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That existing utilities serving cities would not want to expand to rural areas does nothing to support the argument that no private business wanted to enter thi

by rsj_hn 5y ago

That existing utilities serving cities would not want to expand to rural areas does nothing to support the argument that no private business wanted to enter this market. After all, utilities are known to be very conservative as they are regulated monopolies. Trying to convince them to enter a risky new market is a tough sell. But those incumbent utilities themselves came into existence with some entrepeneur taking a risk, so the ability of the market to meet this type of need is there, but it requires credit for new entrants, not "asking" an incumbent monopoly to do it. But the reason entrepeneurs couldn't in the 1930s was that there was no financing available to do so, and the law allowing subsidized government lending only to cooperatives (shutting out private business) prevented them from doing it. In fact if no private business wanted to enter this market, why was there legislation to exclude them? Why not just lend to anyone who wanted to take on the project? Then if half the borrowers were coops and half were private business, so be it. Then we could look back on this, and if indeed most were coops, we could make the kind of affirmative statement you originally made. But as it stands, it's not a fair statement to make.

hardwaregeek 5y ago
I'm confused about your claim that the REA bill shut out private business. That's not correct as far as I can tell. Caro^[1]: > The conflict over inclusion of the utilities was compromised by allowing them to be eligible for REA loans, but giving preference to non-profit bodies such as cooperatives. And the actual bill text^[2]: > The Secretary is authorized and empowered, from the sums hereinbefore authorized, to make loans for rural electrification to persons, corporations, States, Territories, and subdivisions and agencies thereof, municipalities, peoples' utility districts and cooperative, nonprofit, or limited-dividend associations, organized under the laws of any State or Territory of the United States, for the purpose of financing the construction and operation of generating plants, electric transmission and distribution lines or systems for the furnishing and improving of electric service to persons in rural areas... > Provided, That the Secretary, in making such loans, shall give preference to States, Territories, and subdivisions and agencies thereof, municipalities, peoples' utility districts, and cooperative, nonprofit, or limited-dividend associations, the projects of which comply with the requirements of this chapter. Yes, there is a clause stating a preference for cooperatives, but as Caro explains, making these cooperatives was not that easy for poor rural areas: > The REA Act required loans to be self-liquidating; before a farmers’ electrical cooperative could obtain a loan, therefore, the REA had to be satisfied that the cooperative would be able to repay it, together with annual interest of about 3 percent, within twenty-five years. The crucial criterion the REA established to ensure this was population density: the agency said it would make no loan in any area in which the electrical lines to be built would serve an average of less than three farms per mile. [1]: The Path to Power: The Years of Lyndon Johnson I (p. 721). Knopf Doubleday Publishing Group. Kindle Edition. [2]: https://uscode.house.gov/view.xhtml?path=/prelim@title7/chapter31&edition=prelim https://uscode.house.gov/view.xhtml?path=/prelim@title7/chap...
- rsj_hn 5y ago
  So I am confused as to why you don't see the problem. Yes, there was some due diligence required, but I don't think that's the issue. No one was asking for zero due diligence. The problem is that this loan program was biased against private business and promoted the creation of collective organizations, and predictably, private business did not take advantage of it but collectives did, and from that you claim that private business didn't want to take advantage of it. You see the issue here? If they just said "Hey, the banks wont lend to this risky venture, so we'll step in and do it" and they offered the same terms to everyone regardless of their political organization, then it would be a different story. But that's not what happened.
  - Aloha 5y ago
    It'd take me a while to find the citation but private utilities did take up REA loans, which is why rural power co-ops are not the dominant form of utility in rural America. There were other programs that did offer subsidy as well to extend rural electrification efforts
  - hardwaregeek 5y ago
    If I'm reading your comments correctly, you're claiming that if there had been capital available, there would have been some entrepreneur who would have electrified rural areas on their own. However, there was no capital due to the Great Depression. The issue with that argument is that rural electrification was a problem before the Great Depression. It was an issue back in the 20's, the period in which you claim that credit was quite cheap. So why didn't entrepreneurs go out and electrify rural areas? Probably because of the prevailing notion that farmers wouldn't pay for electricity.

by rsj_hn 5y ago

hardwaregeek 5y ago

I'm confused about your claim that the REA bill shut out private business. That's not correct as far as I can tell. Caro^[1]: > The conflict over inclusion of the utilities was compromised by allowing them to be eligible for REA loans, but giving preference to non-profit bodies such as cooperatives. And the actual bill text^[2]: > The Secretary is authorized and empowered, from the sums hereinbefore authorized, to make loans for rural electrification to persons, corporations, States, Territories, and subdivisions and agencies thereof, municipalities, peoples' utility districts and cooperative, nonprofit, or limited-dividend associations, organized under the laws of any State or Territory of the United States, for the purpose of financing the construction and operation of generating plants, electric transmission and distribution lines or systems for the furnishing and improving of electric service to persons in rural areas... > Provided, That the Secretary, in making such loans, shall give preference to States, Territories, and subdivisions and agencies thereof, municipalities, peoples' utility districts, and cooperative, nonprofit, or limited-dividend associations, the projects of which comply with the requirements of this chapter. Yes, there is a clause stating a preference for cooperatives, but as Caro explains, making these cooperatives was not that easy for poor rural areas: > The REA Act required loans to be self-liquidating; before a farmers’ electrical cooperative could obtain a loan, therefore, the REA had to be satisfied that the cooperative would be able to repay it, together with annual interest of about 3 percent, within twenty-five years. The crucial criterion the REA established to ensure this was population density: the agency said it would make no loan in any area in which the electrical lines to be built would serve an average of less than three farms per mile. [1]: The Path to Power: The Years of Lyndon Johnson I (p. 721). Knopf Doubleday Publishing Group. Kindle Edition. [2]: https://uscode.house.gov/view.xhtml?path=/prelim@title7/chapter31&edition=prelim https://uscode.house.gov/view.xhtml?path=/prelim@title7/chap...

rsj_hn 5y ago
So I am confused as to why you don't see the problem. Yes, there was some due diligence required, but I don't think that's the issue. No one was asking for zero due diligence. The problem is that this loan program was biased against private business and promoted the creation of collective organizations, and predictably, private business did not take advantage of it but collectives did, and from that you claim that private business didn't want to take advantage of it. You see the issue here? If they just said "Hey, the banks wont lend to this risky venture, so we'll step in and do it" and they offered the same terms to everyone regardless of their political organization, then it would be a different story. But that's not what happened.
- Aloha 5y ago
  It'd take me a while to find the citation but private utilities did take up REA loans, which is why rural power co-ops are not the dominant form of utility in rural America. There were other programs that did offer subsidy as well to extend rural electrification efforts
- hardwaregeek 5y ago
  If I'm reading your comments correctly, you're claiming that if there had been capital available, there would have been some entrepreneur who would have electrified rural areas on their own. However, there was no capital due to the Great Depression. The issue with that argument is that rural electrification was a problem before the Great Depression. It was an issue back in the 20's, the period in which you claim that credit was quite cheap. So why didn't entrepreneurs go out and electrify rural areas? Probably because of the prevailing notion that farmers wouldn't pay for electricity.