Federal Fisker Fiscal Failure Faulted

Credit: Boykov | Dreamstime.com

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.

Lane concludes:

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.

Comments

[Brian D]

I blame the free market.

[Mad Scientist]

Federal money is free money!

[Fist of Etiquette]

...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.

Yeah, like those individual investors would know better how to spend money than the experts in Washington. I mean, they were stupid enough to follow Washington's lead here, so how savvy can they be?

[Sevo]

FoE,
There's a good chance the private investment had less to do with the fundamentals than a play based on the hope that Obozo simply wouldn't let one more of his 'symbols' to be shown as worthless.

[sarcasmic]

they were stupid enough to follow Washington's lead here

In the era of Too Big To Fail, they chose between private sector risk and what appeared to be something the government would never allow to go under.

Seems like a rational choice to me.

[Suthenboy]

I was just thinking the same thing. Watching where federal dollars go is a good guide for investing. Simply dont put a penny into anything that has federal dollars and you should be safe.

If it needs subsidies, it is a bad idea and wont make money.

[Gilbert Martin]

Even better than that would be to sell it short.

[swillfredo pareto]

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.

And more than a billion dollars in capital losses and other writeoffs to further deprive the government of tax revenue to flush down the toilet elsewhere. It's multipliers all the way down.

[Sevo]

Maybe they just got is backwards; it's DIVIDERS!

[UnCivilServant]

No need for division, just multiply by a fractional value.

[Sevo]

"Of all the arguments for the Obama administration's green-energy loan program, one of the worst is that federal aid leverages private capita"

You're really up a creek when your best argument for your actitivies is both true and actually thereby the WORST argument.

[PRX]

why subsidize luxury cars for rich people in the first place? seems dubious even if Fisker had succeeded.

[UnCivilServant]

What? You expect the connected to actually pay for their own luxury goods? That's what poor people do.

[Agammamon]

Because we tax the rich sooooo much that they can no longer afford the luxuries their incomes used to provide.

Therefore Bid Daddy Government will be there to get baby the nice stuff she wants.

[a better weapon]

Ron's been sitting on that title for some time I imagine. Can't lie, I tried to read it 3x fast.

[Hugh Akston]

Possibly the greatest post title of all time.

[Kaptious Kristen]

even, sometimes, corruption

I would argue that anyone who can only get a company off the ground with insider deals with the FedGov is by nature corrupt. So, not sometimes. All the time.

[Gilbert Martin]

You're not supposed to look at the evidence, only the good intentions of the TOP MEN who made the decisions counts.

[UnCivilServant]

Intent may make the difference between murder and manslaughter, but at the ned of the day, there's still a dead person to deal with.

Of course if they were instead droned or "intercepted by police"...

And people wonder why I'm cynical.

[The Late P Brooks]

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.

But Krugabe says there is no such thing as crowding out! And if evil self-interested capitalists won't create jobs, the government has to be ready to step in.

[Suthenboy]

OT;

I spent the morning working up some cast bullet loads for my 450 marlin using the only powder I have been able to find in stock anywhere, Varget. There is nothing I would rather do than play around at my reloading bench, so I was in a fantastic mood. I went out and tried out the last batch...beautiful. My 300 grain cast bullets punch through three pieces of oak firewood and stick in the 4th, mangled but retaining 280 grains of lead.

I came back in and made the mistake of turning on the TV. I should have known better.

Joe Fucking Leiberman is trying to sell us on going to war in Syria. He says we need to lead. The world will be a safer place. Plus Feinstein told him the Syrians are using chemical weapons.

I wonder how the Dems will react to being tricked into a shitty war by the Black Jesus instead of that evil hick from Texas and his sidekick 'The Penguin'?

[Loki]

I came back in and made the mistake of turning on the TV. I should have known better.

Joe Fucking Leiberman is trying to sell us on going to war in Syria.

Did you shoot your TV? If not, you have more self control than I would.

[The Late P Brooks]

Joe Fucking Leiberman is trying to sell us on going to war in Syria.

How will anyone know we're the greatest and most powerful nation on earth if we are not incessantly pummelling the weakest and least significant nations?

[Suthenboy]

Get in touch with Joe. That was his argument but he didnt put it as elegantly as you did. You could write speeches for him.

[OldMexican]

[...]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.

This is an excellent point but one that is lost among those on the left and, unfortunately, many on the right. They still fallaciously cling to the notion that government produces wealth by redistributing wealth, when in fact the government is not adding anything to the wealth pool.

People see the process of propping up the economy as taking material from a mountain (the amorphous concept of capital used by Keynesians) to then use it as if soil to grow trees in the fields. Government as farmer, growing things.

Instead, the effect on the economy of government redistribution is like government thinking itself a bridge engineer and taking beams or stiles from one part of a BRIDGE to prop up another side of the SAME bridge in the illusion that the bridge will become better - until it collapses. The private sector would instead replace the bad parts of the bridge with good elements and use the bad elements to repurpose them for other things, growing and strenghtening the bridge in the process.

Capital is like the different parts of a bridge; capital is thus not all the same. You take capital from one side and use it for something else without the knowledge and the market analysis and you will make the whole thing collapse.