Shedding the light of economics on solar subsidies

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“Solyndra” — that would be a tantalizing title for a film about government waste.

Maybe George Clooney should have a look. Probably not. His political movies embrace the Left and generally flop at the box office.

Solyndra is anything but a liberal dream. Rather, it’s a harsh example of economic ignorance, political ineptitude, and government throwing away taxpayer resources. Unfortunately, the case of handouts for this now-bankrupt solar-panel company is anything but unique.

An Energy Department government loan program set up during the administration of President George W. Bush got big funding under the Obama 2009 government stimulus package. (By the way, to again make clear the failure of that so-called stimulus, the Energy Department rushed to approve $4.7 billion in loan guarantees as the 2011 fiscal year came to a close last month — over two-and-a-half years after stimulus legislation was passed — so much for shovel-ready projects quickly getting the economy moving.) The Energy Department noted at the end of last month that it handed out $40 billion in loans and loan guarantees.

Solyndra’s $535 million loan guarantee was the first under the program, according to the Los Angeles Times. And as widely reported, the Obama White House was pushing the Office of Management and Budget to finish its risk review of the deal so that Vice President Joe Biden could attend the Solyndra plant groundbreaking. Biden wound up speaking via satellite, with Energy Secretary Steven Chu at the early September 2009 event.

Interestingly, last month, The Washington Post reported: “In August 2009, e-mail exchanges between Energy Department staff members pointed out that a credit-rating agency predicted that the project would run out of cash in September 2011.” Solyndra closed up shop on the last day of August 2011.

But the story served up by President Barack Obama and others supporting subsidies is that thousands of jobs will be created if government supports firms in, for example, the solar and wind energy industries.

On October 11, Mr. Obama’s so-called “jobs council” released a 50-page report, and it included a call for, in effect, more Solyndras. In fact, the council wanted to go farther than the program that forked over big bucks to Solyndra, calling for “an independent, full faith and credit-backed government financing institution” to dole out energy subsidies.

The council report stated: “Such an institution should be charged with catalyzing private sector investment in a number of promising, commercial-scale clean energy technologies in order to overcome capital market hurdles and bring new technologies to market… A new clean energy financing institution should have significant independence, deep technical capabilities, and financing and hiring flexibility. It must also be well capitalized initially and should operate transparently and at market speed.”

At a press conference in early October, the President asserted that “small startups … can get angel investors and they can get several million dollars to get a company going. But it’s very hard for them to then scale up, particularly if these are new cutting-edge technologies. It’s hard for them to find private investors.”

Such political nonsense is detached from economic reality.

Government subsidies are all about rent seeking, i.e., using the political process to take wealth from others. Consider that General Electric Chairman and CEO Jeffrey Immelt heads up this Obama jobs council. Immelt has placed big bets on solar and wind technologies that, thus far, have failed to pay off. The solar panel market, for example, has collapsed from declining demand and a huge expansion of manufacturing capacity due to subsidies in nations like China. Immelt’s GE clearly would benefit from the government expanding subsidies.

Meanwhile, no flaw or gap exists in capital markets that denies funding to promising, commercially viable technologies. Instead, the problem is that solar power and wind energy simply are not economically sound, and until some dramatic technological breakthroughs occur, they will not be competitive anytime soon.

But political preferences usually have little to do with actual economics. So, politicians and their appointees use taxpayer money to subsidize non-economic ventures. And despite the wishes of President Obama, Mr. Immelt and the rest of the jobs council, government entities, such as a proposed federal bank for energy loans, do not “catalyze private sector investment.” Instead, they drain resources away from private investment in order to make bad loans that the private sector would not undertake.

For good measure, few, if any, government endeavors operate independently, possess deep technical know how, or operate at market speed. All of the incentives in government point in the opposite direction. Government projects and programs are governed by political decision-making, including the influence of various special interests. And few incentives exist in government or politics to spend other people’s money wisely.

Solyndra is by no means the exception. It’s the rule when politics overrules decisions made in the competitive marketplace. And whether those getting handouts go bankrupt or slog on, the rest of us pay real and substantial costs in terms of higher taxes, and the loss of market-created and tested investments, products and jobs.

Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council. His new book — “Chuck” vs. the Business World: Business Tips on TV — has just been published.