Adam Smith’s Wisdom and the Nuclear Energy Debate

In the United States, a significant faction is calling on the government to “phase out nuclear energy.” Meanwhile, Spain’s government is planning to phase out nuclear power by 2035, following similar anti-nuclear pledges by Germany and Switzerland. Adam Smith’s life concluded over a hundred and fifty years before the first nuclear chain reaction was achieved, yet his ideas are key to understanding today’s debate over nuclear energy policy. 

What might the father of economics make of those who seek to steer the market away from nuclear power? In his An Inquiry Concerning the Nature and Causes of the Wealth of Nations he wrote:

Nearly two centuries and a half later, some policymakers still haven’t internalized Smith’s profound insights about the importance of market signals and the law of supply and demand.

Advocates of the government steering energy choices often claim that green energy—restrictively defined to exclude nuclear power—is “the future,” rather than the past. Yet even Smith’s writings reference “wind [and] water mills” as established technologies. Half a century ago, an efficient solar energy device spurred the plot of a 1974 James Bond film. Five decades haven’t shifted the belief in some quarters that such a device is just around the corner. 

And the subsidies are growing. In the United States in 2015, solar and wind power received, respectively, 326 and 69 times more in subsidies per unit of energy generated than conventional sources. By 2019, solar received up to $320 in government cash while wind power received around $57 per megawatt hour of energy generated, or about 640 and 114 times conventional electricity, according to a University of Texas study. And that was before the Biden-Harris administration effectively doubled such subsidies in 2023. (Nuclear subsidies pale in comparison).

Most solar subsidies go to residential installations. Solar companies cannot compete without government support, but receive so much of it that installing rooftop systems, which cost a minimum of $10,000, at no upfront cost to the consumer, is still profitable. This hurts both taxpayers and consumers, as Smith well understood. He once noted of subsidies, “the final payment, instead of falling upon the shopkeeper, would have fallen upon the consumer, with a considerable overcharge to the profit of the shopkeeper.”

It is easy to spend others’ money. As Smith observed:

These costly subsidies are producing a poor return rate on taxpayers’ investment. In 2022, solar power provided merely 3.4 percent of electricity in the United States, while wind generated just 10 percent, according to the U.S. Energy Information Administration. These power sources are failing despite massive subsidies because they are inherently unreliable—a windless, cloudy day can defeat the whole enterprise. As fickle as nature can be, Smith quipped that the “elements of human folly and injustice” are yet “more uncertain” than even “the winds and the waves.” Such folly is on full display when it comes to energy subsidization policies.

Given the limits of battery storage technology, these forms of power are simply unscalable and inefficient. Smith was vocally in favor of increased energy productivity, praising efficiency advances in early steam power: 

While lavishing taxpayer dollars on their preferred energy sources, many bureaucrats discriminate against other forms of electricity, for example by creating rules limiting the creation of new nuclear power stations that are mathematically impossible to meet. Such severe overregulation is tantamount to a ban, as some environmentalists even admit.

Favoritism to certain energy sources over others unfortunately seems tied to political considerations rather than the costs and benefits of each power source. Smith recognized that complex information about costs and benefits could be distilled and transmitted through price signals. Sadly, anti-nuclear advocates have distorted the energy market with subsidies that artificially lower the cost of some energy sources and onerous regulations that raise the cost of others.

That is not to say that wind and solar energy are never practical. But shining a light on the many drawbacks of these technologies reveals the folly of bureaucracies propping up some energy sources over others, instead of heeding the market signals that Smith recognized centuries ago. Market prices convey a wealth of knowledge about a given energy source’s practicality, and are to be ignored only at great peril.

Blackouts and energy rationing are the inevitable result of ignoring such price signals and instead promoting certain power types at taxpayer expense. Consider the rolling black and brownouts that struck New England in 2022 when electricity was rationed after unwise policies forced the adoption of politically privileged energy sources over reliable ones. Those who heeded market signals predicted this. But these warnings fell on deaf ears in what Smith once called “the unavoidable ignorance of administration.” 

Ultimately, “phase out” plans and overregulation do not allow nuclear energy to compete on a level playing field with heavily subsidized but less reliable power sources. As a result, humanity and the natural environment are deprived of the cleanest reliable energy source yet devised. If only more policymakers had the good sense to embrace Smith’s timeless wisdom.