President Solyndra
The current case of the solar panel company collapsing and taking a half billion dollars of taxpayer money down with it, is an excellent example of why the federal government should not be in the business of trying to manage business. I have explained to the Grad Student a number of times over the years that there are two fundamental reasons that the government shouldn't be in the business of managing business. The first is competence. They're incompetent. This is not to say that the people in the government are incompetent people, or that they aren't smart, anymore than saying Michael Jordan was an incompetent professional baseball player means he wasn't a great athlete. Look at the experience and education of the President and the Congress…even their advisors are academics, lawyers and financiers…not business professionals who have ever had much, if any business experience. The second is motivation. The government largely has the wrong motivation…political or personal, not profitable business goals.
This brings us back to Solyndra. The application for funding for the solar panel company was started under the Bush administration. But the people in the government agencies, charged with reviewing these applications, raised all kinds of "red flags" and tabled the loan application. First, it appeared (last January) that the company was very unprofitable, had no plan to get profitable, and would run out of cash by September (that's right, the "underlings" were able to predict almost exactly when it would crash). Further, this was a huge loan ($500 million) for this size company. But, the biggest equity investor was/is one of the largest "bundlers" of campaign contributions to the President's campaign, and this was/is exactly what he wants to promote…"green" energy; 1,000 jobs; stimulus money doing good on multiple fronts; etc. He even made a filmed photo op at Solyndra. Then, the government went even further…it apparently violated a law put in place that all federal loans of this type be in front of equity and other (junior) debt. This is common practice in the private business world anyway. But the government created an exception for this special case, and ordered it off the back-burner and accelerated. "Poof!"…there goes a half billion taxpayer dollars while a political backer gets bailed out, and almost all 1,000 people get laid off. Incompetence? Cronyism? Political favors? Wanting business to be what you wish it to be? You decide. I'm simply saying…my two reasons seem validated.
The Old Man
I have to concede this one to the Old Man. Solyndra is a big failure and possibly a case of cronyism ... we'll see what the FBI and Congressional investigations turn up.
ReplyDeleteWhat do you think about the political goal of reducing pollution, vs. the goal of making a profit? How can/should society mitigate pollution, other than by restrictions/taxes on polluters and subsidies for non-polluters?
Freyguy,
ReplyDeleteYou have asked a very serious question, but I believe you have set up a false dichotomy. There is no inherent friction between making a profit and reducing pollution. There is a positive correlation between wealth creation and a clean environment - the wealthiest societies have the cleanest environments.
The real question is (should be) what is the appropriate role of government? Clearly the government should establish and enforce restrictions on pollution. We can argue about the nature of those restrictions or the manner in which decisions are arrived at, but no other entity is in position to do this. You can also make a case for basic research or tools for research like the Hubble Telescope or supercollider. These projects will only be performed by government (or possibly a non-profit).
But as a general rule investing in companies is not an appropriate function of government in a free society. Why? Well, because it just isn’t. More specifically it diverts economic resources based on whim. Worse it can actually stifle innovation. How? Let me give you an example.
My company makes gas booster heaters that cost less to operate than the more common (and cheaper) electric booster heaters. Gas booster heaters are green - in addition to polluting less they also take power off the grid. Let’s say company XYZ has a different and perceived ‘sexier’ green technology. Because of this (and connections) it gets government money. That would lower XYZ’s cost of business and might well give them enough of a competitive advantage to put my company out of business, even if our technology is better. It might also deter company QQQ (which may be developing even better technology) from entering the marketplace. After all, who wants to compete with a government backed company.
Government ‘investment’ in business also encourages consolidation of resources. For instance the government ‘investment’ in Freddie Mac and Fannie Mae gave those entities a lower cost of funds resulting in a 90% market share. Needless to say, that didn't really turn out well.
The FBI and Congress may or may not be able to prove criminal action with Solyndra. But there can be no doubt that it is crony capitalism. How can it be otherwise? Companies do not submit blind proposals to an impartial panel of engineers, scientists and business people. These are politically connected entities. That’s likely why the Department of Energy rushed to ‘invest’ billions of dollars into more projects before it became clear what caused Solyndra to implode. Talk about raising stupidity to the power of incompetence. Or maybe it’s just arrogance.
Finally I think the granting of economic favors is not too dissimilar from the granting of Indulgences centuries ago by the Catholic Church. Such gaming of the system leads to (well-deserved) cynicism and diminishes the faith of the people in their institutions. And that is a cost we truly cannot afford.
Fred,
ReplyDeleteThanks for your well-reasoned explanation. I appreciate the distinction you make (if I understand you correctly) between something like government *restrictions* on pollution (e.g. a tax companies pay in proportion to how much they pollute, which may or may not be a good thing, according to your argument) vs. direct government *investment* in companies (which you would argue inevitably leads to trouble).
I think I agree with you on this one.