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.

Super Problems with Basic Economics

The Joint Select Committee on Deficit Reduction, also referred to as the Super Committee, has failed.  This committee was created by the Budget Control Act of 2011 in a compromise to raise the debt ceiling that could have led to a technical default.  It is no secret that if the deficit isn’t controlled that it will lead the US to ruin like so many other countries have found out.  The committee goal was to cut a little more than 1.2 trillion dollars out of the projected deficit over ten years.

            However on November 21, 2011 the committee admitted failure and this does have major implications one everybody’s lives.  The goal of this committee was to help bring the United States financial madhouse into order.  Nations can get away from acting responsible with their finances but this never last forever.  If the Joint Select Committee on Deficit Reduction had succeeded this would have been only a modest step towards fixes the current problem.  Major steps will have to be taken stop this deficit and this may mean that a crisis will be the only thing that will cause responsible actions, no surprise this is extremely undesirable.  Historically if governments have the ability to control the value of money in circulation (United States does) they use debasement/inflation among other creative solutions that hurts everyone.

            Public policy is affected by many factors one of them being economics.  The super committee failure is largely due to politics but this does highlight a major reason how economics is so problematic.  In politics large number of interest groups fight for varies goals and many of these will have varies levels of impact on people lives.  If a group can show that their policy will have a beneficial impact they will hire economist and others to prove their case.  Many policies are very difficult by themselves but with a thousand voices of interest groups any attempt to understand the affects or what is going on becomes that much more difficult.

            Two essential parts of the field of economics consist of trying to understand what is going on and often times what will happen because of a partial policy.  Lesson learned throughout history are forgotten rapidly.  Without understand what or why something happened any hopes of understanding any future actions is nearly nonexistent.  Our leaders will enact major policies become what sound good and politically expectable without worrying about past lessons.  Unfortunately most of us have a tendency to look at only the immediate effects of a policy on only a limit number of groups.  In the debt deal many focus on the immediate effects of the affect of any cuts on a program or the slowdown in the growth of the economy.  Public expenders of any kind require taxes (with regulation business expenditures) that could have been spent by private people on non-politically motivated projects but this common sense wisdom was more the most part ignored.

            If the costs of programs such as Medicare aren’t controlled the future finical position of the United States will require major action in a crisis where the choices become much more painful and the politicians can’t put off actions.  Banners like don’t cut my X program are a strong intensive for politicians to not act but put off the responsible choices dooming futures generations to higher taxes in the future among other undesirable consequences.  A rousing speech or other presentation telling everyone how it is foolish to cut spending like in this deal is foolish may be appealing but facts or facts.  The United States like many other countries need to drastically cut now before they have to get creative and show the truth of what history have repeatedly shown us throughout time.

Mises Argentina advice

Dictator Juan Peron was forced into exile and in his wreckage the Argentina economic foundation was destroyed.  Peron successors didn’t improve thing much and out of this turmoil advices was asked for.  Dr. Alberto Benegas-Lynch asked Ludwig Von Mises to deliver a number of lectures.  Several hundred students heard the lectures that were taped and translated into Spanish for the students.  In the speeches Mises didn’t rely on notes and didn’t restrain his talks even about communism and fascism.  Mises wife, Margit, would later write on this occasion in My Years with Ludwig von Mises, “If anyone in those times would have dared to attack communism and fascism as my husband did, the police would have come in and taken hold of him immediately, and the assembly would have been broken up.”(pg 12)

Margit Von Mises later found the transcripts of theses speeches after Mises death and converted them into a book call Economic PoliciesThoughts of Today and Tomorrow.

Theses speeches were given in 1959 but in today’s world we all seem to be facing the same choices that Argentina faced.  Here in the United States of America like too many other countries we have been headed towards omnipotent government which Mises warned against.  In the introduction to the third edition Bettina Bien Greaves gives a condensed quote that should make Mises advice painfully obvious:  

                                                                                                             

The ideal economic policy, both for today and tomorrow, is very simple.  Government should protect and defend against domestic and foreign aggression the lives and property of the persons under its jurisdiction, settle disputes that arise, and leave the people otherwise free to pursue their various goals and ends in life (pg 5)

However we know that most countries around the world don’t do this.  About the only claim they often make is that they are defending against foreign aggression to some degree and the rest they trample all over.  They still hand out favors to certain business and keep repeating mistakes that have been known to ruin empires and the people’s lives for over a thousand of years.

Since 1959 Argentina has improved but slowly.  The six lectures are as follow:

1. Capitalism
2. Socialism
3. Interventionism
4. Inflation
5. Foreign Investment
6. Policies and Ideas