Solyndra: Economics Is Not The Olympics

Us and them

And after all, we’re only

Ordinary men

—Pink Floyd, Us and Them

Every time I turn on a golf tournament, the TV leader board posts a national flag next to the players’ names, as though they are competing in the tournament on behalf of their country.  Well, with all due respect to Jim Nantz—who, incidentally, is the best in the business—South Africa didn’t win the Masters this year.  Charl Schwartzel did. 

When did everything become the Olympics? 

I bring this up because some of the commentary in the wake of the brewing Solyndra disaster reflects this same sort of global competition mindset.  Yes, the Solyndra deal brings into sharp relief the breathtaking level of incompetency within the Obama administration—even the Bush administration ultimately got it right and rejected that deal.  Yes, it demonstrates the problem with the Left’s blind adherence to their “green jobs” religion.  Yes, it may be the tip of a very large iceberg of cronyism and corruption that could prove bigger than Watergate if those with the means to do so will investigate it with the same tenacity Bob Woodward and Carl Bernstein went after a two-bit burglary. 

But notice the kind of thinking that is playing out here.  White House Press Secretary Jay Carney defended the loan program from which the Solyndra debacle emanated: 

“We have a choice to make as a nation, because we will be buying renewable energy products, you know, whether it’s wind, biofuel, solar . . . Do we want to buy it with a stamp on it that says ‘Made in America’ or are we going to buy it from the Chinese or other countries?  We have to be aggressive in competing in the global economy.  And, you know, high-tech clean-energy industries are going to be key to winning this century economically.” 

The always erudite Henry Waxman echoed the sentiment: 

“If you live in reality, you know the world cannot continue its dependence on fossil fuels and that we are in danger of losing this industry to our competitors, especially China.”

Nevermind the wrongheaded self-certainty of the basic premise that “we will be buying renewable energy products”—nobody’s buying them, which was exactly Solyndra’s undoing.  It’s the underlying mindset that’s the problem here.  We have to be aggressive in competing.  We are in danger of losing this industry to our competitors. 

For these people, the global market has become a matter of the United States, as a collective unit, competing against China, rather than Solyndra and First Solar competing against Suntech Power and Yingli Green Energy.  It’s no longer a competition between private enterprises, but between nations.  And it is this sort of thinking that leads to programs where the federal government is making essentially zero-interest loans—read:  subsidizing—to startups.  Because “we” have to win in the global competition with China, “we” have to “invest” in these businesses.   

Except that these businesses like Solyndra aren’t “us.”  They’re still privately-owned firms—owned by billionaires, incidentally.  And they are risky startups in unproven markets existing almost solely by virtue of—you guessed it—still more government subsidies.  If a group of people wants to start a business in that industry and try to make a profit by developing a technology that can do it cheaply and effectively, great.  Go for it.  But what these federal low-cost loan programs do is allow such entrepreneurs to forcibly take money from the rest of us to risk as venture capital.  If it works, they get rich.  If it doesn’t, we take the hit.   

Where do I sign up? 

The United States government isn’t an investment bank, and it shouldn’t be in the business of being in business.  These days it isn’t even very good at being in the business of government, but here it’s totally out of its depth.  What we see in Solyndra is an exceedingly low-interest loan being made to a venture so risky it couldn’t get real investment bank financing, which is exactly ass-backward.  This is what you get when you have a department headed by a physics professor—i.e., someone who’s never known anything but government-funded programs—with no background in business, finance, or economics making half-billion dollar business investment decisions; it’s no coincidence that Solyndra went bankrupt in September 2011, exactly when the people who actually do know something about money and markets said it would. 

Nor is it necessary for government to create markets where they don’t exist and then finance businesses to fill them.  John D. Rockefeller didn’t need federal assistance to enter the then-fledgling petroleum industry by creating what became Standard Oil (which after being broken up due to antitrust issues in 1911 became all or parts of what today are ExxonMobil, Chevron, ConocoPhillips, and BP)—in fact he did it despite ever-increasing adverse regulation.  Alexander Graham Bell didn’t need the government to invent the telephone and create American Bell Telephone (later folded into the original American Telephone and Telegraph (AT&T)), thus launching the modern communications industry.  Steve Jobs didn’t need massive federal subsidies to start Apple, thus essentially creating the personal computer market from scratch. 

This shouldn’t be about the U.S. or China; it should be about letting the markets do what markets do.  If it’s a good idea, and consumers want it, the technology will develop and the businesses will come (and hence, jobs).  And American ingenuity and drive will continue to expand horizons and thrive, just as it has for the last 200+ years.  Government should be there to ensure that people like these have an even playing field—that’s what trade agreements and tariffs are for, and that’s exactly the kind of thing the Framers envisioned the federal government doing under the Commerce Clause (see Federalist Paper No. 45).  But it isn’t the government’s place to force us all to make risky investments, or to guarantee a market, or ensure against failure.  Let the market sort it out; good, efficient ideas will survive.  Bad and inefficient ideas should be allowed to die, or they become a perpetual drag. 

The idea that it’s zero-sum, either the Chinese win or the Americans win is wrong.  If a Chinese company can make a better, cheaper mousetrap, so be it.  And in fact, if the Chinese government wants to make it a loss-leader by subsidizing it, so much the better—American consumers (assuming they want mousetraps at all) get them even cheaper, and they do so on China’s, er, nickel.  

Maybe an American company should do something else that it does better.  That way, everyone wins.