Solyndra Tax and Malinvestment

Solyndra Obama’s flagship for the green economy has failed and is continuing to be a lead story.  However apart from some unusually good publicity Solyndra story isn’t new.  Solyndra is a private firm that for a verity of reason thought it needed government help.  It, like most of it industry was expecting a windfall from rent seeking legislation that if was passed the entire “green” industry would be much better off at the expense of the entire enconomy.  However Solyndra didn’t get enough protection for nasty competition and with the Chinese’s much cheaper cost it simple couldn’t compete.  If a high enough tariff had been in place for oversea completion Solyndra possibly could have survived.  Now all Solyndra is a half billion dollar tax that must be paid with an unhealthy portion of malinvestment of resources and production.

The Department of Energy (DOE) gave Solyndra a $535 million dollar loan guarantee.  Many are suggesting that these loans were given due to political pressures and this wouldn’t be historically unusual.  Giving the DOE the benefit of the doubt solar power industry is an alternative energy that we have heard an avalanche of calls need developing.  This century old industry is often cited as a wonderful clean and renewable energy that we will need for the future (for a “green” economy) and lacking enough capital or interest rates are too high in the private market.  However the money had to come from somewhere, in this case either through taxes now or borrowing now and taxes later.  If these loans were repaid by Solyndra the loan wouldn’t need to be taken up by the taxpayer and the government would endlessly site the success.

In the private world capital comes from savings, the profit and loss system forced wise decisions.  This is why private companies will often give capital to the well established and avoid risky or new players.  The risk also compels people to loan out money at different interest rates dependent on risk among other conditions.  For Solyndra the private capital markets didn’t offer enough capital so it had to turn to loans.  Loans in the private markets are almost always to high and the governments has always been to willing to offer low interest rate loans.  The government did help but there are some key differences here that must be understood.  The first is that the government can only give any money that it first must take.  To put it bluntly everyone is forced to pay up now or in the future.  By taxing the government takes money that could have been used for personal consumption to capital investment diverting both demand and investment in the economy (often times through political process).  In borrowing people pay for the treasuries but this divert money again and for the government to pay it back the people must be taxed.  If the government makes bad loans it however doesn’t go out of business.

So by investing in Solyndra the government had cost us the taxpayer a half a billion dollars and wasted resources and production.  Solyndra is just the latest in a long line government boondoggles and will not be the last.