If you answered “the private investors who refused to risk their own money on Solyndra,” pat yourself on the back. Matt Welch offers more.
One thing that is conspicuously absent from a lot of discussions of policies aimed at creating “green jobs” or providing “affordable housing” is a clear recognition of the information-revealing properties of markets, prices, profits, and losses. The fact that people aren’t willing to put their own money at risk suggests that this or that business plan probably isn’t a very good idea. Interventionism of this sort also involves two inconsistent premises. First, greedy people will do anything to make a buck. Second, those greedy people will leave money on the sidewalk because they are too ignorant to recognize great investments like Solyndra or Associated Steel.
We start talking about externalities in Econ 100 tomorrow, and a point that can’t be stressed often enough is that even if you grant all the assumptions about external costs and benefits, market failures, incomplete information, etc., you’re still a very long way from having demonstrated that intervention can fix it in any meaningful sense.
{ 5 comments }
Solyndra I believe was trying to sell it’s products below cost where the government loan would cover the difference between the cost to make and price sold below cost. The reason they were doing this is because other solar panel makers produce in countries that have industrial policies where either the central bank, public banks or industrial banks create unlimited amounts of credit out of thin air to subsidize their producers so that they can sell products overseas below cost which has the result of eliminating foreign competition. Once foregin competition is eliminated then prices would be raised by these foreign producers.
> so that they can sell products overseas below cost which has the result of eliminating foreign competition. Once foregin competition is eliminated then prices would be raised by these foreign producers.
Ah, the dumping theory. If we really believe this is both the motivation and plan for the Chinese, then we should buy all of their dumped product to improve our lives here, and also lie in wait to ramp up production (lying in wait, to minimize opportunity cost) once the Chinese raise their prices.
Thus, it’s a win-win. If the Chinese detect us lying in wait, then they will never feel comfortable enough to raise their prices high enough to survive without subsidy, and we then receive cheap goods below their production cost. Otherwise, if they go ahead and raise their prices as stage 2 of their dumping plan, then we can retool and divert more resources to domestic production.
The moral of the story is that the practice of “dumping” to eliminate competition always sounds compelling when you are in competition with the dumper. The narrative provides a perpetrator and a victim, and it feels good to tell the story. However, if you look at it from the dumper’s perspective, the entire enterprise seems dubious at best and a net loss in most cases.
Yes dumping products below cost helps the interests that buy the cheaper goods at artifically low prices. But what is not taken into account is that with the dollars acquired from dumping products below cost, other US companies and technology may be acquired and sent abroad. This has the affect of hurting workers and businesses that depend on the capital of those companies acquired and sent abroad. No country would ever work to make products for free or sell at a large discount if there wasn’t an alterior motive.
Mr. E:
You are only giving more reasons why the government should NOT give money to this business and instead let capital markets determine how to use scarce resources. Instead of letting someone else provide these products at a loss and investors making a profit in some other venture, the US Government guaranteed the lenders against loss to complete with other folks already taking losses.
Ray Charles could have seen this coming.
However, the point is not that the government gave money to a startup company that went belly up – nine out of ten venture capital projects fail with private money. The problem is that this was a taxpayer handout – privatized gains, socialized losses. This really comes under the definition of fascism that Lew explained yesterday.
Comments on this entry are closed.