David Boaz

Visiting the Solyndra solar-panel factory in Fremont,
California, in May 2010, President Barack Obama declared,
“The true engine of economic growth will always be companies
like Solyndra.”

With paternalistic
attempts at planning our lives, the government takes away a choice
that lets millions of people choose how to spend their own money to
achieve their own purposes.

Well, that didn’t work out so well. Despite $535 million
in federal loan guarantees, Solyndra declared bankruptcy 16 months
later.

The idea of “green energy” — energy from
natural, renewable sources such as sunlight, wind, and rain —
has been a bright, shining dream of environmentalists for decades.
Its viability always seems just over the horizon.

Oh, you can find plenty of headlines like “Further
Dramatic Fall in Price of Solar Energy Forecast for 2018” and
“Renewable Energy Will Be Consistently Cheaper Than Fossil
Fuels By 2020, Report Claims.” But here’s the thing:
Those headlines and reports are usually produced by interested
parties: environmentalist groups or industry associations or
government agencies. They don’t hold up to scrutiny.

Government as Energy Investor

We have decades of experience with the federal
government trying to subsidize and encourage new sources of energy.
A Department of Energy report in 2008, before the massive
expenditures of the Obama “stimulus” package, estimated
that the federal government had spent $172 billion since 1961 on
basic research and development of advanced energy technologies.
Consider some of the big-ticket items:

• The Clinch River Breeder Reactor was an experimental nuclear
  fission power project in Tennessee that cost taxpayers $1.7 billion
  — more than $4 billion in today’s dollars —
  before being abandoned in 1983.
• The Synthetic Fuels Corporation was created in 1980 to develop
  oil shale, tar sands, and coal gasification technologies to wean us
  off imported oil. Congress authorized $20 billion, but eventually
  it was closed in 1986 after spending “only” $2
  billion.
• George W. Bush spent $1.2 billion on a fruitless effort to
  develop a hydrogen-powered car.
• Presidents since Jimmy Carter have tried to develop
  “clean coal,” a method to burn domestic coal in an
  environmentally friendly way. From the Healy project in Alaska to
  the Kemper plant in Mississippi, these efforts have overspent and
  underperformed. As Steven Mufson of the Washington Post
  wrote in 2014, “The only thing the Kemper
  power plant is burning now is money.”

Indeed, Mufson wrote in an earlier article, “Not a
single one of these much-ballyhooed initiatives is producing or
saving a drop or a watt or a whiff of energy.”

The Solyndra Debacle

When President Obama took office, with the stock market crashing
and unemployment rising, his first order of business was the
American Recovery and Reinvestment Act, which he called stimulus
and Tea Partiers called “porkulus.” It was an $800
billion package of federal spending that was supposed to restart
the economy and create jobs. Economist Steven Horwitz called it the Democrats’ Patriot Act, an
opportunity to enact a whole variety of programs that they had
wanted to pass for years but couldn’t get through Congress in
the absence of a crisis.

Clean energy was a big part of the stimulus bill – about $90 billion. A “ginormous” clean energy package, said
journalist Michael Grunwald. And as Obama’s factory visit
demonstrated, Solyndra was a crown jewel.

Heavily subsidized government projects don’t always fall
apart as fast as Solyndra. But the president of the United States
made it a centerpiece of his economic and environmental policies,
so it’s worth a closer look.

Solyndra was founded in 2005 to make solar photovoltaic systems
for commercial rooftops. By 2009 it had $100 million in revenue and
a market cap estimated at up to $2 billion in an anticipated IPO.
In March of that year, it received a $535 million
loan guarantee as part of the ARRA. It also received a $25.1
million tax break from California’s Alternative Energy and
Advanced Transportation Financing Authority.

In May 2010, President Obama took his victory lap at
Solyndra’s new factory and declared that “companies
like Solyndra are leading the way toward a brighter and more
prosperous future.” But in fact, as the New York
Times reported later, “behind the pomp and
pageantry, Solyndra was rotting inside, hemorrhaging cash so
quickly that within weeks of Mr. Obama’s visit, the company
canceled plans to offer shares to the public.”

Partly because of the rapidly declining cost of a competing
solar technology, Solyndra announced it was filing for Chapter 11
on August 31, 2011.

Why did the government pour so much money into a failing
company, even as it spiraled downward? Certainly the
environmentalist impulse to find something, anything, that could
replace widely demonized fossil fuels was important. But when
governments pick winners, politics usually rears its ugly head.
Official investigations and reporters dug into the story and found
that, as the Washington Post reported, “Obama’s green-technology
program was infused with politics at every level… Political
considerations were raised repeatedly by company investors,
Department of Energy bureaucrats and White House
officials.”

The family funds of Oklahoma billionaire George Kaiser, a big
Obama fundraiser, owned a third of Solyndra. As the company was
failing, Kaiser wrote to a Solyndra board member, “Why
don’t you pursue your contacts with the WH?” Two months
later the board member wrote Kaiser, “The DOE really thinks
politically before it thinks economically.” Solyndra’s
lobbyists met at least three times with an aide to top White House
official Valerie Jarrett.

But as energy journalist Amy Harder asked, which would be worse, crony capitalism
infused with politics, or an administration that actually believed
so strongly in its commitment to green energy that it ignored all
the signs of looming disaster? “By denying politics was
involved, the administration is saying that its top officials
genuinely and continuously thought Solyndra was a good bet-despite
numerous warnings raised both inside and outside of the
administration-and that the loan-guarantee program was being
carefully managed despite oversight reports and an internal West
Wing memo that said otherwise.”

Former Treasury secretary and Obama adviser Larry Summers might
say that crony capitalism and boneheaded government economics are
both part of the same problem. Brad Jones, a venture capitalist
with an investment in Solyndra, told Summers the government’s
spending on clean energy was “haphazard,” citing
Solyndra as an example. “While that (loan) is good for us, I
can’t imagine it’s a good way for the government to use
taxpayer money.” Summers responded, “I relate well to
your view that gov is a crappy vc [venture capitalist] and if u
were closer to it [government] you’d feel more
strongly.”

By the way, on the same day that President Obama spoke at the
Solyndra plant in California, an official of his administration
participated in a groundbreaking ceremony for Nissan North
America’s new advanced battery manufacturing facility in
Smyrna, Tennessee, made possible by a $1.4 billion loan from
unsuspecting taxpayers. In 2017, Nissan announced plans to sell
that plant and its entire electric battery operations to GSR
Capital, a Chinese firm partly funded by the government. The sale
fell through in 2018, but Nissan is still looking for a buyer.

Politics and Energy

The connections between government, politics, and energy go way
back, of course. Coal in the 19th century, the oil depletion
allowance, nuclear power, and the Price-Anderson Act —
“clean energy” is certainly not the first industry to
be entangled with government favoritism. Robert L. Bradley Jr.
wrote 1,992 pages (not a typo) on Oil, Gas, and Government: The
U.S. Experience.

Most people figured out that the Clinch River Breeder Reactor
was a money sink by the time Ronald Reagan took office, 10 years
after its creation, but Senate Majority Leader Howard Baker
(R-Tenn.) kept the Tennessee project in business for a few more
years. I’m old enough to remember the wailing and gnashing of
teeth when Reagan was elected, and the entire Washington
establishment worried that he would actually cut the budget. And I
remember clearly the front-page story in The Washington
Post about the first firm stand congressional Democrats took
to preserve essential government services. On February 10, 1981,
under the headline, “House Democrats Unify Against Synfuels
Cuts,” the Post reported:

“The entire Democratic leadership in the House joined
yesterday in warning the Reagan administration to keep its
budget-cutting hands off the synthetic fuels subsidy program
Congress created last year.

As the list of spending cuts proposed by the new administration
circulated on Capitol Hill, including a big cutback in the federal
underwriting of a massive synfuels development program, House
Majority Leader Jim Wright (D-Tex.), who led the fight for the
program in the last Congress, sprang into action.”

In the Solyndra aftermath, Michael Graetz, a professor at
Columbia Law School and the author of The End of Energy, said,
“We’re making very large bets, and the decisions seem
to be more grounded in politics and geography than in engineering
and science.”

Switching parties doesn’t seem to stop that process.
Recently, Energy Secretary Rick Perry proposed subsidizing nuclear
and coal plants, helping those fuel sources compete with cheaper
natural gas. The plan was opposed by a broad coalition of the
natural gas industry, renewable energy providers,
environmentalists, and free-marketers, and was blocked by the Federal Energy Regulatory
Commission. But in June, Bloomberg reported on a draft plan to “use
emergency authority under two federal laws to order grid operators
to buy electricity or generation capacity” from a list of
coal and nuclear plants designated by the Department of Energy.

Is Green Energy Viable?

We keep reading those stories about the falling cost of
renewable energy, and there’s some truth to them. But as
Peter Van Doren, an energy specialist at the Cato Institute,
notes, “a closer examination of the
characteristics and costs of electricity systems demonstrates that
current renewable technologies are not economically
competitive.”

Particularly in California, pricing and regulatory schemes have
been set up to encourage the use of solar energy. Without price
subsidies, consumer-generated solar power wouldn’t be viable.
Large-scale solar generation and onshore wind generation might be
competitive with natural gas. But it’s hard to store and
transmit solar and wind energy, so we can’t replace
conventional energy with them.

The basic point is simple: If solar, wind, or other
“renewable” energy sources were economically viable,
companies would produce them at a profit. They wouldn’t need
subsidies.

Politics and Economics

Most proposals for government regulations and subsidies reflect
a failure to understand Economics 101. The economic challenge is to
use available resources — land, labor, capital, and ideas
— to satisfy as many human needs as possible. But how do
businesses or economic planners know what people need or want? This
vitally important information about other people’s wants is
embodied in prices. Prices don’t just tell us how much
something costs at the store. The price system pulls together all
the information available in the economy about what each person
wants, how much he values it, and how it can best be produced.
Prices make that information usable to both producer and consumer.
Each price contains within it information about consumer demands
and costs of production, ranging from the amount of labor needed to
produce the item, to the cost of labor, to the bad weather on the
other side of the world that is raising the price of the raw
materials needed to produce the good. Instead of having to know all
the details, one is presented with a simple number: the price.

Market prices tell producers when something can’t be
produced for less than what consumers will pay for it. If a product
needs to be subsidized in order to be produced, that tells us that
consumers don’t value it as much as other goods that could be
produced with available resources. If solar power or aging coal
plants need subsidies, that tells us that they’re not
economically viable. If consumers don’t want to purchase the
product, and thus lenders don’t want to give such firms
money, then there’s no good reason to force the taxpayers to
do so.

Solar entrepreneur James Nelson testified on green business
subsidies in 2012 before the House of Representatives Subcommittee
on Regulatory Affairs and Federal Management. On the
“Downsizing Government” website, Chris Edwards summarized his criticisms of subsidies:

• Firms that receive subsidies become
  spendthrift. Nelson contrasted his firm’s lean
  operations with Solyndra’s spendthrift ways. He noted that
  the “most powerful driver in our industry is the relentless
  reduction in cost.” But government subsidies tend to inflate
  costs.
• Subsidies are not driven by market demands.
  Nelson noted that U.S. adoption of solar energy at the time lagged
  behind some other nations. But “this should not bother us if
  it means that the other countries are investing in technology that
  is not economically viable.” Put another way, just because
  other countries may be misallocating resources, does not mean that
  we should also.
• Subsidies distort business decisions. Nelson
  noted that “giving companies money to set up manufacturing in
  the U.S. may doom them to failure by financing them into a
  strategically uncompetitive position.” If subsidies induce
  U.S. firms to set up production in higher-cost places, it will
  ultimately disadvantage them in the global marketplace.
• Venture capitalists have already funded the best
  projects, leaving the dogs for the government. If venture
  capitalists “reject a project, it is difficult to believe
  that the government could do a better job of picking a
  winner,” argued Nelson.

The argument for subsidies is that businesses are
self-interested and short-sighted. Put the government in charge of
handing out money, we’re told, and the decisions will be made
by highly trained, public-spirited economists or lawyers,
irrespective of political considerations.

But the reality is that people are people. Government employees
are just as self-interested as corporate employees. And therefore,
they are susceptible to political influence, persuasion by
interested parties, outright bribes, and personal preferences.

The argument for keeping more of society in the private sector
is not that there’s no self-interest or corruption in
business; it is that the market system has more competition, more
checks and balances, and more incentives to satisfy customers.

As Adam Smith suggested with his “invisible hand” metaphor, the competitive market
system channels self-interest in a socially beneficial way – into
the search for ways to attract customers – while the non-market
system actually encourages unrestrained self-interest.

The Solyndra story is a classic case study. It has all the
hallmarks of government decision-making:

• Officials spending other people’s money with little
  incentive to spend it prudently
• Political pressure to make decisions without proper
  vetting
• The substitution of political judgment for the judgments of
  millions of investors
• The enthusiastic embrace of fads like “green
  energy”
• Political officials ignoring warnings from civil servants
• Crony capitalism, the close connections between politicians and
  the companies that benefit from government allocation of
  capital
• The appearance — at least — of favors for political
  supporters
• The kind of promiscuous spending that has delivered us $21
  trillion in national debt.

If you want government to guide the economy, to pick winners and
losers, to override market investment decisions, then this
is what you want.

Finally, we should just note that when government takes our
money to subsidize one business or industry over another, it takes
away our freedom. Most of us spend most of our waking hours trying
to make money to give our families a better life. If that
hard-earned money is taken away from us by force, it should be for
some clear public good. Bailing out no-longer-profitable coal
plants or never-yet-profitable wind and solar projects is not good
enough.

President Obama’s energy secretary, Steven Chu, is a very
smart man. He won the Nobel Prize in Physics in 1997 for his work
to develop methods to cool and trap atoms with laser light. And
perhaps he just doesn’t think we lesser intellects should be
left to our own devices. He told Congress after Solyndra’s
bankruptcy that “the final decisions on Solyndra were mine,
and I made them with the best interest of the taxpayer in
mind.” But he didn’t actually let the taxpayers decide
which energy companies to lend their money to. Three months
earlier, opposing a House bill to repeal the 2007 federal law that
effectively outlawed incandescent light bulbs, Chu said, “We
are taking away a choice that continues to let people waste their
own money.”

Exactly. With paternalistic attempts at planning our lives, the
government takes away a choice that lets millions of people choose
how to spend their own money to achieve their own purposes.