Hostile Takeover: Resisting Centralized Government's Stranglehold on America (19 page)

Are you like GE, with 900 tax experts and lobbyists acting on your behalf in Washington? The business of government, unlike the private economy, is booming. There are endless examples of corporate interests evading market forces through government protection. As the housing market unraveled, Fannie Mae chose Franklin Raines, former Office of Management and Budget chief under President Clinton, to be its CEO. Clearly, political pull was more important than addressing the structural problems in the government-induced housing bubble. Ultimately, Fannie Mae and Freddie Mac were bailed out, with estimates of the final price tag topping one trillion taxpayer dollars.
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And that’s how political markets work: it’s all based on your pull in Washington, not on your economic performance.

These days large swaths of the economy are in the hands of the government, including such critical sectors as health care, energy, and financial services. The Obama administration’s response to the jobless economy has been to expand government control even further. As Robert Higgs has documented, every crisis provides government an opportunity to grow. Unfortunately, the size of government rarely recedes to pre-crisis levels.
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Businesses, in turn, simply follow the money. With government’s hands in so many sectors, corporate America couldn’t ignore Washington even if it wanted to.

But, at a fundamental level, this transition toward a more expansive government does little to alter the inherent behavior of individuals; self-interest is an aspect of human behavior, and there is no reason to assume that it evaporates when a government entity supplants the market in various sectors of the economy. Given the track record of government action—from campaign contributions that shaped legislative outcomes to the blatant misuse of government funds as in the Solyndra case—greed feeds on the benevolent claims of progressive policies. Only the decentralized nature of the market mitigates and minimizes the corrosive aspects of greed in ways that centralized authority never could.

Occupy Wall Street and others calling for greater government control ignore this fundamental aspect of human nature and somehow assume that government officials are selfless arbiters of the public good. Call it the myth of the benevolent bureaucrat. Occupy Wall Street constantly points to market failure, while ignoring any potential for government failure. Economist Harold Demsetz calls this the Nirvana fallacy, when a real, imperfect market is compared to an imaginary but ideal government.
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Remember that government power is, at best, a zero-sum game. Resources are allocated by taking from one group to give to another. Taxes collected are spent by the government on particular programs that benefit particular people, usually to satisfy a particular interest. When we turn to the government for resource allocation, we leave the world of voluntary transactions and turn to a world where political power and special interests determine outcomes. And in this world, the lobbyists and corporate deal makers—the moochers—have every incentive to seek favors from the central planners—the looters.

CARTERNOMICS

U
NFORTUNATELY, GOVERNMENT PLANNING IN PRACTICE IS SELDOM A
zero-sum game. Because of unseen consequences, the lives of people, like those who heat their homes and drive to work every morning, are diminished by misallocations caused by the collusion of public and private interests. Energy markets in the United States, for instance, have long been plagued by government intervention, with little benefit to show for it. Consider this: the U.S. Department of Energy was created in 1977 with an explicit mandate to make America energy independent. President Jimmy Carter, presuming that government oversight, from the top down, could better manage the problem, famously lectured the American people in a televised address that year:

Our decision about energy will test the character of the American people and the ability of the President and the Congress to govern. This difficult effort will be the “moral equivalent of war”—except that we will be uniting our efforts to build and not destroy.

The oil and natural gas we rely on for 75 percent of our energy are running out. In spite of increased effort, domestic production has been dropping steadily at about 6 percent a year. Imports have doubled in the last five years. Our nation’s independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil than it can produce.
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How did it turn out? The only thing that this government plan and the Department of Energy have succeeded in creating is more politicized energy markets. Federal energy policy today is a train wreck of tax credits, mandates, regulatory roadblocks, and subsidies, all guided by business interests looking to game the system, distorting the marketplace, and making it difficult to expand the nation’s energy supplies and deal with the energy demands of the future. But one thing is certain. If you want to produce energy, you will need to catch a flight to Washington first to talk to the man in charge.

By any standard, federal energy policy has been ineffective in promoting a diverse portfolio of abundant and reliable energy. Today the United States imports nearly half of its petroleum.
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The price of gasoline has reached record highs and domestic oil production, which fell 17 percent during the Clinton years, remains weak because vast areas of the United States have been deemed off-limits to exploration. The development of natural gas and deposits of low-sulfur coal has been prohibited because of National Park designations and other federal land-use restrictions. Meanwhile, the Environmental Protection Agency has declared war on coal, one of the nation’s most abundant energy resources.

Rather than removing government barriers to new energy innovations, the Obama administration continues to use government to promote a particular vision of energy. In this case, it is so-called green energy, an attempt to supplant carbon-based fuels with green technologies such as solar power and wind power. Remember Van Jones? He was, briefly, the man in charge, the “green jobs czar” responsible for planning, from the top down, a transition to “green-collar jobs.” To achieve these goals, the administration is aggressively pursuing rules and regulations that will artificially increase the price of carbon-based fuels while providing subsidies to greener fuels. In fact, Obama’s stimulus bill triggered what one reporter termed a “gold rush” for energy subsidies.
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One renewable energy executive said, “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” in an interview with the
New York Times
. “It is just filling the desert with panels.”
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Of course, this means that government has to choose which businesses are worthy of its largesse. “The government support—which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates—largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come,” reported the
New York Times
in November 2011. “The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG—even Google.”
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Money was moving out the door as fast as it could be processed. Which brings us back to Solyndra.

The Solyndra fiasco is a clear case of what happens when government tries to pick winners and losers. But it’s also an example of what happens when government does the bidding of business. In the novel
Atlas Shrugged
, Ayn Rand describes the underhanded machinations of a failing industrialist, Orren Boyle, a steel producer who cannot compete with his more efficient rivals. Boyle seeks, and receives, favored treatment from Wesley Mouch, lobbyist turned administration bureaucrat at the Economic Planning Bureau. With Solyndra, a corporate insider manages to convince a White House insider—such as Valerie Jarrett—that you have the solution to the nation’s energy woes. The Solyndra debacle so perfectly captures this crony capitalism that it sounds almost fictional—unfortunately, it was very, very real.

The solar panel company from Fremont, California, filed a loan application with the Department of Energy during the Bush administration, but the application was rejected because there was a lack of evidence that the project would be financially sustainable.
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Rather than shelve the project, Solyndra redoubled its efforts in Washington.

Despite government officials having already raised concerns that Solyndra could run out of cash by September 2011, the company pursued an aggressive campaign in Washington to obtain federal funding.
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The Obama administration was enamored of the company, citing it as the perfect example of building green jobs that expanded the economy while promoting the administration’s vision of cleaner energy. Vice President Biden touted the program, while Energy Secretary Steven Chu talked about how the company was providing the kind of jobs that America needs for the future. President Obama visited the plant, and Solyndra was even featured in a video as the example for the success of the economic stimulus.
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In the end, politics trumped markets and concerns over the company’s financing; in September 2009, Solyndra was awarded $535 million in stimulus funds, the first company to receive Department of Energy funding under the stimulus package.
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The unsavory episode was emblematic of a Democratic White House doing the bidding of business. As we now know, the company failed to produce any permanent jobs, green or otherwise. In the end, the company shuttered its doors, laid off its workers, and filed for bankruptcy under Chapter 11, while a new facility it built in Fremont sits idle—waiting, apparently, for all those “green-collar jobs.”

Why did Solyndra receive the expedited loan for a questionable product? Lobbying. Solyndra spent $1.8 million on lobbying during 2008 and 2009, and subsequently received both the first loan approval from the Department of Energy as well as the largest loan. None of the other companies that received loans early on had spent money on lobbying.
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Two major Obama fund-raisers were tied to Solyndra. One, George Kaiser, owned the fund that held the largest investments in Solyndra. The other, Steve Spinner, was one of the main decision makers for the loan approval process in the Department of Energy. Spinner had to recuse himself from the final decision on Solyndra “because his wife’s law firm represented the company.”
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E-mails revealed that Kaiser’s connections had discussed Solyndra with administration officials in March 2009, well before the contract was awarded by the Department of Energy. Later in the year, when the contract application was under way, one e-mail to Kaiser declared that the White House “has offered to help in the past and we do have a contact within the WH that we are working with.”
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They had their guy in charge.

Kaiser himself appears to have been careful, never actually approving direct lobbying or influence-peddling for Solyndra in his e-mails with his fund managers. However, Kaiser did visit the White House a number of times, including right before the loan was approved. He claimed that Solyndra itself never came up.
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Solyndra was far from the only company to receive stimulus funds just before heading into bankruptcy.
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Predictably, both the vetting process and the enforcement of the loan terms failed. In fact, Solyndra actually violated the terms of its loan because it was running out of money, but the Energy Department changed the terms of the loan so that the company would remain eligible for taxpayer money,
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restructuring the loan in a way that put the taxpayer funds second in line to claim a lien on the loan money, despite warnings from officials that endangering taxpayer money in such a way was likely illegal.
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After it became apparent that Solyndra was going under, the administration actually considered bailing out the company under a GM-like plan that would make the government a 40 percent owner of the company. This plan was eventually rejected.
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Solyndra may be the most infamous example of a company buying access to taxpayer funds, but it’s hardly the only one. According to Peter Schweizer, author of
Throw Them All Out
, “about 75 percent of the loans and grants doled out by the federal government has gone to ‘Obama-connected companies’ even though the acceptance rate in the program is less than 10 percent.”
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After Solyndra went bankrupt in August 2011, a DOE spokesman, Damien LeVera, said, “The project that we supported succeeded,” adding that “the facility was producing the product it said it would produce, and consumers were buying the product.”
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Of course they blamed market conditions, which had “changed dramatically.” So much for the government’s ability to grasp the decentralized knowledge that was behind those changes.

But the story doesn’t stop there. Once the doors closed and the production stopped, Solyndra went to bankruptcy court seeking $500,000 to be used for bonuses to retain valuable employees—valuable employees for a company not producing anything. As a final injustice to the taxpayer, the company began destroying the high-grade glass that it produced because it was cheaper to trash than to store.
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Solyndra’s last act of glass smashing was a bitterly fitting end to an insanely expensive Keynesian experiment—the philosophy of the “broken window” after all being a tenet of Keynesian economics. Producing and then smashing solar panels, like burying and then digging up banknotes, ought to have produced new economic growth, according to the theory. Maybe all that broken glass was simply an elaborate Keynesian ploy to stimulate aggregate demand, like so much OWS-trampled, government-funded sod in McPherson Square?