THE SOLYNDRA LESSON
The national media has missed the real lesson taught by the $530 million in loans the Obama Administration’s Department of Energy (DOE) gave Solyndra, the now bankrupt solar-power panel manufacturer from Fremont, California. The real lesson is not just one of cronyism and abuse, it is one about the inherent folly of government planning, the inability of bureaucrats to decide for consumers which market players will be “winners.”
In May of 2010, President Obama stood before workers at the ill-fated Solyndra plant, lauding them for their green energy production and proclaiming them stewards of his vision of the American future, one replete with “the promise of clean energy.” The President had decided that Solyndra was an excellent example of the kind of company his vision of America’s future included. He not only decided that about Solyndra, but he also decided that his administration would help make Solyndra a success. His choice to show case Solyndra reveals just how out of touch he and his top advisors are with economic reality.
In March of 2010, PricewaterhouseCoopers LLP determined that Solyndra suffered from severe financial difficulties that “raise[d] substantial doubt” as to “its ability to continue as a going concern.” By contrast with that fair economic assessment, DOE proclaimed after it had purportedly performed “a rigorous financial, legal and technical review” that Solyndra was not only an appropriate candidate for receipt of taxpayer financed loans from the federal government but rightly deserving of the whopping sum of $530 million in those loans. For most medium-sized businesses in the United States, that enormous sum would be sufficient to finance operations for decades even without generation of revenue, but not so for Solyndra.
On August 31, 2011, Solyndra dismissed 1,100 employees, a huge army it had employed as part of an extravagant expansion project financed with the federal dollars. That same day the company announced that it would file for Chapter 11 bankruptcy, seeking reorganization of its business.
To those of us familiar with how Washington works, it comes as no surprise that $530 million tax dollars were blown on a boondoggle. Regardless of how the agencies try to sugar coat it, ultimate decision-making by the federal government (whether it comes in the form of an approval of a new drug or of a federally backed low interest loan) is made by political appointees whose judgment depends heavily on subjective political considerations rather than on objective practical ones. When political will clashes with objective reality, political will prevails in almost every case, inviting catastrophic consequences like the Solyndra boondoggle.
The DOE loan guarantee program was created by Congress in 2005. The former Republican majority is equally guilty with the Obama Administration for promoting government planning over market processes, because it was a Republican Congress and Bush White House that created the program. Loan guarantees were one fat pork option irresistible to members. Those guarantees would line the pockets of those who could form a ready, supportive political constituency, one that would repay politicians who supported the program with campaign contributions and campaign support. While the Solyndra loan application was given top billing by the Bush DOE, it was the Obama DOE that in September of 2011 actually paid out the proceeds, fulfilling a commitment made by DOE Secretary Steven Chu to approve with rapidity a number of pending loan applications.
Aware of the scandal that could arise if Solyndra went belly-up, DOE acted a second time in a radically uneconomic way by agreeing to a shaky restructuring program offered by the company in December 2010 whereby Solyndra would delay payment on the loan while seeking new investors. DOE accepted this second bad deal rather than demand loan payments. The official position of DOE was that the restructuring program was “the best possible course of action to achieve the highest return on invested capital.” At the same time that Solyndra lobbied DOE (successfully as it turned out) to lessen its repayment demands, it also lobbied Congress, spending $480,000 to that end, in a desperate attempt to keep its house of cards standing.
The political decision to bet tax dollars on Solyndra reveals the inherent inability of politicians to best the market in deciding America’s future. Solar panel energy is something that few experts think a likely candidate to supply more than a miniscule amount of America’s energy needs because there are so few places in the United States where the panels could be effective means for power generation. Those experts put New Zealand and Norway as geographic points on the globe where solar energy might prove feasible, but they do not think solar energy feasible here. Nevertheless, it is a darling concept of liberals and of the Obama Administration that solar energy should be a key component in the American energy market. Thus clinging to that pipe dream rather than to the market verities, the Obama team dumped half a billion dollars into a small company that blew through the money at the speed of UV radiation.
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Instead of taxing America for funds that are then delegated by Congress to federal agencies for the purpose of dispensing the monies to politically favored enterprises, the alternative (leaving the money in the private sector untaxed) ensures that it will be devoted by individuals to its best and highest use. No economic decision-making has proven more effective in satisfying consumers’ interest than the decision-making those consumers make for themselves. The arrogant assumption in Washington is that politicians know better than we do how best to spend our money and that politicians can create a sustainable future in place of the one that would otherwise be brought to us by free market forces. Solyndra reveals that arrogant assumption to be false and very costly.
� 2011 Jonathan W. Emord - All Rights Reserved