine million people across seven states. It is impossible to underestimate the explosive impact of this policy. Approximately one out of every thirty-five people in the United States get their utilities from the Tennessee Valley Authority. If the past is any guide, an Obama success in privatizing the Authority will lead to explosive price increases that will increase the cost of living all across these states. The devastating effect of this can’t be underestimated. Take Tennessee for example: according to the Census, Tennessee median household income is nearly $9000 below the national median. One of the things that partially offsets this is that the cost of living in Tennessee is 14% below the national average according to the ACCRA cost of living index. Utilities are a major part of that both by directly lowering the cost of utilities for consumers and lowering costs for the businesses they purchase from.
What’s possibly even more frightening is the environmental implications. The Authority is responsible for all sorts of land management, river management and other environmental responsibilities in the region. A complete privatization of the TVA could conceivably eradicate environmental management in the area. Even in a better scenario, another agency would still have to take over those responsibilities, which would involve enormous investment and cost to set up such a large operation. This area has already had to deal with Mountain top removal for many years; it is unclear whether or not it could take another environmental disaster of this sort. What is most worrying is the fact that the Tennessee Valley Authority has three nuclear power plants under its control. What effect will changing control of those plants have on their management?
On the bright side, there are signs that this give-away won’t go through smoothly. Bloomberg seems to be the first major news outlet to report on this scheme: “A sale of TVA would cost taxpayers money and may boost electricity rates,” said U.S. Senator Lamar Alexander, a Republican from Tennessee. “The proposal is ‘one more bad idea in a budget full of bad ideas,’” Alexander said in an e-mailed statement. The TVA is very popular, even among Republicans in the area. This shouldn’t be surprising. It is a popular cliché that all politics is local. I don’t think that is true, but it is true that politicians are often more loyal to regional interests and issues then national ones.
The Tennessee Valley Authority is the ultimate regional issue and thus area Republicans are getting out in front of their base rather then playing to cosmopolitan speculators who desperately want to own the TVA. When Eisenhower gave a contract to a private company to build a coal plant rather then providing taxpayer funds to the TVA to construct additional generating capacity in the Memphis area, it was called a scandal and helped propel Democrats into Congress. The last major politician to seriously propose privatizing the Authority was Barry Goldwater during his 1964 campaign. For all the talk about Goldwater pursuing a “southern strategy”, he lost by over 5% in Tennessee as a result. It is telling that Obama’s political father on this issue is Barry Goldwater. To be fair, Bill Clinton also went on a privatization binge at this point in his career: “He proposed selling off four federal electric utilities in his 1996 budget (see page 149), and he did manage to complete the sale of the Alaska Power Administration. He also privatized the federal helium reserve in 1996, the Elk Hills Petroleum Reserve in 1997, and the U.S. Enrichment Corporation in 1998.” We can only hope that this initiative fails as resoundingly as Goldwater’s 1964 campaign.