Wednesday, October 5, 2011

What’s Scandalous About Solyndra?

The Solyndra affair (with “Fast and Furious” close behind it) is looking like the first serious scandal of the Obama presidency. But what, exactly, is scandalous about it? Given the way our politics works, you can’t expect Republicans to refrain from making political hay out of the fact that the administration left taxpayers on the hook for the liabilities of an insolvent private enterprise of which one of the principals is a major Democratic campaign contributor with generous access to the White House. Unless more incriminating facts emerge, however, that strikes me as pretty slim pickings for scandal-mongers.

In a polity like ours, in which politically powerful interests have an enormous stake in how government allocates public resources, the line between conscientious government and political cronyism is never going to be very bright. Take the paradigm case of a major campaign contributor benefiting handsomely from a decision by an elected politician to whom he contributed big bucks. It’s always going to be next to impossible under normal circumstances to tell whether the politician decided on the policy benefiting the contributor because of his contribution or the contributor decided to contribute to the politician because of the politician’s already demonstrated propensity to make decisions that benefit the contributor. So Solyndra-like appearances of cronyism are always going to be ubiquitous in our politics. If such spectacles throw you for a loop you probably should get out more.

So what’s special about the Solyndra affair? James Surowiecki reminds us that the idea that the government should be subsidizing green energy has a perfectly respectable economic rationale:
“It’s certainly true that we don’t want government to be in the business of helping decide which big-box retailer or maker of MP3 players has the best chance of succeeding. . . . But it’s also true that there are a few industries where it makes a lot of sense for the government to complement the market . . . Renewable energy is one of them.

“That’s because the energy market is not like most other markets. Indeed, the economics of alternative energy are such that private investors, left to their own devices, are bound to underinvest in it, since the considerable social benefits—cleaner air, fewer greenhouse emissions—accrue to everyone, not just to direct customers.”
Let’s stipulate that financing renewable energy presents a classic case of market failure that cries out for a governmental response. Does it follow, as Surowiecki seems to presume, that elected politicians ought to be in the business of subsidizing selected green enterprises that, in the nature of the case, will tend to be run by their high-rolling political supporters?

Not at all. If you’re determined to subsidize green energy, you can always do it by taxing the consumption of nonrenewable energy enough to make green energy economically viable. That’s a fairer way of doing it because it makes the people who consume nonrenewable energy pay for its social cost. It’s a more efficient way of doing it because it lets a market, rather than fallible and corruptible politicians pick winners and losers in the renewable energy industry. And it’s a more democratically legitimate way of doing it because it enables voters to ascertain and ratify the trade-offs effected by renewable energy subsidies without having to worry about political insiders trading favors behind closed doors.  The problem, of course, is that you really have to persuade voters that you're trading off competing values and interests in the right way.

If you ask me, what’s scandalous about the Solyndra affair is that it exemplifies (along with public policy monstrosities like ethanol subsidies and automotive CAFE standards) the calculated indifference of politicians in both parties to the fairness, efficiency and democratic legitimacy of energy policy.


Anonymous said...

This generally how public policy making works in our system. Why should energy policy be an different?

Ted R. said...

Like Anon. above, I don't see what you're complaining about. It's politically impossible to tax dirty energy because that would mean sticking it to voters in coal-burner swing states like PA and Ohio. Does that mean that Democrats shouldn't try to do anything to save the planet? You shouldn't let the best be the enemy of the good.

Anonymous said...

There is something scandalous about Solyndra. We just don't know what it is yet.

Why did the FBI raid the company? Why are the executives pleading the Fifth Amendment?

There's something fishy here - we just have to stay tuned to find out.

Ron Replogle said...

The FBI investigation suggests that there might be some garden variety corruption in the Solyandra scandal. But, Ted R., isn't it a scandal that "green" environmental policy is mostly a series of empty gestures even from an environmental standpoint? Ethanol is a net loss to the environment (inasmuch as it takes more gas to cultivate the corn than it saves) and a regressive food tax; CAFE standards have destroyed the Big Three business model without effectively reducing gasoline consumption; we've been subsidizing renewable energy for years without creating many sustainable green jobs or much marketable renewable energy. Is that just a series of unlucky accidents?

Dave said...

I'll take the opportunity provided by Ron's comment to link to one of my favorite columns. This 2005 Thomas Sowell column answers Ron's question about the Green movement -- and also explains much behavior in this world that would otherwise bewilder me.

Anonymous said...

Thanks to Dave for the link to the Thomas Sowell column. It was truly enlightening. It helps me understand certain groups that have bewildered me. Though, it's not going to help me reason with their members.