Hello all, and welcome to another edition of “What’s the Deal?” The blog that teaches you how to tolerate reading about politics, if you just add a dash of history.
In this weeks blog, we discuss the recent bankruptcies of solar panel manufacturers in the U.S., and how the U.S. government’s investment in these companies was an example of a failed attempt at stimulating the economy through a chosen industry, and how this may hurt President Obama’s reelection chances in 2012.
The age old debate in the U.S. is how much federal government should be involved in the lives of its citizens, and especially how much the government should be involved in the U.S. Economy. In the wake of the 2008 recession, the Obama administration as part of the economic recovery plan, attempted to build American jobs by investing federal dollars in “alternative energy industries” such as solar and wind. Solyndra, a photovoltaic cell manufacturer was slated to be a creator of hundreds of jobs, and an example of how new “green” technology was going to be the vanguard of new American industrial might and job creation. On September 1st, the company announced it would shut its doors and cease operations.
Before the company even shut down, the number of jobs it promised to create was not even close to being reached and Solyndra’s closing followed the bankruptcy filings of two other solar companies, Evergreen Solar and SpectraWatt in August. So the Obama administration bet wrong, and bet with (in Solyndra’s case) $527 million in tax payer dollars. The jobs weren’t created, and it turned out that the industry couldn’t compete with Chinese companies despite the best environmental and economic intentions of government subsidies.
This is a huge blow to the Obama administration and the President’s chances of being re-elected next year, but more importantly, it is a piece of evidence to the argument that federal investments should not be used to stimulate the economy.
Has this happened before? What other Presidents have attempted to stimulate the economy through private sector investments that failed in their goal to create jobs and rejuvenate industries? Is this a significant argument against government investment in specific industries and business?
- FDR’s Agriculture Adjustment Act (AAA) paid farmers not to plant certain crops
so that prices would rise on certain commodities. This backfired for the small farmer, as large-scale farming operations grabbed the profits from higher prices of the reduced crop spread.
- Cleveland/McKinley’s subsidies to protect American sugar growers (actually growing sugar in Hawaii before it was a state) raised prices for American buyers. Similar measures for textiles and manufactured fibers under Reagan.
- The Department of Defense lost big money from the government over the Reagan
administration’s inability to build anti-nuclear missile defense systems (SDI).
- Under Obama, failing department of defense funded aircraft project at Lockheed Martin that cost that taxpayers $320 million, but barely received news.
Not all of these examples are directly from a government attempt at stimulating an industry, but we can see how in certain situations, government protection or purposeful intervention in an industry aimed at improving it can hurt the industry directly, or indirectly hurt the overall economy. For all of the examples of negative government intervention (and there are plenty more) there are many that deserve lasting credit and that absolutely completed their objective or went beyond it.
- Subsidies to ship companies and builders helped to build the Erie Canal and reshape the shipping industry to connect the midwest hubs to the East Coast.
- Millions of acres of land were given to railroad companies in the 1860s and 1870s to begin the construction of railroad. ( an incentive, like a government subsidy) This obviously transformed the transportation and distribution network of the U.S.
The heat is on Obama, so we’ll look at the 2009 recovery and reinvestment act to see the positives of it.
Firstly, the Obama Administration’s 2009 Recovery and Reinvestment Act did exactly as it planned to do when it came to rescuing and recovering the U.S. auto industry. Under the auspices of the government, GM was forced to turn their vehicles in a direction that American consumers were looking (ie. smaller cars, fuel efficient, stylish, better conditions). The stimulus package (for better or for worse) also put rescued Wall St. companies in a position to rebound right away and prevent a greater economic collapse than did occur in 2008. Also part of that stimulus package was $40 billion to be used for the utilities and energy sectors (a majority of which was tagged for renewable projects, ex. Solyndra), but some remained for the preexisting energy infrastructure. That means that some of the stimulus money is slated for improving the coal, natural gas, and oil industries and how they currently deliver energy across the country. This will prove to be (and already has proven to be) a positive step for the economic status of these industries.
You can argue about the preceding material a great deal to say how “positive” these steps were, but the bottom line is, the auto industry and financial institutions are in a better place than they would be if the Recovery Act had not been enacted.
Ok, let’s get a conclusion out of all this fluff.
- With Solyndra, SpectraWatt, and Evergreen, the Obama administration’s effort to stimulate the solar industry and create jobs at the same time failed.
- Government subsidies pay off big it seems for big infrastructure investments as well as emergency situations (ie. war, depression, bankruptcy).
- Government subsidies seem to lack foresight when they are aimed at stoking an industry that is already entrenched.
We shall see how this damaging news hurts Obama’s reelection chances, but it surely will be a piece of ammunition for his Republican detractors in reviewing his handling of the recession economy.
Well, until the next newsworthy article comes around, we’ll see you next time!
Your Faithful Historian,
Eric G. Prileson