Economic Illiteracy, Thou Art Obama's Defense of Solyndra

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Dissembling about the capital destruction debacle that was his Administration's loan guarantee to bankrupt green-energy firm Solyndra, President Obama told ABC News last week that "if we want to compete with China, which is pouring hundreds of billions of dollars into this space...we've got to make sure that our guys here in the United States of America at least have a shot."

Of course if the president were better schooled in basic economics, he would well understand that "our guys" do have a shot to compete in this space thanks to U.S. capital markets being the deepest in the world. Thanks to angel financing, venture capital, PIPEs, convertible bonds, bonds themselves, and stock issuance, those with a good idea have myriad options when it comes to marrying their innovation with capital.

And there lies the obvious problem with Solyndra. Unable to raise needed operating funds in the private markets, it was forced to go to the federal government to get what our markets would not provide.

The implications for our economy are similarly obvious. Though $535 million is presently a laughable sum to a government that knows no limits, and which doles out a great deal more to support the waste that increasingly symbolizes Washington, there's an unseen quality to this.

Indeed, what's continuously forgotten by our federal minders is that they have no resources. For the Obama administration to guarantee a $500 million dollar loan is for it to ultimately extract $500 million from the private economy where it might have actually funded a real, economy enhancing concept. Unseen is what Microsofts, Intels and Facebooks (the latter's initial funding $500,000 - Facebook supposedly now worth $75 billion) will never see the light of day thanks to the political class's hubristic belief that it knows better than private markets disciplined by success and failure about where capital should be allocated.

As for President Obama's assertion that we need to fund these ideas to "compete", apparently he's oblivious to the basic truth that an idea is not wealth unless the distribution of that which entrepreneurs create is broad. Assuming the Chinese rush ahead of us in the green technology space, in order for its private companies or its government to achieve a return on investment they'll have to sell their innovations into the marketplace; final destination unknown.

In short, assuming the Chinese crack the alternative energy code on the way to market-changing advances for energy and environmental preservation, Americans will enjoy them as though they'd been conceived in Silicon Valley. And for those eager to make the laughable assertion that the Chinese will not sell us those advances, we'll simply purchase them from those they do sell to.

Of course if the opposite occurs, as in if this rush to alternative energy with the money of others proves the capital wasting joke that an already skeptical marketplace presumes, the American economy will be better off for Americans not wasting human, physical and financial capital on something of no economic value. The reality is that the Japanese are ahead of us with televisions, the Italians perhaps are with shoes and clothing, and the Brazilians harvest better coffee beans, but we enjoy all three thanks to our own comparative productivity in other areas.

Basically we let others make our televisions, suits and coffee, and this gives us time to create Google, Coca-Cola and Amazon. A more wealth enhancing trading relationship would be hard to find, but with our president laboring under the absurd notion that trade is war and the imports that reward our productivity hurt us, he's used and is using his power of taxation to force Americans to fund that which the markets don't presently want.

Importantly, there's a lesson here for many on the right in this country deluded by the economy-sapping notion of "energy independence." Just as we'll be the beneficiaries of any worthy Chinese advancements in green technology should they ever materialize, so will we be able to consume the world's oil irrespective of where it's discovered as though it bubbled up in West Texas. Oil is not wealth until it reaches the marketplace, U.S. interests are "size buyers" of the petroleum product, and with there existing no control over the final destination of any commodity, a world awash in oil means we'll purchase as much as we want for as long as we want at the global price.

At present there exists the fiction that oil is expensive when in fact oil is only expensive insofar as the dollar is cheap, so commentators who should know better argue for drilling anywhere and everywhere with an eye on "creating jobs." It should be stressed that this writer has no objection to drilling anywhere and everywhere, but with Texas's implosion (and the resulting collapse of banks bailed out by U.S. taxpayers) during the strong dollar ‘80s in mind, it should be said that we always eventually return to a strong dollar, the latter will quickly expose much of this excitement about oil deposits stateside as non-economic, so let's at least curb our enthusiasm.

Oil is no different than any other commodity desired by market actors, and we should view it much as we do increasingly worthless solar panels made in the U.S. If we want either, there's a market we can enter for both.

Though unaware when he uttered it last week, President Obama's illiterate defense of government subsidization of green energy explains exactly why the government shouldn't be subsidizing it. As he notes the Chinese are spending a lot more on alternative energies than we are, which means we can sit back and either see them fail, or better yet, see them succeed on the way to importing their innovations. Either way we win.


John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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