The proud track record of government subsidies

Sen, Harry Reid, D-Nev., staged his fourth annual “National Clean Energy Summit” at the Aria hotel-casino in Las Vegas during the final days of August.

Tellingly, most of the featured speakers were not energy engineers or even entrepreneurs, but left-leaning politicians, including Vice President Joe Biden.

(Most would consider Obama Energy Secretary Stephen Chu — a Nobel Prize winner who should certainly know his physics — an exception, though Chu is a believer in man-made global warming who has toiled most of his days on the government payroll.)

And the major theme of this dog-and-pony show (there’s no evidence any dissenting opinions were invited) was the necessity of ongoing government interventions in the energy market.

“What is needed is stimulus,” said California Gov. Jerry “Moonbeam” Brown, another politician masquerading as an economist at this conference. “Stimulus is money. If the consumer doesn’t provide it then the federal government has to provide it.”

I didn’t attend, but newsmen who were there report a consistent theme was that fossil fuels are running out, and we get most of them from countries in unstable areas of the world, which raises national security questions. Furthermore, costs are not predictable, and the environmental consequences of using fossil fuels are bad (unlike nuclear energy, apparently, which Secretary Chu favors and of which we’re gonna need a whole lot more if we stop using coal, gas, and oil.)

In fact, this nation still has at least a 100-year and possibly a 200-year domestic supply of coal, a fossil fuel by definition, which can now be burned much more cleanly than at any time in the past. And while no price can long remain stable under an administration that’s purposely inflating the money supply, coal comes close.

We also have plenty of natural gas and oil fields that are mot being tapped, in part because Secretary Chu is using his political power in an attempt to turn his pet “running-out-of-fossil-fuels” theory into a reality, by holding up permits for onshore oil, offshore oil, Alaskan oil, and even for a pipeline to bring plentiful oil to this country from Canada, not a politically “unstable area of the world” the last time I checked — any more than West Virginia.

Never mind. It’s all about subsidies for windmills and solar farms, now; the emperor has spoken and it’s up to us to get with the program.

“We need incentives for these companies to be successful,” Sen. Reid said, referring to government subsidies.

Why, government has always played a role in developing new technologies, asserted career government employees Chu and Biden.

As one Las Vegas columnist summarized the argument, “From buying muskets with interchangeable parts to fight the Revolutionary War to development of the telegraph and Transcontinental Railroad, to spurring investment in aviation by allowing airplanes to carry the U.S. mail to buying computers and semiconductors that eventually led to the Internet, the government has always been a player in emerging technologies.”

In a slight embarrassment, Silicon Valley solar array manufacturer Solyndra, heavily touted by President Obama during a personal appearance there last year and the recipient of a $527 million direct federal loan which some analysts have characterized as something more closely approaching an “outright gift,” chose the second day of Sen. Reid’s little “Green Energy” carnival to follow equally touted Evergreen Solar and SpectraWatt in declaring bankruptcy and throwing 1,100 “Green Jobs” employees out of work (http://tinyurl.com/3qdsm7g).

All three firms cited their inability to meet Chinese competition, despite government subsidies.

‘The bankruptcy filing by a Silicon Valley firm is raising questions about the Obama Administrations ‘Green Jobs’ program, and leads one to wonder why the federal government is providing loan guarantees to companies in an industry with a history of insolvency,” commented blogger Doug Mataconis at outsidethebeltway.com.

In the case of Solyndra, some experts said that regardless of the competition, the company’s unique designs, which were expensive to manufacture, were to blame for its failure.

As part of the 2009 stimulus package, the Energy Department has committed $18 billion in guarantees (of which Solyndra’s half billion was the first), and expects to allocate several billion dollars more by the time the program finishes at the end of September.

Solyndra’s loan was provided by the government itself through an entity known as the Federal Financing Bank, a division of the Treasury Department.

Neither Solyndra nor any of the other companies that benefited from these “loans” assumed any risk, Mr. Mataconis notes. “All the risk was assumed by the American taxpayer, which makes the appallingly bad judgment that was apparently used here even more egregious.

“In the case of Solyndra, one has to wonder how the company ever qualified for loan guarantees to begin with. The company has never recorded a profit in its entire history and earlier this year cancelled an expansion that was supposedly going to be financed in part by the loans received through the Obama Administration program. Just a year ago, PriceWaterhouseCoopers issued a scathingly negative report on the company two months before President Obama went there to tout the company as an example of his investment in ‘Green Jobs.’”

“In an apparent rush to push stimulus dollars out the door, the Obama administration wasted $535 million in taxpayer funds in guaranteeing a loan to a firm that has proven to be unviable in the global market,” said Representative Cliff Stearns, the Florida Republican who is chairman of an investigative subcommittee of the House Energy and Commerce Committee.

But concentrating on Solyndra could make it sound like this is an isolated embarrassment.

In fact, Burton Folsom, professor of history at Hillsdale College and author of “The Myth of the Robber Barons,” told me, also on Aug. 31, “Subsidies encourage bad investment behavior.”

Provided with the list of “successful” government interventions cited by the participants in Sen. Reid’s little public relations tent show, Professor Folsom commented: “In the case of the airplane we subsidized Samuel Langley. He flew two airplanes into the Potomac River, and he did it in front of reporters. Langley’s mistake was he did it in front of people, so in the end all he could say was, ‘Well, I don’t have enough subsidy money.’ Nine days later two bicycle mechanics with $2,000 of their own capital flew their first airplane at Kitty Hawk, North Carolina.

“The subsidies encouraged inefficiencies; Langley didn’t have to be economical, he didn’t have to watch the weight of his plane, because he figured there would always be more subsidy money.”

But the best example, Folsom says, is to compare the subsidized transcontinental railroads — another “success” cited by Messrs. Chu and Biden, ironically enough — with James J. Hill’s non-subsidized Great Northern Railway.

“Obama is trying to promote high-speed rail, but look at story of promoting the transcontinentals back in the 1860s and 1870s,” Professor Folsom says. “They all went broke in the panic of 1893 and they cost a fortune. They cost the government hundreds of thousands of acres” given away as “checkerboard” subsidies.

“Then you have the Great Northern with zero subsidies. Not only was it a good railroad, it was better built, because the subsidies change the way you build. If you’re being paid by the mile then you build lots of mileage,” some over ground so poorly chosen the rail later had to be torn up and relocated.

“Hill had to build an efficient line, so Hill tries to get the flattest grade he can through the Marias pass, the same place the Lewis & Clark expedition went.”

In contrast, professor Folsom recalls, the subsidized railroads crossed the mountains on grades too steep for the engines of the day to haul freight, so that for a time “The freight had to be portaged across the passes and re-loaded on trains on the other side. …

“The historical record is the subsidized companies fail; it’s the non-subsidized companies that succeed.”

4 Comments to “The proud track record of government subsidies”

  1. Steve Says:

    Coincidently the non subsidized papers are the ones that will remain in business. Waiting on that SunSet thanks to the JOA.

  2. MamaLiberty Says:

    I do get really tired of the people who insist that “big government” built the internet, so that proves big government will always be necessary… or one of the several thousand variations on that theme.

  3. Episode 7 – World’s Smallest Political Quiz « The Midwest Peace Process Says:

    […] one of our favorite columnists, Vin Suprynowicz on The Proud Track Record of Government Subsidies […]

  4. R Says:

    Here’s the modern variation of subsidized railroads – Taxpayer subsidized space capsules and rockets.

    http://news.discovery.com/space/nasa-sets-date-for-dragons-space-station-debut-111209.html#mkcpgn=fbdsc17

    I can’t find any info on SpaceX’s website about whether they are a public or privately held company. I’d be curious to know the interconnections between their stockholders and people who hold levers of power in government.
    Here’s the email I sent to their media contact address:
    “Hello!
    I’m doing a some fact checking for an upcoming report on your company. I’d like to know which State(s) you are incorporated in, and whether you are a publicly held or privately held corporation. As I progress on this report, I may have further questions that I cannot answer from your website and other materials.
    Thank you.
    Sincerely,
    Rxxxxxx xxxxxxx [redacted by writer]”

    I’m curious how or if they’ll answer.

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