Saturday, January 28, 2012

The Trabant in the US - Green jobs and bailouts

The announcement today about the third failure of a company that the Obama administration bet on made me begin to think about the effects of this administration's industrial policy.   These guys believe they can actually pick winners - companies that will produce what they think consumers will buy and will conform to their narrow vision of markets.   Ener1 cost the American taxpayer $118 million; Beacon Power cost the taxpayers another $43 million and Solyndra cost us $528 million.  In the State of the Union the President claimed that he wanted to produce a lot more "Steve Jobs."   You may remember that the former Apple CEO once said "If Henry Ford had asked consumers what they wanted he would have heard faster horses."   That is exactly the point.     From the record this set of policies has not produced even mildly positive results.

Frederic Bastiat discussed the "seen and the unseen" (knowing that some choices result in tradeoffs which are not properly accounted for).   So look at the major bet that this Administration.   The original cost of the bailout of GM and Chrysler was estimated at $80 billion.   The government owns 500 million shares of GM at this point (about a third of the total capitalization).   The government pushed GM to produce an electric car (the Volt) which to this point has been something of a colossal failure (about 6000 units sold).

During the coming campaign you will hear the Administration claim that its bailout of the auto industry saved 1 million jobs.   Voters should not let them get away with those claims.  Would the American auto industry have gone away if the government had not injected $80 billion dollars?   It is not clear what would have happened.  Ford certainly would have remained and if the market had been able to operate some remnant of GM or Chrysler would have survived.   But the distorting effects of the bailout remain.  The chart is Ford (blue) v GM (red) since the start of the administration.   Some stock traders argue that GM's price is partially depressed because of the worry that investors have for the company - with a third of their outstanding shares being held by the government.

Would the economy continued to spiral down, as the Administration's inside and outside commentators claim or would we have had a more normal recovery curve?   We'll never know.  But the failures in having the government pick winners in other parts of the economy does not suggest a positive result.


Garry Ladouceur said...

Mighty decent of you to read my blog and to provide such a useful set of comments. I am sure to followup on what you said. Mucho Apreciado.

Despite the civility however, I must warn you that I am not about to agree with your take on the world since I have a certain perspective that might result in different voting choices. chuckle.

Having worked in government and in taxation and economic development policy, I hesitate when government starts to get involved in business. Not that it is a bad idea, I personally think that government money is just printed paper anyway and they can make as much of that as they want. Inflation is the only indicator when things go wrong.

What upsets people though is that the government only supports some people this way more than others and governments should not do that. The money is a non factor from government spending side of things. Now, what is also not right is that the government will set up some companies who will have an unfair advantage over some other private company that do not have government support. Real money gets affected and peoples wages go down or some people simply dont get wages. As such, it hurts the folks who actually produce things.The government should not be doing this.

The gold standard of measuring or limiting the printing of money etc. and the role of government in maintaining the money supply has fundamentally changed since nixon took you guys off the gold standard in 1971. This fact has not sunk in it seems and hence the preoccupation with a paying more taxes than b. The government does not really care in the end. People still figure that tax is like real money and it is not really. It is a way to balance what is pored in at the top by taking it out in taxes so that government involvement could be about zero while it focusses on the system where the system of money has validity.

Like I said, the problem I have with this sort of so called government investment in some ethical exercise is a form of affirmative action to stimulate but only when there is no other choice.

Since and if there is no other choice here it must mean that there are no green private companies doing what the companies the government invested in. I dont think that this is the case here and as a result, I see it as wrong headed but for a different reason than you. The investment in cars however is another kettle of fish but that is another story.

Dr. Tax in Sacramento said...

I've spent a career in politics and understand that while I have a pretty clear opinion about how the world works there are plenty of different views. I think the key to any political discussion is civility. I have appreciated your sometimes alternative views.

I think the chances for green industries would increase significantly if government got out of trying to pick winners and losers.