While the mainstream media was studiously looking the other way so they didn’t have to tell you, something happened last week that affirmed the fundamentals of capitalism. I am referring to the principle that profit motive is the most effective determinant of the proper balance between risk and potential reward.
The much-ignored event was the bankruptcy filing of A123 Systems, maker of specialized batteries for electric cars, a company trumpeted by the Obama administration as the harbinger of the electric automobile industry.
In Obama’s early days as president, back when the news media held their collective breath in awe at his every green pronouncement, his Department of Energy (DOE) awarded $249 million of your tax dollars to A123 to help build a plant in Michigan near auto manufacturers.
Obama said the A123 plant opening “… is about the birth of an entire new industry in America, an industry that’s going to be central to the next generation of cars. And it’s going to allow us to start exporting those cars, making them comfortable, convenient and affordable. It helps our manufacturing industry to thrive, and with it, that means our communities and our states and our country are going to thrive.”
Sounded good, but someone forgot to check with the Kremlin about historical results of central planning.
I guess it never occurred to Obama and his advisors that the key ingredient missing in the electric car industry, and the batteries needed to make them roll, was economic viability.
The first clue to anyone who didn’t sleep through Economics 101 would have been the absence of investors willing to risk their capital on those battery ventures since the demand for electric cars is weak so long as costs are too high, speeds are too low, distances too short and recharging takes too long.
Unimpeded by realities in the market, his Obamaness spread around billions (notice the “b”) of your tax dollars to various green energy projects while the glow of his perfection made irrelevant the objections of conservatives, the poor simple fools who just didn’t get it about conservation.
Let’s ignore for now the fact that Obama shoveled billions of your dollars to his supporters running these ventures.
A123 is not alone in failing after spending your money. In a recent debate Romney mentioned it was not government’s role to pick winners and losers, but that Obama had been pretty good at picking losers.
What Romney meant was the bankruptcy or financial distress of 20 companies that received $10.5 billion of your dollars (notice the “b”), anointed by Obama as beacons of new and virtuous green energy that would turn around our dependence on fossil fuels and create untold new jobs in the process. Instead, they spent your money and went toes-up.
Of course you have heard about Solyndra, celebrated by Obama in 2009 as the emerging leader in solar power, and to which he granted $535 million of your money, already flushed down the toilet of failure. But stay with me here because details the mainstream media won’t report may be of further interest to you.
Obama said Solyndra was a “… testament to American ingenuity and dynamism,” and along with $535 million of your money his DOE subordinated the debt to taxpayers, meaning DOE put taxpayers in a less favorable position than new investors so that in a crunch they would be paid back before you.
A wise investor never subordinates his position, but this was a gift at your expense to help Solyndra induce new investors.
It gets worse. When Solyndra was headed for disaster, Obama’s DOE granted Solyndra’s billionaire owners – aka Obama’s buddies – the net operating losses.
That means taxpayers not only lose the $535 million investment, we also lose since hundreds of millions in loss carry-forwards will reduce the taxes those owners would otherwise pay in the future.
If you are wondering if this stinks to high crony-capitalism heaven, it sure does.
But let’s return to the Shangri-La of Obama’s vision of an electric car America.
The Chevy Volt is a GM hybrid electric and gas product that Obama touted with many sugary adjectives. The Volt retails for roughly $40,000, but at that price nobody wants it without the $7,500 tax credit Obama granted, not even those with $170,000 income, the average Volt buyer as reported by GM.
Meanwhile, Obama touts the GM bailout as a success but there are a few wrinkles the media ignores. For example, GM really hates recent speculation they may have to go through bankruptcy again, and GM despises a recent Reuters report that they spend $90,000 to make every Volt, losing about $50,000 per sale.
Nevertheless, Obama continues to tout the GM bailout as a success and the Volt as a wonderful product. He is also directing the Pentagon to buy 1,500 Volts to green-up the military, our new armed forces priority.
Ordering the selection of GM products goes too far, by my measure, in our government favoring one car company over another.
You might disagree since you are a GM stockholder. Our government holds 500 million shares of GM stock, about 26 percent of the company.
To break even on the bailout we would need to sell those shares at $53 each, but the current market price was $24.59 at the market close on Friday.
Doesn’t look like we will get our billions back soon, if ever, and remember that every large block of stock offered whenever we do sell will depress the market price further.
When Obama kicked off this green spending spree in 2009, his announced goal was 1 million electric vehicles by 2015. The number in 2011 was just over 17,000 — with a lot of government inducement.
Electric car sales are anemic, government-supported green ventures are failing left and right, the GM success story is a fraud and the Volt, with every sale to a well-heeled buyer subsidized by you and me, is a failure no matter what Obama says.
What does all this mean? The green revolution is a disaster in which our government has gambled away too many billions of our dollars, and everything they say about it is a damn lie.
If you think this rant means I dislike green energy, you would be wrong. I love the idea of harnessing solar, wind, geothermal, water flow, nuclear and as yet undiscovered means of improving our energy resources, and any improvement in our stewardship of the planet is a good thing. But we should do it honestly, in successful increments.
I am weary of government lies. I resent deception and propaganda that has, at its root, a power grab by our government to control ever more of our lives, and command ever more of our money.
If you want to know how much I trust Obama — or any other central planner — I would share my vivid memory of the old Soviet Union’s Moscow stores, in which a buyer of shoes would be lucky to find a matching pair in the right size, in a quality level that K-Mart would reject, never mind a good fit or choice of styles or colors, and a lady seeking evening wear might find the equivalent of a potato sack with a flashlight. You would laugh at the cars they made. Thank you, central planning.
Paraphrasing the late great economist, Milton Friedman, if our government was put in charge of the Sahara desert, in five years we’d have a sand shortage.
I am thankful for entrepreneurs in America, free to pursue their own interests. In choosing where to bet their money in the lusty pursuit of profit they turned on the economic furnace of the world, immensely improved our lives with every convenience and gadget imaginable, and created untold jobs in the process. Good for them if they got rich in the process.
Someday perhaps we will be able to require those we elect and send to Washington to keep their nose out of industry and confine themselves to the powers enumerated in the Constitution. Someday.
[Terry Garlock of Peachtree City occasionally contributes a column to The Citizen. His email is terry@garlock1.com.]
