Battery Prizes (The Fuzzy Math of John McCain, Part 2 in an Unending Series)

(Part One)

A palate cleanser after the math quiz ... this time, I do the arithmetic for you!

Tom Lee gets at the real reason that McCain's $300M prize for a better car battery or clean energy doesn't make sense is that whoever comes up with these inventions is likely to become fabulously wealthy already. The average new car sold in the United states costs about $30,000. Let's say the intellectual property associated with clean technology is worth 3% of the cost of the car; that is, if Ford owns the patent, and Honda wants to put this technology in their new $10,000 Civic, they would be willing to pay Ford a royalty of $300 per civic. We're not counting any increases in manufacturing costs; we're just trying to assign a dollar value to the technological innovation itself. In total, this works out to $900 per new car in America, times 7.5 million new cars sold each year, adds up to ... [cue doctor evil voice] 6.75 billion dollars. Per year! Even if the new battery makes it into just 3% of American cars (which was the forecast for hybrid market share prior to 2005), it will be worth just over $200M in the first year alone, and $4B over the life of the patent.

But this is a long explanation that doesn't fit very well into a debate response. But Barack Obama's speechwriters have a better explanation:

I don’t think a $300 million prize is enough. When John F. Kennedy decided that we were going to put a man on the moon, he didn’t put a bounty out for some rocket scientist to win — he put the full resources of the United States government behind the project and called on the ingenuity and innovation of the American people. That’s the kind of effort we need to achieve energy independence in this country, and nothing less will do.

Well said.

Comments

[Lisa Simeone]

"The average new car sold in the United states costs about $30,000."

Good god, what kinds of cars are people buying?? We paid $17,000 for an everything-but-the-kitchen-sink-included Honda Civic.

[low-tech cyclist]

Kevin Drum asked why the conservative obsession with prizes.

My answer, cross-posted from Carpetbagger:

The GOP is against taxes and regulation, so those approaches are both out. But they’ve got to look like they’re doing something: for some odd reason, people just don’t buy the notion anymore that the free market will solve all our problems. (Go figure.)

Offering a prize satisfies those constraints - and it’s hard to think of anything else that does. So that’s why prizes are the new GOP elixir.

[Nicholas Beaudrot]

I think a fully loaded Accord is now over $30,000. There are now editions of the Ford F250 that cost over $100K.

Also consider that for every Civic, there's an M3 or SLK Kompressor or whatever.

[litbrit]

why the conservative obsession with prizes

Oooh, ooh, I know, I know, can I answer this Mister Kot-tair?

It's because superwealthy, nine-homes-owning, private-jet-traveling folk like McNasty et. al. have this barely-concealed condescending view of the rest of the country (you won't believe how I typed country before quickly backing up and correcting it and then realizing how funny the original mistake was, but anyway). You can imagine what they say to one another when having a tête-a-tête about What to Do Next: Lessee, what do most of these unwashed relate to better than anything--what kind of stuff do they watch on teevee? Of course: those game shows like Deal or No Deal and American Idol! You know, where there's some big cash prize involved and some yokel gets to be famous. That's what we'll do...put up a prize for some energy-saving battery invention doohicky. We look like we care about reducing oil consumption...now, now, Karl, stop laughing...and some guy from Two Egg, Florida gets to be famous and buy a new double-wide for everyone in town. It's Win-win!

[Sir Charles]

Lisa,

It's hard to get cars under $20,000 now -- and there are boatloads in the $35,000 to $50,000 range. Not to mention the stuff above that.

D.

That is funny as hell. (Corvus will be making inquiries about this Mr. Kot-air reference any minute now -- no, on second thought, he probably wasted many hours watching Nick at Nite. :-)) Is there really a place called Two Egg Florida?

[litbrit]

Sir C:

You betcha.

[low-tech cyclist]

After reading this thread last night, I looked over at my wife (born and raised in Florida) and asked her, "did you know there was a town in Florida called 'Two Egg'?"

She didn't. I don't often know, however briefly, something about Florida that she doesn't.

[Scott K]

Now that would be comedy gold if there was a neighboring town called Ham...

I was making exactly the same point to a Republican friend last night, Nick... I pointed out that there are really a lot of incentives already for the private industry to develop improvements in battery technology for the simple reason that a smaller battery that delivers more power, etc. (all of the good stuff for cars) is also very desirable for laptops, PDAs, cell phones, and all sorts of electronic goodies. It just so happens that current battery technology isn't quite at the point yet where it can deliver power and range (not to mention price) at a level that would make them suitable for the unwashed masses.

Tossing a $300 mil prize doesn't change any of the private incentives in the least. Major investment in driving forward research aims at a different part of the problem-- the fact that massive leaps in technology tend to come coupled with a substantial risk, and investors and businesses may not be as interested in assuming the financial costs of that risk. The government, however, could do that for the sake of the public interest. Of course, McCain can't say anything like that-- the public interest is some crazy Commie idea, after all.

[Marcin Tustin]

It's odd to see that no-one seems to think that individuals count in this. The incentives for private researchers matter a lot, and if they can personally pocket even a slice of $300m that changes the game a lot for them.

[litbrit]

Scott, there isn't a Ham, Florida. However...

We have Sorrento and Mayo, plus the general area known as the Panhandle.

And of course, breakfast wouldn't be complete without a Tangerine.

[Scott K]

litbrit, excellent... all I need now is a Bloody Mary and I'm all good for breakfast.

marcin, if you think about private researchers, they are in the field for one of two reasons-- either they are in a situation where they personally can profit from their innovations (in which case the potential profit alone is most likely sufficient incentive) or they have non-financial motivations. Sure, someone seeing a slice of a $300 million prize certainly helps throw the greed drive into gear, but I am very skeptical that it would offer a substantial improvement in the overall incentive scheme to come up with this type of technology-- in other words, the marginal value of throwing that money in the form of a prize strikes me as being lower than other uses.