Washington Post columnist Charles Lane thoroughly deconstructs the Obama Administration's failed efforts to use taxpayer funds to play "green" automobile venture capitalist. As reported earlier this month, the electric car company Fisker Automotive has gone the way of Solyndra leaving taxpayers with a $171 million loss on their "investment." Lane points out that free federal money often misleads private sector investors into throwing their money at such projects. Lane points out that this pernicious practice has consequences beyond just the waste of federal dollars.
Lane correctly writes:
Of all the arguments for the Obama administration's green-energy loan program, one of the worst is that federal aid leverages private capital.
Fisker argued for the federal loan on the grounds that it would help the company attract private investment. It did:
A month later, in September 2009, the Energy Department approved a $529?million low-interest loan. Vice President Biden stood before the proposed site of a Fisker plant in Delaware and described the department's program as "seed money that will return back to the American consumer in billions and billions and billions of dollars of good new jobs."
Sure enough, private money started flowing in to Fisker by the tens of millions. Apparently, investors liked the idea of a firm that enjoyed access to cheap government funding.
All told, Fisker attracted $1.1?billion in private investment, the vast majority of which took place after it got the DOE loan.
Fisker failed and the result is not only are taxpayers out $171 million, but as Lane notes the deal resulted in the waste of …
… more than a billion dollars in capital that can't create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker.
Government can efficiently affect energy usage through fuel taxes and basic research. When it intervenes on behalf of specific technologies and specific companies, however, bad things happen — resource misallocation, windfall-seeking, even, sometimes, corruption. The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, "government is a crappy VC."
Whole Lane column is well worth your attention.