The Porkulus Bill: Solyndra and Crony Capitalism

"Government is not a solution to our problem, government is the problem." Ronald Reagan

Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks and so forth.Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals

Back in the summer of 2009, the president delivered some soaring rhetoric about how his policies helped launch that now bankrupt company that made solar panels. The administration took a loan application that the Bush administration had put a hold on and fast tracked Solyndra's loan guarantee through the American Recovery and Reinvestment Act, i.e. the stimulus or as I call it, the porkulus bill.

I wonder if it was because Solyndra's principal backers just happened to have donated huge sums to the Obama election campaign? Washington guaranteed more than a $500,000,000.00 in loans to Solyndra on the promise of 4,000 jobs.

"This new factory is the result of those loans," the president said at the Solyndra factory in Fremont, California. A facility by the way that the Washington Post described as a "signature project of President Obama's initiative to help create clean-energy jobs."

So you may ask, ‘how‘s that working out‘? Well let me tell ya, Solyndra has shut its doors, its 1,100 former employees are jobless, and the taxpayers are on the hook for $5,000,000.00.

If we look at Solyndra as an isolated incident you might be inclined to think that it’s just business as usual and there’s nothing different than what other corporations did when they expected a return on their campaign contributions to republicans.

But au contraire, mon ami. The Solyndra story encapsulates a much bigger issue than mere crony capitalism as bad as that is because Solyndra is not alone. The Obama administration has sunk billions into loan guarantees for dozens of other renewable-energy companies as well. (See my previous blog, "Green Won't Happen Overnight." )

Let’s call this ‘the political allocation of economic resources’ and it entails all kinds of problems:

Problem No. 1: It's wrong. Government should not be picking winners and losers in the marketplace.

Problem No. 2: Corruption. When the government puts its ’green’ thumb on the market scale corporations have a huge incentive to try to win government's favor. So it creates a feeding frenzy for campaign contributions and lobbyists galore.

Problem No. 3: It distorts market incentives. Federal policy played a significant role in the recent housing bubble and crash, (Neighborhood Reinvestment Act and allowing the bundling of high risk mortgages to be sold as securities).

Federal intervention also gave us a creature like the Chevy Volt, an electric car for which there is zero demand despite a whopping $7,500 federal tax credit for the buyer and let’s not forget Cash for Clunkers. That idea was a kin to paying people to burn down their houses to stimulate demand for new ones.

Back in Reagan's first term the federal government loaned Chysler money to stay afloat but they didn't tell Lee Iacocca to get out of the way a let a board picked by pres. Reagan to run it.  Iacocca brought Chrysler back and repaid the loans early.  When Obama took over the auto industry, with the exception of Ford, he not only put inexperienced people in charge, they made sure that the unions were paid first for their unsecured pension debt at over .40 cents on the dollar before paying secured bond owners .29 cents on the dollar(which by the way is illegal).  Could it be because the unions are huge donors to the democrats? Ford by the way didn't take bailout/tarp money and restructioned themselves into solvency.  Buy Ford.

By distorting the market, resources get shifted from more productive to less productive purposes, which in turn produces less prosperity. New York Times August 18, 2011 story "Number of Green Jobs Fails to Live Up to Promises," concluded: "Federal and state efforts to stimulate creation of green jobs have largely failed, government records show." For a liberal rag like the Times to concede that government intervention to further liberal political goals has not worked is like National Review criticizing Reagan. The proof has to be overwhelming.

The fourth problem and the one that I find most troubling is that it fosters the assumption that politicians and bureaucrats have more knowledge and wisdom and know what’s best for us better than we know ourselves.

Government and politicians also like to think they know what is best for America. Energy Secretary Steven Chu epitomized this attitude when he argued for new light bulb standards by saying, "We are taking away a choice that continues to let people waste their own money." Well thank you Secretary Chu, for saving me from getting a headache from having to choose a light bulb.

Obama would like you to believe that he’s a virtuous shepherd tending us poor stupid and helpless sheep, keeping us safe from the evil corporate wolves. How friggin’ conceited is this man? It’s about as detached from reality as an LSD trip.

It is not altruism that makes Obama think he can reshape the energy sector for the better, or conjure up jobs where employers do not want them. Such beliefs stem from unbridled arrogance. And the result of this arrogance can be summed up in one word: Solyndra.