by Matt Kibbe
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.35
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?
In the end, Solyndra proved to be a scandal that epitomizes the absurdity of government efforts to supplant markets in resource allocation. Despite the Obama administration’s rhetoric and rosy scenarios, the plan ultimately led to layoffs and FBI investigations. Markets may make the same mistakes, with entrepreneurs backing the wrong horse, but the dollars at risk are private, and investors soon learn which investments are profitable and which are not. In cases like Solyndra, the dollars at risk are taxpayer dollars, and the venture is directed by a coterie of lobbyists and government officials in collusion to allocate government largesse.
SPUTNIK MOMENT
SINCE SOLYNDRA COLLAPSED, OTHER BAD GOVERNMENT INVESTMENTS have been revealed, and the crony capitalists behind taxpayer losses exposed. The latest failed government plan is Ener1, a producer of lithium-ion batteries for electric cars that went bankrupt on January 26, 2012. Just a year earlier, Vice President Joe Biden visited the production facility in Indiana, and was particularly bullish on the Obama administration’s ability to set a better course for the U.S. economy and a clear path to green job creation. He told attendees that the government was “not just creating new jobs, but sparking whole new industries that will ensure our competitiveness for decades to come—industries like electric vehicle manufacturing. . . . Ener1, Inc. was awarded a $118.5 million grant from the Department of Energy—part of a $2.4 billion Recovery Act investment nationwide—to expand its production of advanced batteries for hybrid and electric vehicles.” Biden predicted job creation “from 336 workers at its Indianapolis manufacturing and assembly facilities, to over a thousand by the start of 2013.”36
Vice President Biden was certain about the future of electric vehicle manufacturing. How could he have been so wrong? In early March 2012, GM announced that it would be halting production of the Chevrolet Volt37 despite receiving heavy state and federal subsidies for the vehicle, upwards of $3 billion.38 Despite an aggressive sales pitch by the Obama administration and Government Motors, consumers were not interested in buying the electric car. In 2011, the Volt barely reached 75 percent of its projected 10,000 sales and was on track to only meet 15 percent of its target sales in 2012.39 This, despite a big order from General Electric, which committed to purchase a total of 12,000 of the electric vehicles by 2015. “By electrifying our own fleet, we will accelerate the adoption curve, drive scale, and move electric vehicles from anticipation to action,” said GE CEO Jeff Immelt.40 The initial halt in production will result in the layoff of roughly 1,300 employees at one of GM’s Detroit area factories. 41
The political penchant for choosing winners and losers, and getting it dead wrong, is hardly exclusive to one political party. Another example is Raser Technologies in Utah. Home-state Republican senator Orrin Hatch, a longtime supporter of Raser, had attempted to secure seven earmarks—worth over $20 million—for the company’s automotive wing.42 None of these earmarks went through, however, and the plant moved on to bigger and better things when it was approved for a $33 million Treasury grant in 2010 to build a geothermal plant.43 Hatch was present at the groundbreaking ceremony for the plant, which Raser later renamed after the senator.
The plant was approved despite being built on ground that was known to have less geothermal energy than would ordinarily be necessary to run steam turbines, and despite the fact that Raser was massively in debt before it ever broke ground on the plant. Raser received the loan via a “blind application process” that did not take the company’s finances into consideration, and Raser even used a portion of the grant money to pay its debts.44 Predictably, the geothermal plant failed and Raser went bankrupt, but not before wasting millions in taxpayers’ money.
BAPTISTS AND BOOTLEGGERS
CONTRARY TO THE SILLY PREDICTIONS OF JIMMY CARTER, DOMESTIC exploration could provide significant amounts of new oil and natural gas. In fact, proven reserves of domestic natural gas and oil have increased significantly.45 New technologies and new discoveries in Pennsylvania, Texas, Oklahoma, and elsewhere have provided the potential for the United States to become a much larger player in global energy markets, with access to reliable and affordable energy here at home. In fact, one study found our federal lands alone, hold enough energy to fuel 65 million cars for 60 years and heat 60 million households for 160 years.46 Yet we have been a net importer of energy since the 1950s and in January 2012 imported on average 11,050,000 barrels a day.47
Access to energy requires a large and vibrant global market, as well as the ability to utilize domestic energy resources. Yet regulations continue to restrict domestic exploration and the Obama EPA has unleashed an outbreak of new regulations—from greenhouse gas rules to new rules on cross-state pollution—that will cost consumers billions in higher energy costs while impeding efforts to access domestic energy resources.
Indeed, the decline of domestic production tracks well with the rise of radical environmentalism. The first Earth Day in 1970 marks the beginning of a steady decline in domestic production. Today, domestic production is at levels similar to those of 1950, despite the fact that population has increased by 104 percent, the economy has expanded by 553 percent, and the Department of Energy has been around for over 30 years.48,49 Some of this shift is due to cheaper offshore alternatives; however, the domestic regulatory environment has made it almost impossible to access our nation’s abundant energy resources.
The energy sector is plagued by an array of subsidies, taxes, spending programs, government-created monopolies, trade barriers, and mandates. Federal mandates have shuttered smaller refineries and made many areas of the country more vulnerable to price shocks following rapid shifts in supply or demand. Mandates that require specific fuels, such as the heavily lobbied ethanol program, are extremely destructive, with impacts felt not only in the energy sector but also in agriculture as cropland is shifted from the production of food to energy.
In fact, regulatory barriers inhibit the expansion of energy markets, from hydroelectric power to nuclear power. Even clean renewable energies such as wind face challenges from environmentalists. And as exploration takes natural gas companies beyond producer-friendly states such as Texas, energy companies are running into challenges from environmental groups and state and local governments that delay or actually deter energy production. Producers in Colorado, in particular, have faced significant political opposition to expanded oil shale exploration, and the Marcellus Shale formation in Pennsylvania faces both environmental and political opposition.
Duke Energy is a power company headquartered in Charlotte, North Carolina. In a move that has virtually nothing to do with providing consumers with affordable and reliable power, Duke Energy’s CEO, Jim Rogers, guaranteed a $10 million line of credit to the DNC for hosting the Democratic National Convention in Charlotte in 2012.50 Clearly, Duke’s largesse has more to do with securing an advantageous position with the power brokers in Washington than it does with serving consumers.
This is nothing new for companies like Duke, which are creatures of regulation and thrive on government policy. In fact, Duke Energy is a member of the U.S. Climate Action Partnership, a business group dedicated to promot
ing costly cap-and-trade programs that would impose significant new economic burdens on businesses and consumers.51 As Holman Jenkins noted about Rogers in the Wall Street Journal, “No executive has lobbied as noisily or consistently for a national price on carbon output.”52 Duke Energy also accepted $204 million in stimulus funds for “smart grid” projects.53
While support for cap-and-trade may appear to some as a noble effort, it is perhaps a better example of a rent-seeking phenomenon economist Bruce Yandle referred to as “Baptists and Bootleggers.” Both groups supported Prohibition, but for clearly different reasons. The bootleggers were simply using the Baptists’ opposition to alcohol to protect a government-created black market. Given Duke’s particular portfolio of fuel sources, it would benefit relative to its competitors from cap-and-trade regulation.
Rogers gambled a lot of money on cap-and-trade passing, building a huge coal gasification plant in Indiana, which he presumably expected would give Duke Energy a huge break under a carbon tax system. But only the regulatory apparatus made such a venture possible: “Without regulators around to guarantee a return on such a risky and pioneering investment, Duke likely would have sat on its hands and let rising electricity prices take care of any gap between demand and supply while waiting for the country to make up its mind about global warming.”54 Another article noted that “Duke embarked on this venture only after securing a government subsidy of $460 million.”55
Duke was open about its lobbying for cap-and-trade, and tried to play it off as an attempt to create a better version of the bill that would cost its customers less.56 In fact, Eileen Claussen, a former climate change czar and now head of the leftist Pew Center on Global Climate Change, noted, “It’s fair to say that we wouldn’t be where we are in Congress if it weren’t for [Rogers]. He helped put carbon legislation on the map.”57 The lobbying paid off, as the cap-and-trade bill passed by the House “gave Duke most of the credits it will need for 15 to 20 years for free.”58 Fortunately, the bill never made it through the Senate. While this was a victory for consumers, Duke’s shareholders are not quite as fortunate. “Not only did Rogers’ legislative gambit fail to become law, but he wasted years and significant shareholder money chasing legislative windmills,” says Tom Borelli, a free-market shareholder activist.59
Duke Energy is clearly in the camp of businesses that curry favor and seek profits through government favoritism. Again, it doesn’t really matter who’s running the government; what matters is that government is dictating the terms of exchange. As Borelli notes, “Cap-and-trade is an example of the coordinated effort of big business and big government pursuing their agendas. Obama establishes a massive government program to control energy and big business hopes to make a quick buck while Americans pay for it all in terms of higher energy prices.”60 It should be clear that Duke Energy is the bootlegger, not the Baptist, in this tragic tale. As Frank O’Donnell, president of Clean Air Watch, commented, “Duke is in favor of carbon controls as long as they are the carbon controls that Duke is comfortable with. No one is going to mistake Duke for Greenpeace.”61
Unfortunately, Duke is not an isolated case. GE just as aggressively pursued cap-and-trade legislation. GE, like Duke Energy, is a member of the U.S. Climate Action Partnership (USCAP). GE’s Ecomagination program, one of Immelt’s marquee assets, reportedly earned the company more than $85 billion in revenue from “products and solutions” through 2010.62
Immelt backtracked on his support for cap-and-trade after he received backlash from company shareholders and grassroots activists at a GE board meeting where Tom Borelli presented Immelt with poll results that showed GE’s favorability declining among conservative-leaning consumers when they were told of his lobbying for carbon caps. Not long after the shareholder meeting, Immelt backed off. “If I had one thing to do over again I would not have talked so much about green,” he said. “I’m a businessman. That’s all I care about, is jobs. . . . I’m kind of over the stage of arguing for a comprehensive energy policy. I’m back to keeping my head down and working.”63
GE remains a member of USCAP and in active pursuit of the renewable energy markets created by government regulation. As the New York Times noted, “G.E., for example, lobbied Congress in 2009 to help expand the subsidy programs, and it now profits from every aspect of the boom in renewable-power plant construction.”64 In fact, GE managed to secure the contract for the largest wind farm in the United States, Shepherds Flat, Oregon. The generous loan guarantee from DOE even raised eyebrows within the Obama administration. Economic adviser Larry Summers, environmental czar Carol Browner, and Vice President Biden adviser Ron Klain penned a memo to the president that raised serious concerns about the project. They were particularly concerned that the project might have moved forward even without the federal dollars, because state regulations and mandates already provided a return on the project. This led to concerns that GE was double-dipping, pulling in federal grants, state tax credits, state and federal tax benefits, and a healthy loan guarantee. Because of mandates requiring the use of renewable energy, ratepayers would be paying higher-than-market rates for the electricity generated by the wind farm.65 All this government largesse raised concerns. Of the $1.9 billion project, “the government would provide a significant subsidy (65+%), while the sponsor [GE] would provide little skin in the game (equity about 10%).”66
For General Electric, business is good. Good for them, bad for us.
UNHEALTHY BEHAVIOR
LIKE CAP-AND-TRADE, CORPORATE CRONYISM PLAYED A KEY ROLE IN the passing of Obamacare. What was sold to the public by many progressives on the Left as an effort to help the helpless and fight back against the evil, out-of-control health insurance industry was in reality one of the biggest corporate boondoggles in history.
One Forbes analyst noted that Obamacare is “very likely to be the greatest boon for lobbyists ever conceived. . . . In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates.” Obamacare created a one-stop shop for lobbyists by centralizing health care decisions.67
Of course, Obamacare wasn’t the first time this collusion occurred. During the Bush administration, the Pharmaceutical Manufacturers Association’s efforts to pass a new Medicare Part D drug benefit went as far as offering rides in private jets to Senate Majority Leader Bill Frist and Speaker of the House Dennis Hastert, at steeply discounted fares. They also made enormous campaign donations to many of the key health care committee members.68 The pharmaceutical lobbies particularly dreaded the repeal of laws barring U.S. prescription drugs from being reimported from other industrialized nations, as the lower prices of drugs from Canada and elsewhere would force them to dramatically reduce their profit margins in order to compete.
Billy Tauzin, the former congressman who had played a large role in drafting Medicare Part D, was the head of the pharmaceutical makers’ trade association, whose acronym is PhRMA, when Obamacare was being crafted. He left his chairmanship of the health care committee of jurisdiction to become Big Pharma’s top lobbyist shortly after Part D passed.69 Obama actually pointed to Tauzin as a bad actor in a campaign ad in 2008, promising not to take lobbyist money or be part of the lobbyist-induced culture of corruption once in Washington.70 Only moments after being sworn into office, Obama reconsidered his campaign promise, and he soon began “cutting deals to neutralize would-be antagonists.” Embracing industry demands early “was one of the Democrats’ key takeaways from the failed ‘HillaryCare’ effort.”71
One such deal came on prescription drug reimportation. Obama had promised during his campaign that he would allow the reimportation of prescription drugs, and in 2007, Obama voted twice to allow it. When pharmaceutical companies became concerned about the potential for reimportation ending up in Obamacare, they were directed to meet with Democratic senator Max Baucus, chairman of the powerful Finance Committee.72 Baucus initially asked the drug industry to contribute $100 billion in cost reducti
ons in return for concessions in the bill, but the industry balked at the high cost.73
The Wall Street Journal reported in July 2009 that PhRMA reps met with the White House and received some assurances that prescription importation would not be allowed by Obamacare, in spite of Obama’s campaign promises to the contrary.74 The Los Angeles Times also reported that the White House protected pharmaceutical companies by blocking access to generic and imported drugs—in exchange for drug company backing of Obamacare.75
A memo obtained by the Huffington Post broke down the eventual deal reached between PhRMA and Baucus, approved by the White House. Drug companies agreed to chip in $80 billion in cost reductions. The White House, not eager to be seen as colluding with pharmaceutical lobbyists, lest it expose the lie, initially backed away from the memo.76
Many Democrats in Congress were furious at the concessions and accused Obama of caving to the drug companies. Nervous that the White House might go back on their deal, Tauzin publicly acknowledged the veracity of the numbers in the memo and called upon the White House to do the same. The White House had no choice but to confirm the deal.77
Senator Bill Nelson proposed an amendment to the bill that would have obliged drug companies to lower prices even more, to fill in the “doughnut hole” (a large coverage gap) in Medicare Part D, but under pressure from drug companies, a number of key Democrats voted with Republicans to kill the amendment. Similarly, Senator Byron Dorgan, Democrat of North Dakota, introduced an amendment to allow the reimportation of drugs, but the amendment was defeated “with numerous Democrats previously in support of re-importation switching to ‘no’ votes.”78
The drug companies also committed up to $150 million to run ads in support of Obamacare, a remarkable number, more than John McCain spent on his entire 2008 presidential campaign.79