ABC’s political blog The Note included a comment from yours truly in a recent piece on the Solyndra scandal. We appreciate the folks at ABC reaching out, of course, but I’d just like to provide some context for my remarks.
Here’s what ABC’s Amy Bingham wrote:
“What Solyndra really speaks to is the large issue of how government intervention can sort of hide the normal profit-and-loss signals that direct private investors,” said Lachlan Markay, an investigative reporter with the Heritage Foundation, a conservative think tank.
He said the public nature of the company’s bankruptcy will act as a “force against future investments, but won’t be the nail in the coffin for green technology.”
I noted in speaking with Ms. Bingham that despite Solyndra’s failure, the White House seems determined to stay the course on its green energy loan guarantee program and other similar policies. Indeed, the Energy Department claimed unequivocally that the program was a success a day after Solyndra filed for bankruptcy protection.
Others expressed similar sentiments to Bloomberg News for a Monday article on the continued enthusiasm among administration officials for policies that resemble the Solyndra loan guarantee in design, if not – ideally – in effect.
The comments underscore the point I was getting at in speaking with ABC: from an economic perspective, the Solyndra loan was a failure. But if the purpose of the loan guarantee program was to get more people to invest in green technology, then Solyndra’s failure has no bearing on the program’s success. The merit of the program does not depend on companies succeeding or failing.
This comment from Bloomberg was telling:
“We’re fairly confident that our process is moving along very well,” Jeff Broin, CEO of Poet, said in an interview. “It’s expected that some project will fail. That’s why a loan guarantee program does exist in the first place.”
Exactly. The loan guarantee program exists in order to insulate would-be investors from the normal workings of the market, and hence to encourage more investment. Capital is easy to come by when the normal balance between risk and reward is heavily skewed towards the latter.
As Matthew Continetti wrote for the Weekly Standard, “In today’s economy, risks are socialized while profit is privatized.” What more could a would-be investor ask than a venture for which he can offload risk onto taxpayers, without having to share profits in the event it’s successful?
The inevitable result is more money put into bad investments like Solyndra. The company “received a rock-bottom interest rate of 1 to 2 percent” from the federal government, ABC reported in a separate article, “even as an outside agency, Fitch Rating, scored Solyndra as a B+ – ‘speculative’ – investment.”
Of course the purpose of the loan guarantee program may not be financial success. Rep. Henry Waxman (D-CA), ranking member of the House Energy and Commerce Committee, defended the program thusly, according to Bloomberg:
“The majority of Republicans on this committee deny that climate change is real,” Waxman said at last week’s hearing. “If you are a science denier, there is no reason for government to invest in clean energy.”
So the purpose of green energy is not economic in nature; it’s part of an environmental policy. While Waxman’s myopic view of climate science is objectionable, he did not defend government investments in renewable energy on the grounds that they represent a strategy for employment or economic growth – a claim the president makes ad nauseum.
If the objective is not to promote good economics but rather to affect the earth’s climate (even granting the dubious assumption that such investments will), then the bankruptcy of one’s star investment and the resulting loss in taxpayer dollars is an inconvenience, but doesn’t really reflect on the wisdom of the program. Just throw more money at more such companies, and hope that they don’t do the same.
The president’s enthusiasm for “green jobs” has always seemed to have more to do with “green” than with “jobs” – his own rhetoric notwithstanding. Solyndra should put to rest the notion that investing billions in renewable energy companies with apparent disregard for their financial viability – and creating jobs for $5 million apiece – is a viable economic strategy.