“Putting green lipstick on a pig doesn’t turn that pig into Ralph Nader.”

Mead on green subsidies:

Advocates of industrial policy have been pointing to ‘smart subsidies’ for green technology as proof that government can function as an effective venture capitalist, directing subsidies effectively toward ‘sunrise’ industries.

We will probably be hearing less of those claims now as the public digests the massive excess, failure and fraud that have turned the Obama administration’s green subsidy program into a symbol of good intentions gone awry.  It turns out public policy is hard, and not every green minded NGO apparatchik is very good at hard things.

Decrying what it calls a “gold rush” mentality that primarily benefited companies like Goldman Sachs and others in need of no special help, a recent article in the New York Times surveyed a range of projects where taxpayer and ratepayer subsidies have taken all risk from the private sector and all but guaranteed large profits “for years to come.”  Even some of the companies involved in the porkfest acknowledge that things got a little out of hand; some projects that have been heavily subsidized “would have been built anyway,” they say.  The drunken sailor on shore leave style economic stimulus spending gets special attention as wasteful, misguided and lavished on corporate welfare for energy giants.

Read the rest here.

President Obama was recently asked my George Stephanopoulos on GMA if he regretted the Solyndra loan. No, he said, because you have to look at the whole portfolio of investments. They knew that some of the loans would fail, as many investments do.

First, based on recent investigations, the White House team feared that Solyndra was a failing business model before the loan guarantee was granted. Second, the government should play a minimal role, if a role at all, in venture capitalism. As was noted, many of the projects that were heavily subsidized would have been built anyway, but now the government can claim the credit for the success and growth. With that credit comes a license to spend more, and with increased spending comes increased waste.

When looking at the whole portfolio, as President Obama instructs us to do, we should see a stronger case for the government to cut many such green subsidies.

 

Who Besides Solyndra Got Loan Guarantees?

Megan McArdle explains, with many helpful infographics.

She also explains why the program’s success rate is misleading. Most of the firms receiving the money don’t need the help. They’d succeed with our without it. Those that most need the help – e.g. Solyndra – may fail, but the failure rate is hidden by the “success” of the other loans.

That is, I hope that the infographic will be broadly useful to people who support the program: I figure everyone should be interested to know where the money went.  (And here’s a spreadsheet for those who want to trundle through the data themselves). But I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital.  Established utilities, large multinational auto manufacturers, a global warehouse owner.  The bulk of these funds are not going to rectify some gap in the capital markets.  They’re straight subsidies to huge corporations.  Even some of the smaller firms/deals are owned by large corporations like Total SA.

Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O’Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.

A Case for Exploration and Drilling

From The Economist:

Commodity prices are acting as regulators of global growth. The emerging markets are first in the queue for supplies because they are often able to use each extra barrel of oil or shipload of ore more gainfully. Their demand raises prices and lowers real incomes in the rich world, which gets crowded out. Rich countries had become used to unlimited access to cheap raw materials: prices had been falling for a century or more. Now there is competition for primary resources. Producers are benefiting and rich-world consumers are suffering, at precisely the time when they are also increasingly anxious about job security as China and India rise and rise.

True, but there is no reason why we can’t be both a producer and a rich-world consumer. We need an energy policy that encourages exploration and extraction of all commodities available, including oil. “Drill, baby, drill!” might be a cheap campaign slogan, and the belief that we can drill our way out of the problem is naive, but we are choosing to transfer our wealth to producers of commodities by choosing not join them. We could create both jobs and wealth quite easily with the correct incentives and regulations. Instead we choose Solyndra.

Hope and Change and the Fifth Amendment

Yes, it’s their constitutional right, but the optics are also awful. Bloomberg reports:

Solyndra LLC executives refused to answer questions from a House energy committee investigating the solar-panel maker’s $535 million U.S. loan guarantee, which one Republican described as a half-billion dollar heist.
Chief Executive Officer Brian Harrison and Chief Financial Officer Bill Stover attended the House Energy and Commerce Committee’s investigations panel hearing today, flanked by their attorneys, as lawmakers said they were misled about Solyndra’s finances during meetings two months ago.

Harrison and Stover responded to questions by invoking their Fifth Amendment rights against self-incrimination.

Losing in Solar Investments

We still have a long way to go to get America’s economy back on track and to make the United States the world leader in clean energy technologies, but companies like Solyndra and Recovery Act investments like this one are helping drive progress across the country. -WhiteHouse.gov, 5/26/2010

Solyndra intends to file a petition for relief under Chapter 11 of the U.S. Bankruptcy Code while it evaluates options, including a sale of the business and licensing of its advanced CIGS technology and manufacturing expertise.  As a result of the suspension of operations approximately 1,100 full-time and temporary employees are being laid off effective immediately.  -Solyndra Press Release, 8/31/2011

The government’s losing decision to invest in Solyndra – the first company to receive a loan guarantee from the Department of Energy, to the tune of $528 million in government aid, which was followed by bankruptcy – is bringing into question several more of the their investment decisions, and rightfully so. It is long past due to question the very idea of government investing in private companies and specific technologies to benefit and please special interests. Governments, or any other uninterested third party, will never invest money as wisely as private interests will. As Michael Barone writes:

But let’s assume for the time being that there was no criminal conduct here, no violation of government procedures, no fraud. Let’s assume everyone in the administration acted with good faith.
There’s still a scandal — the scandal of the government handing out hundreds of millions of dollars to unproven and speculative businesses. Even the shrewdest venture capitalists lose money on most of their investments. But when they lose, it’s their money, not ours.
The scandal is still going on. The Energy Department has been busy handing out more loan guarantees in the past few weeks — $150 million to 1366 Technologies of Lexington, Mass. (73 percent for Obama in 2008), 80 percent of $344 million to Solar City of San Mateo, Calif. (72 percent for Obama in 2008). Will one of them be the next Solyndra?

Normally the government would lose such an investment – and simply pass those losses on to the taxpayers – but the Energy Department had the foresight to arrange the privilege of first lender. That privilege was lost when the Energy Department approved a new loan for the company.

Complicating the politics of the situation for the Obama administration, the other lender was Argonaut, the investment company backed by George Kaiser, an Oklahoma oil billionaire who is an Obama campaign contributor. Argonaut was already heavily invested in Solyndra, and provided another $69 million in cash in exchange for taking over $75 million that Solyndra was owed by its customers.
The Energy Department’s approval was required for Solyndra to borrow any new funds, because if the loan was consummated, the federal government would have to surrender its status as the most senior lender, in favor of the new lender.

If this loan is also insufficient to make Solyndra profitable, the taxpayers will not recoup their money first. The New York Times quotes one unnamed OMB staff member:

If Solyndra defaults down the road, the optics will arguably be worse later than they would be today, the staff member wrote. He suggested that the question of whether to keep helping Solyndra be taken to the energy secretary, Steven Chu, so he would be ‘fully informed and accountable for the decision.’

Steven Chu was presumably fully informed on the last investment. His knowledge neither guarantees sound investment strategy nor offers confidence to taxpayers. After all, he found a way to invest in a losing company within a winning industry.

How he will be accountable for the decision is also worth defining now. Since he cannot reasonably pick up the tab, one presumes he would be asked to resign. The optics of that might also be ugly, but investments should be made to increase productivity and growth, not to make the government look respectable in a campaign season.