John Steele Gordon
As if President Obama didn’t have enough bad news last week, Solyndra, which manufactures solar panels, filed for bankruptcy and laid off almost its entire work force of 1,100. Going down the tubes with it, of course, is a $535 million loan that was guaranteed by the federal government as part of the stimulus program.
And it seems the White House put pressure on the Department of Energy to OK the loan. As the Washington Post reported:
Frank Rusco, a Government Accountability Office director who helped lead a review of the Solyndra loan and the Energy Department’s loan guarantee program, said the GAO remains “greatly concerned” by its 2010 finding that the agency agreed to back five companies with loans without properly assessing their risk of failure. The companies were not identified in the report, but the GAO has since acknowledged that Solyndra was one of them.
And one of the company’s biggest backers, George Kaiser, is also one of Barack Obama’s biggest backers. That, I’m sure, is another “coincidence,” such as the Republican debate being held at the same time that he chose to address Congress.
As ABC News reported, many solar energy company analysts have long doubted Solyndra’s business plan:
While Energy Department officials steadfastly vouched for Solyndra — even after an earlier round of layoffs raised eyebrows — other federal agencies and industry analysts for months questioned the viability of the company. Peter Lynch, a longtime solar industry analyst, told ABC News the company’s fate should have been obvious from the start.
“Here’s the bottom line,” Lynch said. “It costs them $6 to make a unit. They’re selling it for $3. In order to be competitive today, they have to sell it for between $1.5 and $2. That is not a viable business plan.”
Other flags have been raised about how the Energy Department pushed the deal forward. The Center for Public Integrity’s iWatch News and ABC disclosed that Energy Department officials announced the support for Solyndra even before final marketing and legal reviews were in. To government auditors, that move raised questions about just how fully the department vetted the deal — and assessed its risk to taxpayers — before signing off.
Based on the evidence assembled so far, no Wall Street investment officer would have recommended the loan or, if he had, would have kept his job for five minutes. Pouring $535 million into an objectively lousy investment is not how Wall Street makes money.
But it all too often is how politicians get re-elected. “Green jobs” are a big plus for the “environmental movement,” which is a very important liberal special interest. That backing these particular jobs was also a favor for a very important Obama political fundraiser was another plus.
This is a textbook case of capital being allocated for political reasons (it will earn us votes) instead of economic reasons (it will make us rich). It is also further proof that politicians can’t make economic decisions even if they wanted to. And they can’t make them for the exact same reason pigs can’t fly: they aren’t designed to.
Bureaucrats and politicians, many of them in life-long careers, are often wholly ignorant of how markets actually work and how to analyze an investment. Liberal politicians and bureaucrats are also instinctively hostile to the very idea that capital should be allocated according to the economic potential of the investment.
Indeed, this is the fatal flaw in the whole philosophy of the left: that government can be an efficient and wealth-creating steward of a national economy. It can’t work until pigs fly. Far better the philosophy of the right (paraphrasing that great political economist, St. Matthew): Render unto Caesar that which is Caesar’s; render unto the market that which is the market’s.
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