Betting With The Public’s Money: The Lessons Of The Solyndra Bankruptcy
The Solyndra case is a classic example of what's wrong with "government investment."
Responding in part to the fallout over the collapse of Solyndra, the politically connected solar energy firm that received a half billion dollars in guaranteed loans from the Federal Government, (which I’ve written about here and here) Ezra Klein argues that there’s nothing inherently wrong with the government investing in companies that may fail:
As a general point, it’s entirely possible for the initial investment to have made sense and for the company to have eventually failed. If we’re going to try to support young companies doing risky things in sectors that we’re hoping to dominate, we’re going to have to be prepared for some of them to fail. In fact, we should be hoping some of them fail. If our success rate is too high, it means government is making bad investments.
Technologies and companies that are sure things can raise money on their own. They don’t need government support. It’s companies making big, risky bets with a huge upside but a high chance of failure that have a case for public support. What we’re looking for in those investments isn’t a perfect success rate, bMut the occasional big success. When we look back at past government investments, we talk about the ones that paid off, like microchips and the Internet and radiotelephony and nuclear power. But there were a lot of efforts that totally failed. And that’s fine. If we hadn’t been willing to fund some of the duds, we would never have groped our way to the breakthroughs.
Klein’s examples of previous government “investments” that succeeded are, for the most part, non sequiters. None of these areas of technology were the target of government programs that were designed to emulate, albeit imperfectly and ultimately unsuccessfully, the private investment market. In each case, the industries benefits because they were tasked with fulfilling a government need, usually one related to national defense. The Internet started out as a DARPA project to create a communications network that could survive a nuclear attack. Nuclear power, quite obviously, developed out of the research undertaken during World War II to build the Atomic Bomb (although it’s worth noting that research in the atomic energy field was taking place before the Manhattan Project). To a small degree, microchip technology advanced as private contractors worked to fulfill the needs of the Defense Department and NASA, although for the most part it was the private market that drove chip technology to push the boundaries of Moore’s Law further and further. Radiotelephony, what most people call wireless communications, received some benefit from government spending but, again, it was private technology that was driving technology forward to the largest degree. To the extent each of these technologies benefited from government investment, they did so because they were fulfilling a specific need, not because the government had decided to invest public money to pick winners and losers in the market place.
Klein is right that investing in new companies means risking loss, but he forgets whose money is being invested. A private investor is only risking his own money. If he bets right, he stands to benefit big, but he could also lose everything. A venture capitalist is risking money that’s been entrusted to him, and he owns fiduciary duties to his investors that, if violated, could subject him to personal liability for losses. Of course, he also stands to benefit greatly if he bets right, both from the profit his investment earns and from the additional investors he’s likely to attract additional investors. These rewards of success and punishments of failure serve, hopefully, to give him the incentive to choose his investments carefully, targeting companies that are likely to most likely to make a profit rather than those that are politically popular or politically connected.
None of that exists when the investment decisions are being made by government. For one thing, it’s fairly clear in this case that the decision to give guaranteed loan money to Solyndra had nothing to do with any realistic expectation that the government would be making a profit any time soon, or that it would actually be competitive in the solar energy field. Instead, it was part of the Obama Administration’s “Green Jobs” initiative, which is more about politics than economics, and for which there is very little empirical evidence to support the idea that this will be the big new source of jobs. Add to this the reports of possible political intervention by the White House in the loan decision, and you’ve got a perfect example of everything that’s wrong with government “investment.” Additionally, who suffers if a government investment decision goes wrong? Not the politicians who supported it, not the bureaucrats who made the decision, and not even the owners of the company who received the loan. the only people who are going to suffer are the taxpayers who are out half a billion dollars. And that’s the problem with this entire program. The government is playing with other people’s money, and has no incentive to ensure that they’re making wise investment decisions. That’s why this is a job for the market, not the Department of Energy.
So, there is no national security interest in energy security?
An interview with geo-green James Woolsey, former head of CIA
The US has been consistently investing in solar energy since 1977, with the founding of the DOE’s Solar Energy Research Institute. That was geared up a bit, but voters supported it because energy prices have been sky high.
Voters want cheap solar, and you can’t get that without placing broad bets. Success of the strategy does not depend on success of a specific player.
You’re right. I can hardly drive down a street in D.C. without running into a “cheap solar” protest. Or maybe it’s just a guy in shorts.
(I suspect that the worst that can come out of this is that the Whitehouse got excited, wanted the green energy to work, and pushed through funding. So, that cost $500M, versus the $4B we send every year to the oil companies. Keep it in context. We throw around a lot of money in energy subsidies, a one-time loss of $500M doesn’t rank. If you want to attack something that will help the budget, go after something > $1B that recurs every year.)
@Doug Mataconis:
Shrug. I’m telling you why these things are always popular. “Green” wouldn’t be a campaign slogan if it didn’t work. Now it may not work with you, but that’s not the question.
Holy … ethanol subsidies are $5 Billion every single year?
I realize you are against those too Doug, but let’s use that number to put this “gotcha” issue in context.
It should be a gateway question to very congressman who wants to talk Solyndra … “before we get started, are you ready to eliminate ethanol subsidies?” If they answer “no” then you know they aren’t serious, and are just grandstanding.
Jesus-god…how much of my money has gone to Halliburton and how much to Solyndra? Having spent 5 days without power last week…I say give another young company another 1/2 billion and let’s keep stumbling towards the future.
Or we could let the Teavangelicals take America back…to when that 5 days last week was the norm.
THe difference between them is that Haliburton actually provided something of value for the money invested.
DoE responds.
DoE Loan Program Projects.
@Eric Florack:
That would be the beacon of democracy that is Iraq?
Not in particular. I was speaking to the idea that they provided what they contracted for.
What you refer to is a separate subject.
Ethanol subsidies have brought us at least two large problems: engine problems and expensive popcorn. That’s two good reasons right there to get out of the ethanol business. We would be better off converting a lot of vehicles to natural gas – a lot cheaper.
@Eric Florack:
Sorry, but your example was a real stinker.
Oh yeah, we got $82K of cooking and heating oil …. for $27 million!
@Eric Florack: Yes. Making those pallettes of cash disappear in Iraq provided us all billions of dollars worth of entertainment.
@Eric Florack: Yes, Eric, we contracted to have our soldiers electrocuted in the shower by cheap, sloppy wiring and to have human waste rain down on them in their sleep because of substandard plumbing. That Hailburton — delivering value every day.
Is their anything more ironic than a libertarian whining about government technology investments on the government-funded, government-invented internet?
“Solyndra’s failure is proof positive of the government’s supposed inability to “pick winners” is patently absurd. After all, Solyndra received repeated rounds of investment to the tune of $1.1 billion from some of the private sector’s biggest stars, including Richard Branson, the WalMart family, and leading venture capital firms like U.S. Venture Partners and RockPort Capital. Venture capitalists and the U.S. government both placed a bet, Solyndra’s entrepreneurs took a shot, and unfortunately for all, they missed. Such is to be expected in the high-risk but high-reward world of early-stage technology ventures. In addition, the loan commitment places the government in a senior position in the result of a bankruptcy, ensuring that DOE will get paid out before the VCs and other investors.”
http://www.forbes.com/sites/energysource/2011/09/02/solyndras-failure-is-no-reason-to-abandon-federal-energy-innovation-policy/
The money is being spread around to a number of different companies and technologies. This is the only one to fail.
Steve
@ponce:
Technically, government funded, invented at Stanford and BBN, Cambridge, Mass.
It was a public-private partnership from the start. IMO the mix, the combination of government and private efforts, is where we got out 20th century growth. The real socialists were wrong in the start of the last century to say it should be all government, and this century’s extremists are wrong to say it should be all private.
Interesting really to think of it in that light. The Tea Party is like the American Communist Party in that they don’t understand what has really worked for us, but like it, they too will pass.
Doug is spot on in this essay.
Its funny to watch people who normally scream about the evils of government subsdy and crony capitalism turn on a dime when its their favored recipient.
@Drew:
Mathematics fail, Drew. It is funnier to watch people who normally scream about the evils of government subsdy and crony capitalism pick out $500M as the biggest problem on the horizon.
It is too transparent.
(Come on man, maybe it does bother me to see a $500M loss, but I know it is a one-time loss, and compared to $5B per year on ethanol … are you kidding me? I should be agitated about the $500M and keep my eye on that … why exactly?)
Doug
Since you are so upset about help for solar I would assume you would be in favor of doing away with loan guarantees for the Nuclear power industry and repealing the Price-Anderson Act and require nuclear power plant operators be held responsible for whatever catastrophe their plants might create.
I would be in favor of elimination of all government subsidies to private business regardless of the form or the recipient.
This is why government intervention into the private sector is troubling. Government cherry-picks who it wants to support, through such loan guarantees as were given to Solyndra, and it becomes an enabling relationship, a co-dependence of sort, where ultimately the tax payers become the fall guys should it fail.
SolarCity is the company we used, who put 14 panels on our home at the end of 2008. We’ve become friends with the guy who designed and sold us our system, and his company’s business has exploded with success. Recently, Google and SolarCity teamed up for a joint investment venture.
How did this company get started? It was founded by two brothers, aided by a $10 million investment by entrepreneur Elon Musk in 2006. They just keep adding to their services, monitoring solar systems, have developed an amazing lease program, and is even wading into providing electric car chargers.
Cautious oversight, because it is a private investment, augmented by continuing innovation, to stay ahead of the competition curve, is why the private sector is much more capable of making a success of business ventures.
@Ron Beasley:
And, Ron, my objection isn’t that this loan went to a solar energy firm. My objection is to the program itself regardless of what type of company it loans money to.
@john personna:
You keep citing the amount, as being a ‘nothing,’ in the whole scheme of things. It’s like saying , “Let’s just sweep this under the rug as there are bigger fish to fry!”
While the dollar amount is a consideration, it is mainly the process behind it, being a pet project of the president, putting it’s approval of funding ahead of others, which is being contested and investigated.
And, beyond that aspect is the question as to why the government should be involved in private business ventures, in the first place!
@Doug Mataconis: Of course you realize Doug that without loan guaranties and the Price-Anderson Act there would be few if any Nuclear Plants in the US.
In the entire recorded history of humanity, has there been a single society that existed without a government?
I can’t think of one.
Why can’t libertarians just accept that normal humans want government?
@ponce:
“Why can’t libertarians just accept that normal humans want limited government?”
There, I FIFY!
@jan: Jan the solar panels they installed probably came from a plant that received loan guarantees from the State and in addition got property tax breaks. I know because there are several plants that make solar panels here in Oregon.
“Why can’t libertarians just accept that normal humans want limited government?”
What proof do you have of that, Jan?
Social Security and Medicare are the most popular programs run by the federal government.
Please name which country you think is the best example of one governed by a limited and popular government.
lolzzzz………..
The government isn’t playing with anyone’s money. They pushed a button and $500 million appeared in Solyndra’s account. No one was hurt in the making of this investment. Drew wasn’t hurt, Jan wasn’t hurt and Doug wasn’t hurt. Not a penny came from anyone reading this blog post, so attempting to frame this as evidence of The Evil One being irresponsible with other people’s money is an attempt to mislead.
@Ron Beasley:
I’ll ask our friend that question, the next time I see him. However, my point, in bringing up this company that we’ve personally done business with, was that the start-up was through private investment. If they get panels from a company receiving loan guarantees I don’t think that makes them any less worthy of being notated for their entrepreneural success.
When we contracted for our solar panels, we also got a tax deduction, which is a form of a break as well. I remember that Reagan axed all the tax exemptions for solar, which I thought was foolish, at least at the beginning of an innovative project. Tax exemptions are often the key to initially priming an industry in getting it aloft where it can then stand on it’s own feet.
@Hey Norm: Government funding never guarantees success. Take a look at the GM Chevy Volt, which is selling like hotcakes? About 300 a month I heard last.
How about some of the infamous grants to universities for studies like “why do kids fall off of tricycles.” The problem is if you have too many controls on the money, you get a lot of stifling regulations and picky rules. I have known construction contractors who got away from government contracts because of weird, crazy requirements such as requiring a certain number of minority subcontractors even when none existed in the area of the project. Not enough oversight and you wind up with fraud and waste, such as the food stamp, Medicaid, and the infamous ACORN fiasco. Until there is a study of this solar company done, and it should be done by a private company not Congress, we will not know the reasons the company could not make it. It could be any number of reasons. Whether it is $5 million or $5
billion, it is still taxpayer money that working people have paid and there must be accountability.
The Human Genome Project is easily one of the greatest scientific advances of the past 50 years. It took nearly two decades, multiple billion dollars, and massive coordination across the public sector. In the time since, it’s results have completely changed the way we think about common disease; have launched a booming genome hardware sector as well as an entire field of personalized medicine. The return on investment is incomprehensible, and it all would have been impossible without “betting with the public’s money”. In fact, it would have been worse than nothing, as the private sector was already gearing for a protracted intellectual property fight over genes that would have stalled the entire field. Americans should be proud of these endeavors.
Ex-Im Bank Announces Over $455 Million in Project Financing For First Solar’s Exports to Canada
Well, shit, we can’t have this. Fracking commies.
Not to mention all the research in solid state physics, quantum mechanics, electro-magnetism, material science and so forth going on funded by the gov’t which is the corner stone (and thus an integral part) of most of the computer and electronic industry – obviously this would be much better handled by private industry, and so the gov’t should never have gotten involved.
In practice there’s no clear line between research and implementation of technology, and private industry has shown a remarkable disinterest in doing the research themselves. Hence gov’t funding via research grants. In an ideal capitalist world perhaps the gov’t wouldn’t have to get involved, but in practice any country in which the gov’t doesn’t get involved in developing technology (starting at the basic science and working up) is quickly left behind.
Industry only wants to get involved after things have shown real potential for profit. We’d still be using tube computers if it had been left to private industry (and probably wouldn’t even have had that).
@Racehorse:
Well said.
G.A.Phillips contributes his usual trenchant analysis…if the idea that Social Security and Medicare are very popular programs is so amusing, just try dismantling them and see what happens…
@john personna: john, do some digging. Ethanol is wrecking car engines. BMW, I hear, is already refusing to honor warranties on engines damaged by gas with ethanol content.
J.
@Jay Tea:
Jay, now that is something i didn’t know.
@jan: As was noted in a post yesterday, keep up the good work on watchdogging government waste. At this rate, you only have 9 billion, 9 hundred ninety-nine million, 9 hundred ninety-nine thousand, 9 hundred ninety-EIGHT projects go to get to a trillion dollars in savings. (And yes, I know the math isn’t exactly right, you really need more if you can only save half a billion on each one.)
@jan: “If they get panels from a company receiving loan guarantees I don’t think that makes them any less worthy of being notated for their entrepreneural success.”
As long as you realize (and will admit) that their entreprenurial success wouldn’t even exist without the loan guarantees and subsidies that allowed to solar panel manufacturer to be in existance to begin with.
Industry insiders say that Solyndra’s business plan was a sham from the start and was totally unworkable. Add on Obama’s crony capitalism and note that Solyndra got the Fed loan at about 1.5% whereas most other solar loans are at 3-4%. Through more (supposedly legal) chicanery, the USA is 3rd in lienholders and unlikely to see a dime. Who made out? A big backer of Obama named Kaiser.
@John425: What insiders?
Here’s another important lesson to learn:
Obama’s backing is the Kiss Of Death.
J.
@Ben Wolf: I think John meant “analysts.”
http://abcnews.go.com/Blotter/solyndra-investigation-probe-white-house-role-massive-energy/story?id=14434588
The article also notes that it’s a House committee that’s uncovering crap like this. Not a Senate committee.
Which party controls which house again? I forget.
J.
@Jay Tea: Jay, let’s be realistic here. It’s always good when malfeasance is exposed, but it isn’t a party thing. The Democrats were doing the same thing when they controlled the House, investigating trillions of dollars lost to Bush Administration cronyism through no-bid contracts and assorted Pentagon stupidity. Both parties choose to investigate what will score political points against the opposition, and that’s all that’s going on i. the House now.
Funny to watch Jan stuff it down odograph’s, er, “john personnas” throat.
Funny to watch people who understand investing ignore the total picture.
“Yet the fact is that, when judged by its entire diverse portfolio of investments, the LGP has performed remarkably well. Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2% of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings.”
So sure, investigate to see if there was fraud. Find out why they failed (IIRC, China is subsidizing competitors very heavily). Hold people accountable for this failure. But, they should be given credit for the 98% that perform well. Also, the government loan is a senior loan, placing the DOE ahead of the VC guys. We wont know if all of the loan was lost for quite a while.
Major government investments that lead to things like antibiotics, the internet and nuclear power have worked well. Others not so well. Why not evaluate based on actual outcomes rather than ideology?
Steve
Jan,
Still waiting for you to name a country that has both a limited and popular government.
Here’s a list of some of the countries with the lowest tax rates:
North Korea
Afghanistan
Burma
Congo
Bangladesh
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2221rank.html
Which one do you think America should emulate?
I believe the IndyCar series runs exclusively on ethanol. But I doubt those cats know anything about engines.
@john personna: And given the conditions under which bthey operated, explain to us how it would have arrived there at market prices.
Be sure to use examples.
And look, gang, around half the point of the post, and indeed most of the lessons being taught us by this happening, are being ignored, here.
The first lesson is that green jobs are not there. Period and likley never will be. Which also means that Obamas promise of jobs, period, has no connection to reality. The man has no clue what creates jobs, if he even cares about it. If he did, what he’s done already would have worked.
But, no, we see him making another speech, talking, I’m hearing about more public works projects, more green jobs etc. I’m still firmly convinced that the Republicans in Congress should have nixed the idea of Obama making what is essentially a campaign speech to a joint session of Congress. The speech a stance a bully is aimed at his low approval numbers. A lot of those low approval numbers are coming from businessmen. Most of those businessmen, let’s face it, wouldn’t hire Obama because of his lack of business experience. So why on earth would anyone consider listening to the man when he starts talking about job creation? Clearly he has no clue as to how to create jobs. If he did, the policies he’s already instituted would have worked. And he’s out of ideas. He”s simply playing the same tune over and over and hoping it comes out differently this time. the This is what, the ninth speech on the subject? Maybe it’s time to stop making Fidel Castro-like speeches, and start admitting that his policies are the point of failure. Proof? Consider this…. if you want job creation, if you want real stimulus, get government out of the way. Reduce spending, reduce regulation. It’s the one thing the Obama will not do.
And his minions lap it up. What we have is the unwillingness to admit the that this isn’t just a situation of an inept leader, but rather, bankrupt policy.
@ponce:
Your challenge (?) is a non-sequitur. The Constitutional construct of this country, The USA, was around a limited form of central government with more powers being given to the individual and the states. Period.
@bithead
Since you are demanding explainations, why don’t you explain why “green jobs are not there and never will be.” No lame tea party slogans please. Just a paragraph or two supporting you position that would not get you laughed out of a meeting with a few junior managers in corporate America.
Something tells me that’s a little out of your league.
@A voice from another precinct:
First off, I don’t know who or where SolarCity buys their panels.
Secondly, the business model that was developed, under this solar company, had nothing to do with loan guarantees subsidizing their venture. They capitalized it with private funding, and had the savvy to keep it not only viable but expanding, as far as new services.
You, however, seem intent on tearing the success of this privately financed green company down in order to strike some kind of equivalency to Solyndra, who collapsed with a half billion dollar handout, when this company was started with 10 million chicken feed dollars.
The differences are far more striking than any fabricated similarities you want to scratch around for, just to somehow be ‘right.’
Is your interest in having green jobs be successful? Or, are you more interested and ideologically fulfilled by having those green jobs, that are successful, being government created (versus a creation by the private sector) so you can boost about it fitting into the social progressive scheme of how America should work?
Jan,
You are confusing your…dogma with facts.
Wishing something were so doesn’t make it so.
@anjin-san:
Where the jobs aren’t
@ponce:
No, you are the one who is confused, ponce. You have all these silly, outlier-type comparison/contrast rationalizations to your arguments.
The United States is a wholly different kind of country than the ones you listed, and demanded some kind of justification or comparison to. America’s Constitutional guidelines commenced under a small government premise, and, for the most part, mainly when it has strayed off course from the enumerated powers given government, like was done in the Great Depression, it got into economic, long-term problems.
Jan,
I think you have the Constitution confused with the Articles of Confederation.
Jan,
Naturally the manufacturing will take place in China. That is a model that extends across quite a few industries, no? How about sales? Installation? The guy who comes out to estimate the job? Service? Those don’t count?
Perhaps we should just pull a Wesley Mouch. Make everything stand still. Here in California we can leave our energy future in PG&Es reliable hands. Hopefully the next neighborhood they blow up
Jan,
Naturally the manufacturing will take place in China. That is a model that extends across quite a few industries, no? How about sales? Installation? The guy who comes out to estimate the job? Service? Those don’t count?
Perhaps we should just pull a Wesley Mouch. Make everything stand still. Here in California we can leave our energy future in PG&Es reliable hands. Hopefully the next neighborhood they blow up Won’t be mine.
BTW Jan, Your link to an op ed by conservative columnist and Iraq war cheeerleader David Brooks does not really impress. How is life in the echo chamber treating you anyway?
@anjin-san: I believe the IndyCar series runs exclusively on ethanol. But I doubt those cats know anything about engines.
Those engines are designed from the ground up to run on ethanol, and don’t have any kind of noise muffling or emissions controls, let alone meet mileage standards. Not quite the same thing.
J.
I think I mentioned that I’d cancel ALL energy subsidies. That includes solar, but it also includes oil and ethanol.
Right now you “fiscal conservatives” are saying no forget all that, and focus on this little deal.
I don’t mind if the SEC, the CBO, or DOE investigates the deal. They should, and if if there is real “malfeasance” let the dice fall where they many.
You are also missing your own focus. You are obviously about scoring political points and not about fixing the $3.6T deficit.
That this is literally and metaphorically the top story at OTB is ridiculous. It shows how even the politically aware can become completely distracted by bright, shiny, things.
… unless you are self-aware enough to know that is your goal in the first place, to have a battle of the day, and in the end accomplish nothing. I suspect that congress critters are that self-aware, and will try to create a great hue and cry about this $500M, while protecting the billions in energy subsides going out every single year.
Shorter: choose what you are after, a better budget, or shallow political points
@jan:
Let me ask you a question. Did you purchase the panels outright? If you purchased them, did you apply for the federal tax credit? Or did you lease them? If the latter, SolarCity no doubt reaped the federal tax credit:
BTW, Elon Musk is the Rives’ cousin (their mothers are twins).
Actually to be clear, I’d cancel all production subsidies for energy. R&D, be it for nukes or solar is often cheap and justified. Where we’ve gotten in trouble across the board was with subsidized build-out. That happened with “hydrogen, fuel of the future” as well. It was fine to do research, but when they started building pilot fillings stations that no one would ever use, it became an incredible boondoggle.
So, this loan guarantee, as a production subsidy never would have passed my old test. I never supported it.
I’m just not so twisted that I focus on it alone, and forget the tens of billions flowing every year to all kinds of stupid things.
No, it is worse than “forget.” When you go on and on about Solyndra, you provide cover for all those other things.
It’s sick. You think you are being clever, but you are being played.
@anjin-san:
The reasons, my leftist freind, are simple enough; People don’t want to pay more and get less simply to satisfy the Al Gore myth of global warming. THe free market recognizes a bad deal when it sees one.
@john personna:
Let’s be clear here; Are we talking real subsidies, wherein the government sends out a check, or are we talking about where taxes were waived? The former is a subsidy, the latter is not.
@Eric Florack:
There is no free market. Never has been, never will be. It is not possible. The sooner you understand that the better off you’ll be.
To all; What this and all the other green bankruptcy actions show us that the war on reliable energy, and all the negative economic consequences stemming from it, has all been so that we can chase the great leftist myth of “clean energy’. So fixated on this is the left they tried to tax out of existence what works…(With idiocy like cap and tax) in the vain hope that a miracle would happen, and we’d have enough energy from sources the leftists approve of.
That clearly didn’t happen and just as clearly, our economy is suffering as a result.
It’s time to end our war on reliable energy, kick the morons who pushed us down this road ,out, permanently, and get our economy moving again.
@Eric Florack:
It’s really weird. That should be simple math, but the right fringe has made it a non-math political issue.
Say my taxes are $10M, and you give me a non-taxible subsidy of $5M. At the end of the day I am down $5M.
Or say my taxes are $10M, and you give me a tax credit of $5M. At the end of the day I am down $5M.
These are different because … it is important for them to be different?
(From the the other end, on the government side, they are both also -$5M and affect the deficit that way.)
@Eric Florack:
The thing is, you just did what this thread is all about. You picked favorites.
You didn’t say (as I do), end ALL production subsidies for energy.
You said “end the ones I don’t like, and keep the big ones.”
(Really Eric, if you treat tax credits and subsidies so differently, doesn’t that give congressmen a way to play you? I mean, if any subsidy you don’t like is flipped to a tax credit, will you be for it?)
What road? Clean energy is 2% of our production. Our commitment to fossil fuels is as strong as ever so it’s very difficult to understand what you’re complaining about, unless your point is that government should prevent alternative forms of energy from competing with ExxonMobil because oil is great so shut up.
@Ben Wolf:
It’s conservo-math. This $500M is huge because it’s solar, or because it’s Obama.
Not because it’s huge, as a fraction of the budget, or even as a fraction of energy subsidies.
There are the raw numbers.
Don’t forget one of the largest parts of our current gov’t, which was always small until after the 2nd world war – the huge peace-time military.
Is it really? Well try and past the regulations to get a drilling permit…. one where the oil is, I mean. Try getting past the EPA BS to build a refinery. Ask the coal miner why they’re being shut down… Explain how cap and tax isn’t designed to eliminate forms of energy leftists don’t like.
@Ben Wolf: Ah, but there is a free market, at least to the extent that just about nobody has bought the Chevy Volt yet.
And Persona; You appear to be operating from the idea that all money belongs to he government.
Money not taken from private hands is not a subsidy.
@Eric Florack:
Good lord, you are completely psycho.
I am the one saying government should not do ANY production subsidies for energy. Halting those would cut the deficit by around $20 billion a year.
In a classic twist, you say we have to keep spending, because it is called a “credit.” As I said, you’ve been played.
Maybe you can get it this way, you idiot.
Should we give solar energy companies all 50% tax credits?
Those are free, right? Because “Money not taken from private hands is not a subsidy?”
Hell, let’s give it to all organic farms too. Free money for everyone.
real subsidies, wherein the government sends out a check, or are we talking about where taxes were waived? The former is a subsidy, the latter is not.
This is hilarious Conservative dogma. The impact of the two is the same: in both cases, the favored industry gets an advantage.
As to the topic, I’m generally anti-subsidies. I’m skeptical of the government’s ability to make good investment choices, rather than corrupt or clueless ones.
Then again, the reality is that the status quo involves a lot of subsidies and other things that operate like subsidies (e.g. Interstate highways used by truckers with little to no useage fees [yes, gas tax] vs. Railroads having to pay for building and maintaining their track). Unraveling all of that might ultimately result in a better situation, but the various interests will fight tooth and nail to keep things the way they are (and even if they fail, there will be dislocation as the reforms take effect). So I tend to think the way forward is to go after the most egregious existing examples, and resist new ones (I’m not 100% reflexively against subsidies. I can be convinced, but the case has to be solid).
@john personna:
I doubt it.
@john personna:
No.
We should eliminate all corporate taxes.
They are nothing but hidden taxes on the consumer in any event.
Let the dancing begin.
And if we get rid of personal income taxes and consumption taxes then our economy would be perfect, right?
@Eric Florack:
Oh I forgot, let the hospitals and schools close, the roads crumble, the navy rust and sink.
What empirical evidence exists indicating that elimination of corporate income taxes will benefit the economy? I don’t want to hear the usual blather of meaningless terms like “freedom”, I want to see actual data. Sloganeering isn’t governing, Eric.
@Ben Wolf:
Well, it would produce higher deficit spending …
There are more oil rigs drilling now than anytime in the past 25 years.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=e_ertrro_xr0_nus_c&f=m
Steve
“We should eliminate all corporate taxes.
They are nothing but hidden taxes”
Yes, we should eliminate corporate taxes, but not for the reasons you list. We should eliminate them because corporations pay fairly little in the way of taxes and it remains a real nidus for corruption. Better to just do away with them. Have a larger death tax instead.
Steve
@john personna: The problem is that reducing a tax too far can hurt the demand those taxes create for our currency. It isn’t as simple as “deficits good” when we have far too much capital accruing in certain sectors. What Eric suggests would only exacerbate economic instability.
I find this thread tedious. Government “picks winners and losers” all the time and in many ways. We subsidize oil more highly than coal or solar. We choose this new military technology over another one. And NIH issues grants to research some diseases more than others, and some treatment regimes but not others. We then invest billions in the form of tax credits, grants, loans, or contracts to put those ideas to fruition. There is way too much hand wringing here over loan guarantees to green technologies, which in the monetary scheme of things, amount to a fart in a windstorm. This is beyond silly and bordering on pandering to the tea party mindset: that Obama sponsored investments are wrongheaded, while nearly identical investments championed by conservatives are “key to our nations defense/prosperity/greatness”, etc.
Shorter Bithead:
“No, I can’t support my position with an argument that would not get me laughed out of a meeting with a few junior managers in corporate America. Far right talking points is all I have.”
Thanks for playing skippy…
@anjin-san:
My favorite right wing talking point — “Government cannot create jobs.”
Oh, OK. So a $20 billion military contract to buy jets creates no jobs? A highway project or airport expansion creates no jobs? Building new sewer lines and extending water service into a new subdivision creates no jobs? Building a new community hospital . . . no jobs? Buying oil, paper, automobiles, computers, medical and scientific research, even maintaining a national park system — creates no jobs. It sometimes cracks me up how they substitute pithy talking points for fact-based analysis of anything.
You might want to become slightly more informed, though I realize that is not your strong suit. Start with learning the difference between E10 and E85.
“The Internet started out as a DARPA project to create a communications network that could survive a nuclear attack.” This is a commonly repeated, but not very accurate, meme. The Internet evolved out of the Arpanet. The Arpanet was started in order to interconnect timesharing systems, so that people could have things like email that we take for granted today. See this oral history of Robert W. Taylor, the person who started the Arpanet project. (Paul Baran did earlier important work at RAND on fault-tolerant packet-switched network, but that did not directly lead to the Arpanet.)
@anjin-san: The problem BMW owners are claiming is not the difference between E10 and E85, but poor quality control on the E10 — too much ethanol in the blend. And they say BMWNA is sticking to the letter of the warranty — they’ll cover up to 10% ethanol. So if the “E10” gas happens to have 15% or more ethanol, not they’re problem.
Here’s one discussion:
http://www.bmwlt.com/forums/showthread.php?t=13862
Like I said, not conclusive — but they’re saying it’s a problem.
Plus, of course, there’s the whole “let’s take our food and burn it!!!” thing that’s pretty stupid….
J.
@Jay
Most race tracks have noise restrictions which are only lifted once or twice a year & IndyCar has actively been working on reducing noise. Where do you get the idea there is no noise muffling in IndyCar? Could it be that you don’t have a fricking clue about this? Given your track record for making crap up, i would say yes.
That’s good Jay. You Googled it, so now you are semi-informed. Now you can look up noise muffling.
@george:
Certainly, it would at the very least be vastly improved. Do you really consider, George, that such a move wouldn’t spur hiring? Granted that taxes would of necessity be raised for a while on individuals. But first, as I suggested, these would be taxes we’re already paying in the form of higher consumer prices. But secondly, those increases would not last for long as the public finds out for themselves just what they’ve been paying all along. That revelation wold result in a reduction in the size and scope of government unseen heretofore. You see, George, as has been correctly ppointed out there’s a lot of rather popular government programs out there… programs that buy votes. But, they’re popular because of the illusion that they’re not being paid for. Remove that illusion and their popularity will sink nearly as fast as Obama’s has.
Anjin: W
There is none in most race cars, I suspect that holds true or nearly so for Indy as well.
@ B-Rob: Read and learn:
http://www.thefreemanonline.org/columns/why-government-cant-create-jobs/
Bit, go out and buy a clue. Then you will have one.
All quiet on pit row
Another change, one which may affect fans more than the teams, is the new exhaust systems the cars are sporting this year. Engine supplier Honda Performance Development (HPD) added a mechanical silencer, first developed to meet noise restrictions in the American Le Mans Series. A bolt-on exhaust system with a new header and muffler design is part of the package.
http://machinedesign.com/article/indy-car-racing-beefs-up-competition-for-sluggish-economy-0519
Some IndyCar teams agree. “The engine tone seems to be more acceptable to people trackside and anything that is good for the fans is good for the sport,” says Brian Lisles, general manager of Newman/Haas/Lanigan Racing.
The change brings noise levels at IndyCar Series races closer to those fans experienced in the former Champ Car Series. It also helps the IRL meet city noise ordinances when the cars compete on temporary street courses, many of which were added to the schedule under the reunification of the two series.
@anjin-san: OK, anjin, you got the technical point. But actual power-restricting noise and emissions controls, like on street cars? Street cars whose engines routinely go 200,000 miles or more without a complete teardown and rebuilding, not 500 miles?
I’m not a NASCAR fan or a racing aficionado, but I do know that the similarities between racing cars and street cars are almost literally skin-deep.
J.
I really don’t know why you are arguing “ethanol in engines.” As an old chemist I can tell you ethanol is a fine molecule. It has lower energy per weight/volume than gasoline blends, but it burns. It has no bad effects on engines’ “hard parts” but the soft stuff, gaskets and hoses, have to be formulated correctly. The difference between an E10 and an E85 car is mainly in hoses, and a little in ignition programming.
No, the problem I see isn’t in ethanol as a molecule, in engines. It’s in the supply chains attached to it. It is expensive and energy intensive to make ethanol pure enough for these applications. That makes the “win” which comes from using it very questionable.
In a classic example of subsidy perturbing the markets, that’s hidden from us. We don’t know the true price of ethanol at the pump, relative to gasoline, diesel, or biodiesel.
We only know the after-subsidy price, and don’t make informed consumer decisions.
@john personna:
Maybe I shouldn’t use subtle understatement.
It is the inefficiency, in dollars and emissions, in the ethanol supply chain that make it a failure as a primary fuel. Using smaller amounts of ethanol, as MTBE replacement, seems justified. But then that should be true without subsidy. Gasoline blenders should pay for ethanol at a market price.
As a note, my favorite camping stove runs on ethanol. (Gotta run out to AZ to pick up some 190 everclear to top up my fuel supply.)
So why did you jump on a comment about race engines? Ah yes – knowing what you are talking about is not really important to you.
@anjin-san: Because I’m dangerous, anjin. As in, “a little knowledge is a dangerous thing.”
I know a lot of things about stuff I don’t find overly interesting. Sometimes they’re things I had to learn, for various reasons. Sometimes they’re tangential to things I do find interesting. Sometimes it’s in self-defense.
In this case, I’m a mild car buff. And I’ve known people who do car racing. So I know that the high-performance engines used in racing — especially high-end — are custom-built, maintained far more excruciatingly, are torn down and rebuilt after each race (which is usually 500 miles or less), and are exempt from the emissions and noise rules that “civilian” engines are subject to.
Further, I think it’s incredibly stupid to burn food for fuel, so I don’t like ethanol. And I first picked up on it from, I think, “Car Talk,” where a guy’s engine was damaged by a batch of bad gas that had far more than 10% ethanol content, and the ethanol ate away his hoses and gaskets.
It’s not that unusual. Most people have a smattering of knowledge about a wide variety of things. I am utterly disinterested in sports of any kind, but I know a decent amount about various sports, teams, history, rules, and trivia.
Human nature, chum.
J.
@Jay Tea:
You can make ethanol from food waste, and without the subsidies that might be where a higher fraction of it comes from.
Imagine for instance the parts of an apple that don’t go into apple sauce. They are fermentable.
Right now we subsidize too much corn production, and then subsidize the conversion of some of it into corn ethanol. A 2-fer.
Yup, things like the military and police could be self-financing or perhaps privatized when there is no tax income. The military especially would be very profitable, hiring itself out to whoever was willing to pay it the most (most likely corporations and/or foreign countries still saddling their citizens with taxes). And of course there’s no reason everyone couldn’t become their own police, grouping up with others for strength if necessary, and establishing their own court system.
The correct term is “purpose-built”.
Nice attempt at revision. What you actually said was:
So you are running your mouth, and you don’t really know what you are talking about. I know I am shocked…
@anjin-san: Yup, I was wrong. Instead of saying “no controls,” I should have said “anywhere near the kind of controls street-legal vehicles have.” And I’ll take your word for it that “custom-built” and “purpose-built” is some kind of significant distinction.
I don’t quite see the practical differences, as the initial comment was in comparing racing vehicles to street vehicles, but if it’s so all-fired important to you, whatever. I still stand by the substance, after acknowledging that you were right on the minutiae.
So, now you wanna tell me that the differences I got wrong make that main point incorrect, or say that I’m right that what works on the track will be just fine on the road? I’d really like to hear how race cars meet current CAFE standards, let alone the 54MPG Obama’s demanding down the road.
Like I said at Wizbang — I’m glad that Obama’s about as interested in NASCAR as I am. Because if he really got involved with it, he’d probably legally require them all to race Chevy Volts.
J.
@john personna:
Scare tactics. Where does that necessarily follow from publicly admitting that corporate taxes are already being paid by the individual as higher costs? How does moving that tax burden on individuals out ion the open, and removing the government’s ability to play favorites in the corporate world, cause the doomsday scenario you suggest?
Nowhere.
@george:
See my reply to Odo. The individual is already shouldering the burden for such things in the form of higher consumer prices. How does it follow that removing that ruse will cause what you suggest?
It doesn’t.
@Eric Florack:
You bore me, man. But I will expand briefly. Basically we have this problem that no one will actually cut spending, but at the same time some of us would cut taxes on the assumption that those spending cuts will happen, quickly.
If you don’t cut spending, like right now, then all cutting taxes does is break the cash flow.
(Actually, note that tax cuts 5+ years ago were based on the assumption of spending cuts 4+ years ago. When did “starve the beast” come on line? 2003 or something? Obviously it failed, and would-be downsizers have to prove that they can actually downsize, on the spending side.)
Not really important at all. Just another example of you blathering about something you don’t really understand. Surprisingly enough, bithead was right there with you. Great minds and all that…
Some information on environmental efforts in racing:
http://www.mnn.com/money/sustainable-business-practices/blogs/gentlemen-start-your-solar-panels
http://acceleratingsustainableperformance.com/
You lost me. If the government gets rid of all taxes, corporate, consumption, and individual, where does it get the money to pay the hundreds of billions it costs to run the military? The higher consumer prices comes out of taxes, but if those taxes and all other taxes have been eliminated, how do those prices go towards gov’t programs (including police, military etc).
@anjin-san: One doesn’t have to be an expert to know something relevant to the topic, and — as I said — I stand by my core point: that car racing isn’t readily applicable to street-legal, standard transportation. I appreciate the corrections on the finer points, but they still seem as irrelevant to me now as they were before.
And let me plead ignorance once again: the “bithead” reference went right past me. But I’m not going to ask for an explanation; I’ll just assume that it’s some kind of in-joke between you and a few others and ignore it. Again, it seems utterly irrelevant to me.
J.
@john personna:
Read it again… I said eliminate all corporate taxes.
I see what happened. Thread scarmble, my bad.
I stand by my original suggestion and my explanation of it… that corporate taxes should be eliminated.
@Eric Florack:
You didn’t address the missing spending cuts. You can ask for all the tax cuts you want, but if you don’t cut spending, what do you get?
(I don’t suppose you were suggesting that we eliminate corporate taxes, and increase personal income taxes to make up for the shortfall.)
@john personna:
HAd you actually read what I wrote, you’d know that’s exactly what I propose. Since you missed it, here it is again:
Granted that taxes would of necessity be raised for a while on individuals. But first, as I suggested, these would be taxes we’re already paying in the form of higher consumer prices. But secondly, those increases would not last for long as the public finds out for themselves just what they’ve been paying all along. That revelation would result in a reduction in the size and scope of government unseen heretofore. You see, George, as has been correctly ppointed out there’s a lot of rather popular government programs out there… programs that buy votes. But, they’re popular because of the illusion that they’re not being paid for. Remove that illusion and their popularity will sink nearly as fast as Obama’s has.
Anything else you missed?
@Eric Florack:
You are right, I missed that short term increase in personal income tax. Sorry.
I don’t oppose revenue neutral shifts in and of themselves, but I don’t think they buy anything either. You suggest that people won’t like paying the higher income tax … well as I say they’ve been convinced they can cut taxes now, and spending later.
If you are right, we should increase the personal income tax right away … to make taxes more real, and yeah, maybe that will drive short term spending reductions.
Don’t be so sure. Again, I ask; does anyone suppose that hiring wont skyrocket under those conditions? And does anyone suppose the economic boom resulting from that hiring will not raise revenue?
And far from short term spending reductions, the reductions will be systemic. Increased sending will be the third rail of American Politics…. as it should be.