President Barack Obama’s solution for America’s unemployment woes has been a stubborn campaign to spend hundreds of billions of dollars on economic “stimulus”–much of it on so-called “green jobs.” Report after report has shown the approach to be a total failure. And now, a new scandal involving Solyndra, a bankrupt solar panel company in California, should be the final nail in the coffin for the government’s meddling in the free market.
“[W]e can see the positive impacts [of the stimulus] right here at Solyndra,” Obama claimed when he spoke at the company’s newly unveiled factory in May of last year. He was correct that the results of his stimulus would be on display at that factory. But he was wrong that those results would be positive. Little more than a year later, the company has filed for Chapter 11 bankruptcy protection and plans to lay off more than 1,000 employees.
The Solyndra factory where Obama spoke was built after the company received a $535 million loan guarantee from the Energy Department as part of the stimulus’s green jobs push. “Through the Recovery Act, this company received a loan to expand its operations,” Obama noted. “This new factory is the result of those loans.”
But “everyone knew that the plant wouldn’t work,” according to a former Solyndra employee. So why was the President so sure of the plant’s success when he spoke there? What’s more, the company was built on “a model that says, well, I can build something for six dollars and sell it for three dollars,” according to an industry analyst. That would normally be a red flag for investors. So why did the President claim that “the true engine of economic growth will always be companies like Solyndra”?
The answer to both of those questions: The government’s decisions are driven by politics and ideology and are divorced from economic reality. Want proof? Take a look at a January 31 e-mail between Office of Management and Budget staff regarding “Solyndra optics” — that is, how the issue looks in the public’s eyes. ”If Solyndra defaults down the road, the optics will arguably be worse later than they would be today,” they wrote, adding:
In addition, the timing will likely coincide with the 2012 campaign season heating up, whereas a default today could be put in the context of (and perhaps even get some credit for) fiscal discipline / good government because the Administration would be limiting further taxpayer exposure letting bad projects go, and could make public steps it is taking to learn lessons and improve / limit future lending.
In other words, in January the Administration was essentially letting the 2012 campaign dictate decisions on the federal government’s financial involvement with Solyndra. They were not responding to normal profit-and-loss signals, as they should. Had Energy Department bureaucrats been investing their own money, they might have been more careful. But it was others’ money — taxpayers’ money — at stake. Self-interested investors, who naturally weed out bad investments, were wholly absent. The result: Taxpayers are likely to lose up to $535 million, while the people who made the decision to throw money at Solyndra have, so far, been completely insulated from reprisal.
Much attention has been paid to accusations of cronyism in the Energy Department, given that a major Solyndra investor is also a big Obama donor. But the fundamental lesson of the Solyndra scandal is not that money buys political favors. That now goes without saying. The real takeaway is that government intervention in the economy is a fool’s errand, as Heritage’s Nicolas Loris notes:
Solyndra exemplifies the government’s abysmal track record of picking winners and losers in the marketplace, and the solar company is not the only example of energy stimulus struggles. With a number of targeted energy tax credits set to expire at the end of this year or next, industry groups are lobbying hard for extensions. Especially given the U.S. fiscal situation, this is a time to end all energy subsidies—not to extend wasteful, market-distorting policies. When the government decides to favor a technology with subsidies, it’s a good bet that subsidy ‘winner’ is a loser in the marketplace.
Indeed, at least four other companies to receive money from Obama’s stimulus package have gone bankrupt, Fox News reports.
Even where companies do create jobs, they do so at such exorbitant cost that the effort cannot reasonably be considered a success. To date, The Washington Post reports, the Energy Department loan guarantee program from which Solyndra benefitted has created one new permanent job for every $5.5 million spent. Lend that kind of money to a private business in an industry that doesn’t rely on taxpayer support, and it will put hundreds if not thousands to work.
Government subsidies are invitations for political favoritism, of course. But more importantly, as engines of job creation, they simply don’t work (just ask Spain). Sure, the Administration’s “green jobs” program has led to allegations of corruption. But it has also failed even in its foremost task of creating jobs for an economy with a chronic unemployment problem. Columnist Jim Pethokoukis writes, “Solyndra is the logical endpoint of Obamanomics.” Unfortunately, the American people are paying the price for getting us there.