“A green smiley face on the same old corporate welfare”

October 13, 2011

Excellent post today from Megan McArdle, peeling away at the layers beneath the Solyndra mess:

I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital.  Established utilities, large multinational auto manufacturers, a global warehouse owner.  The bulk of these funds are not going to rectify some gap in the capital markets.  They’re straight subsidies to huge corporations.  Even some of the smaller firms/deals are owned by large corporations like Total SA.

Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O’Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.
This has implications for the default rates.  The genuine startups seem to be shaky–it’s not just Solyndra, but also Nevada Geothermal and Brightsource.  In other words, the firms that actually need the money are likely to experience a far higher default rate than the overall portfolio.
Why does that matter?  Because it skews our perceptions of the usefulness of the program.  If we loan a bunch of money to firms that could easily get the money elsewhere, and a little bit of money to firms that are very risky, we can claim a high “success” rate even if all the risky firms fail.  But we won’t have actually added much value, because the government wasn’t addressing a genuine market failure.  It was just giving Ford and Nissan some extra-cheap money.
But if we’re not really filling a gap in the capital market, this is a terrible way to go about subsidizing clean energy.  We should be subsidizing the outcome we want: more solar panels installed, more clean vehicles purchased.  If the demand is there, companies will be able to go out onto the market and borrow to fill it.  It doesn’t do us much good to have a bunch of shiny new electric cars–that sit on dealer lots.  Or solar panels in the Solyndra warehouse.  We should be paying for performance.  Otherwise, we’re not winning the future.  We’re just sticking a green smiley face on the same old corporate welfare–and the government’s less like a VC than a farmer slopping the pigs at the trough.
She backs this all up with some detailed research on the DOE loan guarantee program recipients.  Read the whole thing.

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