Unfortunately these stories are all too common now:
As U.S. Senate Majority Leader Harry Reid prepares to host his fifth annual National Clean Energy Summit on Aug. 7, a Nevada Journal examination of Nevada’s renewable energy sector shows that over $1.3 billion in federal funds funneled into geothermal, solar and wind projects since 2009 has yielded and is projected to yield just 288 permanent, full-time jobs.
That’s an initial cost of over $4.6 million per job.
So as the Senator from Nevada tries today to justify his profligacy in his home state at your expense via this sham “National Clean Energy Summit”, you can be assured of one thing – No one in government will be held accountable for this, at least not legally.
The performance of many of these “sons of cronyism” is as dismal as the cost per job is outrageous.
Auditors for Nevada Geothermal Power, a federally subsidized green-energy firm in Nevada, are raising questions about whether that firm is going to fail.
As of last October, Nevada Geothermal Power had 22 employees in Nevada, and, according to the New York Times, had received $145 million in federal subsidies — composed of a loan guarantee of nearly $79 million for its Blue Mountain geothermal project and at least $66 million in grants to the company itself.
The Times called the company a “politically connected clean energy start-up that has relied heavily on an Obama administration loan guarantee,” and said it “… is now facing financial turmoil.”
Today, three quarters later, the latest company audit again questions the “company’s ability to continue as a going concern.”
The firm’s survival, wrote auditors on March 31, will depend “on its available cash and its ability to continue to raise funds….”
And that’s not the only example:
The most recent “clean energy” company failure in Nevada occurred three weeks ago when Amonix, a North Las Vegas solar manufacturing plant that had received more than $20 million in federal tax credits and grants, closed after only 14 months of operation.
Hailed upon its opening by Sen. Reid, U.S. Rep. Shelley Berkley and Gov. Brian Sandoval, the 214,000-square-foot Amonix facility had, at its height, employed some 700 individuals. In 2010, even President Barack Obama praised the Amonix plant, saying the “stimulus” tax credits it received had made an “extraordinary impact.”
Today, the company is bankrupt.
The result is something out of an Orwellian nightmare and the ultimate victim? The people of Nevada:
In Nevada, consumer energy rates climb higher and higher. According to the Energy Information Administration (EIA), Nevada now has the highest residential electricity rates in the Intermountain West region.
Moreover, so long as present government policies — such as the state’s Renewable Portfolio Standard — remain in place, rates will continue upward.
While Sen. Reid helped Salazar fast-track government-approved renewable projects in 2009, he also used his influence as Senate majority leader to delay and ultimately kill a coal power plant planned for White Pine County.
Coal-powered plants produce electricity at a much lower price than do renewable-powered plants, according to the EIA and NV Energy.
Currently, NV Energy pays 3 to 5 cents per kilowatt-hour for natural gas and coal-fueled power, 8 to 10 cents per kWh for geothermal energy and for wind energy and 11 to 13 cents per kWh for solar photovoltaic energy. Wind and solar photovoltaic energy also require backup power for “intermittency issues.”
The higher costs from renewable-energy production are passed on to Nevada ratepayers in the form of residential electricity rates that are 26 percent higher than those of other Intermountain West states and 7 percent higher than the national average, says the EIA.
Obviously cronyism isn’t just limited to Democrats. It’s just their turn in the barrel because their cronyism has been such a spectacular disaster here lately.
What none of our elected officials who regularly indulge in cronyism seem to understand is that they call certain things economic principles or economic laws for a reason – they aren’t something you can ignore and expect, for some reason, to be successful in ignoring them.
In this case Richard Epstein of the Hoover Institute again states why what is again being attempted, and failing, is a lesson that the government seems never to learn:
These subsidies programs have failed for mundane but compelling reasons. No government has ever succeeded in trying to shape industrial policy with state subsidies, for the simple reason that it has neither the knowledge nor the incentives to pick which fields make sense to invest in or which firms in these fields have latched onto a viable technology.
No government should, of course, ban investments in solar and wind energy, but the prudent strategy is to let these investments be made by venture capitalists and other entrepreneurs who might actually know what they are doing. And currently, the smart money seems to be steering clear of renewable energy technologies.
And yet we continue to see these sorts of attempts by government to do something it is entirely unequipped (and unneeded) to do.
You know, act like it has better information than … markets. It never has, it never will. The results are just about as predictable as sunrise.
Failure. In some cases epic failure.
In the case of Nevada, government intrusion, at the cost of $1.3 billion of your dollars, has created a whopping 288 jobs and managed to quadruple energy costs for the state’s residents.
And yes, I put that in the epic failure column – but then we’re talking Harry Reid here, so one should be used to epic failure when his name is mentioned.
Gallup has a new indicator poll out that shows the nation’s national priorities according to its citizens. It’s interesting in many ways, but primarily because one of the highest calls for action is to address “corruption”.
(As an aside, notice the bottom two “priorities).
Notice carefully how the corruption question is phrased – “Reducing corruption in the federal government”. What sort of corruption? Well, one type, that most fair minded people would identify, is that which we call cronyism. As we listen to the uniformed continue to say we’ve been ravaged by the “free market” system, one can only shake their head in wonder that anyone would identify what we have as a “free market system”. Rarely, if ever, are markets allowed to function as they should in this country (or any others for that matter).
What we have is a system of cronyism (I’m removing “capitalist” from the description since there’s nothing “capitalist” about such a system) that is part of what is killing us economically. David Henderson gives us a good description of the system under which we must operate.
What is the difference between free markets and cronyism? In free markets, buyers and sellers are free to agree on price; no government agency restricts who can buy or sell, and no one is told how or what to produce. In contrast, under cronyism the government rigs the market for the benefit of government officials’ cronies. This takes various forms. Governments sometimes grant monopolies to one firm or limit the number of firms that can compete. For example, most U.S. municipalities allow only one cable company to operate in their area even though there is no technological reason more could not exist. The same is true for most other utilities.
Governments sometimes use quotas or tariffs to limit imports with the goal of protecting the wealth and jobs of domestic producers who compete with those imports. President George W. Bush did this in 2002, for example, when he imposed tariffs ranging from 8 to 30 percent on some types of imported steel. Governments sometimes subsidize favored producers, as the Obama administration did with the politically connected solar-energy firm Solyndra. Governments may use antitrust laws to prevent companies from cutting prices so that other, less-efficient companies can prosper: For example, beginning in 1958, the U.S. government prevented Safeway from cutting prices for a quarter of a century.
The entities governments help with special regulations or subsidies are not always businesses; sometimes they are unions. The federal government’s National Labor Relations Board’s (NLRB) complained against Boeing in April 2011, for example. In response to a complaint from the International Association of Machinists and Aerospace Workers (IAM), the NLRB sought to require Boeing to produce its 787 Dreamliner in Washington State rather than in Boeing’s chosen location of South Carolina. According to the NLRB, by saying that “it would remove or had removed work from the [Puget Sound and Portland] Unit because employees had struck” and by threatening that “the Unit would lose additional work in the event of future strikes,” Boeing was making “coercive” statements to its employees. As a matter of fact, it was not. Boeing was simply telling the employees some likely consequences of the union’s actions.
The Boeing-IAM case is not as simple as most of the press implied. It turns out there was a prior case of cronyism. The government of South Carolina promised Boeing “$900 million in tax relief and other incentives” in exchange for moving production to South Carolina. Such is the tangled world of cronyism.
As we discussed on the podcast last night, we have given, or at least allowed government to amass, power to do what it is doing. We have, over the years, allowed them to use tax exemptions and other favors, etc. to lure businesses to our states (and we’re then thankful for the jobs created) not understanding that by doing so, we empower politicians to be the decision makers in areas that should be the function of markets. And what does that foster? A culture that is incentivized to seek out politicians to grant such favors. To ask for, and receive, subsidies. To allow politicians to leverage that power into favoring businesses that fit their political agendas. They become the focus because we have given them the power necessary to grant those favors.
We see the same sort of game played at a national level as described by Henderson. That has nothing to do with capitalism folks. It has nothing at all to do with “free markets”. In fact, it is the antithesis of both.
Probably the most blatant and disturbing example of cronyism came in the auto bailout:
Of course, a much larger instance of cronyism under the Obama administration, one that makes the Solyndra case tiny by comparison, is the bailout of General Motors (GM) and Chrysler. Bush and Obama together diverted $77 billion in TARP funds to GM and Chrysler. In organizing their bailouts and bankruptcies, Obama violated the rights of Chrysler’s creditors and gave a sweetheart deal to the United Auto Workers union.
Law professor Todd Zywicki provides the details:
In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers—unsecured creditors, but possessed of better political connections—received more than 40 cents on the dollar.
Pure cronyism. The bankruptcy rules were thrown out by government in order to pay a favored constituency – labor. Henderson explains:
Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim”—the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.20
Why did the Chrysler bondholders not object? Many did. But, Zywicki notes, the federal government (in this case, the U.S. treasury secretary) had enormous power over financial institutions through TARP, and these institutions owned much of Chrysler’s secured debt.
While this has been going on for quite some time, never has it been as blatant as with this administration. And that blatancy is what has pushed the corruption priority up the list to where it stands second to job creation in this horrific economy.
What can be done to remedy this cronyism “corruption”. Only one thing, and unfortunately, those enjoying the power are where the remedy must come:
There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power. To reduce cronyism, we must abolish regulations and cut or abolish special government subsidies. That way, there is nothing to fight about. For example, the government should not bail out companies or give special subsidies and low-interest loans to companies like Solyndra that use technologies or produce products that the government favors. It should have unilateral free trade rather than tariffs, import quotas, and other restrictions on imports.
Will it happen? No. Those who tout the power of markets and demand they be given priority are now considered “radicals”. Just listen to President Obama talk about the former administration and try to convince you “we tried their way before and look where it led”. Spinning a regime prior to his that was as wrapped up in cronyism as is his and claiming it represented free markets is standard, disingenuous, leftist boilerplate with nary a leg to be found standing in reality. It is pure, fatuous BS.
The “corruption in the federal government” isn’t lobbyists. They’re a symptom of that corruption. The problem resides under the Capital dome and within the offices of the executive branch. They have the power that is sought by the lobbyists. No power and there would be no petitioners. Instead, we see the number of petitioners for favorable treatment by government (usually at the detriment to their competitors) continuing to expand.
So while the public has finally identified a major problem (thanks to the blatancy of this administration) it has a long way to go before it realizes the means by which it must be fixed. Stripping the federal government of its power to grant favors to its cronies is almost an impossible task, given we have the fox in charge of the hen house.
I see nothing in the future that says those who must fix this are willing to divest themselves of the power to grant favors (see recent farm bill, an orgy of subsidies and pay offs (earmarks), for a perfect example). Show me when they’ve ever divested themselves of any meaningful power they’ve accrued.
And so cronyism will continue and we will continue to circle the drain of economic collapse. Meanwhile, Coke and Pepsi will fight about the marginal nonsense that won’t make a significant difference and make all the usual promises about being the panacea for all our ills that voters have been pining for so long.
Or it is “kick the can down the road” politics as usual.
We talk about it. Politicians condemn it. Nothing ever happens to change it though.
This year’s agriculture bill again redistributes your money to rent seekers:
Combine a Midwestern drought with pointless ethanol mandates, and the supplies of corn inevitably dwindle, driving prices sky high. Politicians like Sen. Claire McCaskill, Missouri Democrat, are citing the crop crisis as an excuse to ram through a near-$1 trillion farm bill. While a bit of that cash might find its way to a small farmer, the bulk of the loot will be transferred to individuals who are anything but poor. Like the bank bailouts and TARP, the farm bill illustrates the capture of the legislative process by special interests.
The last farm bill in 2008 was the focus of $173.5 million in lobbying expenditure, according to a report released Tuesday by Food & Water Watch. This is all money spent on what the Mercatus Center’s Matthew Mitchell calls “unproductive entrepreneurship” where people are organizing and expending their talent to become rent seekers, and the end result is wealth redistribution, not wealth creation. Real entrepreneurship innovates in ways that are socially useful. Cronyism diverts resources — both money and talent — into a system that rewards privileges to favored groups. In the case of the 2008 farm bill, recipients of subsidies of $30,000 or more had an average household income of $210,000.
Mr. Mitchell argues that “government-granted privilege is an extraordinarily destructive force” because it not only results in a misallocation of resources and slower growth, it undermines civil society and the legitimacy of government by providing a rich soil for corruption.”
She’s absolutely right. And, of course, when you mess with markets, like has been done with the corn market and mandated ethanol, the expected results occur when something unanticipated, like a drought, happens:
Corn and soybeans soared to record highs on Thursday as the worsening drought in the U.S. farm belt stirred fears of a food crisis, with prices coming off peaks after investors cashed out of the biggest grains rally since 2008.
Corn prices crossed into uncharted territory above $8 per bushel — about three-and-a-half times the average price 10 years ago of $2.28. Soybeans punched past $17 for the first time — also three-and-a-half times the 2002 average.
Analysts said that while forecasts for continued dry weather are expected to sustain the rally, corn prices could be vulnerable to any move by the government to lower the amount of corn-based ethanol blenders are required to mix with gasoline.
Notice what entity is mentioned in the last paragraph? Yes, government. A key player in the increase in corn prices (yes, understood, they’d be higher with the drought alone, but government’s ethanol mandate has driven them even higher yet).
Meanwhile, as mentioned above, we’re subsidizing agriculture to the tune of $1 trillion dollars of your money (in cash or in debt to be paid back in the future). Meanwhile, you’ll be paying more for corn based products at the grocery store as well.
Nita Ghei lays out the bottom line problem with this sort of cronyism and rent seeking:
Government privileges come in many forms, direct and indirect. It might be a monopoly, such as the one granted to utilities like Pepco. Regulations such as licensing can be used to limit entry to a particular field to the benefit of existing businesses. Lobbying and the revolving door in Washington create what economists call “regulatory capture,” which is what happens when existing firms use regulatory agencies to benefit themselves. Tax breaks, loan guarantees and subsidies are the most direct signs of a government’s favor. Bailouts of big banks under TARP, and Fannie Mae and Freddie Mac when the housing bubble burst, are the most recent examples of direct action.
Extending each of these privileges reduces America’s economic competitiveness. A monopoly protected by the government has little incentive to provide good service. The greater the availability of privileges, the greater is the incentive to indulge in rent seeking, which diverts resources from truly productive activities. In the long run, the result of anti-competitive policies is less innovation, lower growth and a smaller pie to share.
The greatest scourge to the honest Midwest farmer is not unfavorable weather, pestilence or disease. Far worse for them is the plague of politicians who create an artificial market in which only those with influence can truly compete. Defeating the budget-busting 2012 farm bill is the best chance at a good harvest.
The chances of that happening, however, are slim to none. Regulatory capture is as common now as government debt and unemployment. It is a systemic problem that rewards rent seekers and the well connected to the detriment of innovators and competition. It is the antithesis of capitalism.
Unless we have the will to stop this sort of cronyism, we’re on a short road to failure. This is another, in a long line of government programs, that are unsustainable, destructive and just flat something government shouldn’t be involved in.
But my guess is, this time next year, we’ll still be talking about it, politicians will still be condemning it and nothing will change except the higher national debt number.
Well the Washington Free Beacon has an idea:
President Obama’s most recent green energy fixation—algae—may suffer from the accusations of cronyism that have plagued his broader effort to promote non-fossil fuel energy sources through massive federal subsidies.
May suffer? Read on:
Solazyme, a San Francisco-based firm that specializes in the plant matter, has received more than $25 million in federal grants and contracts as part of Obama administration’s controversial stimulus package, and is poised to receive millions more as part of the president’s recent efforts to promote green biofuels such as algae.
The firm employs a former member of the Obama-Biden transition team who, according to one online bio, “played a key role in developing the energy provisions in the economic stimulus bill.”
That’s right, the usual – crony capitalism. And in this case, you get a twofer. San Fran Nan’s district benefits.
Be nice if the guy who claimed he was going to change “politics as we know it” wouldn’t revert to “politics as usual” at every opportunity to pad his re-election campaign and help out his cronies, huh?
Watch and listen. Schiff makes a lot of points we’ve been hitting for years. It is a fundamental misunderstanding of capitalism and what it is that drives a lot of the OWS supporters to focus on the wrong entities. Schiff has a lively discussion with them. Interestingly some agree and some simply won’t take the ideological blinders off. You’ll quickly identify who is who.
Have you been following the latest gambit of our president? It’s time to pull the youth vote back to him with some candy. Taxpayer candy of course. In his latest “policy” swing, he’s offering a way out of student loans to … students with loans, of course.
And of course there’s the convenient lie – you can essentially get something for next to nothing. Go borrow money and the government will help you “satisfy” the loan after so many years if you do things like “public service”. Oh, and it will never cost you more than 10% of your salary … so go for it.
Wait, one more thing from the Candy Man as he addressed a crowd of college students at the University of Colorado’s Denver campus:
But, he added, “young guys, I need you involved, I need you active … I need you to get the word out.”
Of course that’s code for “hey, vote for me and I’ll solve all your student loan problems”. Cronyism at its finest and all without legislation. Wasn’t it the Democrats who said they feared the “executive President”. But I digress.
Here’s the basic truth:
But the colleges fees have to be paid somehow, even when repayments are stopped, said Burke. Sooner or later, this “will ultimately result in tax increases — in putting this on the backs of three-quarters of Americans who did not graduate from college.”
Working-class people will end up paying for middle-class graduates’ basket-weaving and women’s studies degrees, she said.
That’s right … these are government guaranteed loans. So they will be paid. The creditor doesn’t care who pays it. The student or the taxpayer. So what Obama is more than willing to do is to buy votes today, by executive order, for taxpayer bailouts of deadbeat students tomorrow.
Obama is “shifting the burden of paying for college to all of those Americans who did not graduate from college — the waitresses, construction workers, mechanics — and that should infuriate the taxpayers who worked hard to pay off their loans, who decided to live a modest lifestyle to pay off their loans,” said Lindsey Burke, an analyst at the Heritage Foundation.
Obama’s policy is also widening the class division between working-class Americans and those with college credentials, said Matthew Denhart, a researcher at the Center for College Affordability and Productivity in Washington, D.C.
In case you were wondering, Colorado is a swing state and one in which polls show the Candy Man below 50%.
Crony Capitalism isn’t the only form of cronyism in the world as Barack Obama (and politicians of all stripes) have been proving for years. And all funded by your money.
In another version of the “pushing granny over the cliff” scare which typified the resistance mounted by Democrats to Social Security reform, VP Joe Biden is out there trying to scare the people about crime in order to spend more on shoring up the Democratic base (more political cronyism) to be found in teacher’s and public servant’s unions:
“Murder will continue to rise, rape will continue to rise, all crimes will continue to rise,” if the Democrats agenda isn’t passed, he added.
Because, you know, there’s a direct correlation between murder, rape and the number of cops on the beat.
Except both murder and rape stats have been in a downward trend since 2006. In 2006 the murder rate per 100,000 was 5.7, rape 30.9.
In 2010 the rate for murder was 4.8 and rape 27.5. In the two intervening years, those numbers continued to fall. And we all know we’ve been in the recession for at least 3 years and there have been cutbacks in police during that time.
So, unsurprisingly Biden is wrong and is pushing a myth (they’ll “continue rising”) when in fact, the stats show a steady drop for the past 4 years.
But he’s shameless in his fact free attack:
Then in the same speech he wished Republicans were themselves rape victims. “I wish they had some notion of what it was like to be on the other side of a gun, or [to have] a 200-pound man standing over you, telling you to submit.”
Amazing. Vice President of the US and trying to pull this political hackery complete with the usual scare tactics off. Of course, look at his boss.
If you’ve ever wanted a good argument against seniority as a good way to pick leaders, Harry Reid is your poster boy. The Nevada Democratic Senator and House Majority leader manages to make himself look stupid on any number of occasions during a legislative year. His latest:
Senate Majority Leader Harry Reid (D-Nev.) on Wednesday indicated Congress needs to worry about government jobs more than private-sector jobs, and that this is why Senate Democrats are pushing a bill aimed at shoring up teachers and first-responders.
“It’s very clear that private-sector jobs have been doing just fine; it’s the public-sector jobs where we’ve lost huge numbers, and that’s what this legislation is all about,” Reid said on the Senate floor.
Really? That’s the sector “government” needs to worry about more because “private-sector jobs have been doing just fine?” Where in the world, other than the Senate cloak room, has this man been?
What this is, and anyone who can’t figure this out doesn’t deserve to be in a political discussion, is just another version of cronyism. Teachers unions and government unions are where you find the Democrat base. This is throwing taxpayer money to that base in order to shore it up for the upcoming election. Nothing more.
He has access to your tax dollars and spending them in this way benefits his party. Screw the country, he has an election to win. Of course he’s also the Senate leader who hasn’t offered a budget in over 900 days. That’s dereliction of duty.
Reid reiterated his emphasis on creating government jobs by saying Democrats are looking to “put hundreds of thousands of people back to work teaching children, have more police patrolling our streets, firefighters fighting our fires, doing the rescue work that they do so well … that’s our priority.” He said Republicans are calling the bill a “failure” because they are “using a different benchmark for success than we are.”
Yeah, they’re using the private sector where jobs generate revenue for taxes to pay for all the nonsense Reid spouts.
Government workers are not producers in the sense of the production we need to get the economy going. But they are voters. This is an attempt to keep them in the Democratic corral long enough to get Democrats re-elected. Then Harry probably won’t care very much again.
Remember, when Obama was calling for his jobs bill to be given priority, Harry Reid was on the Senate floor expounding on the virtue of … bike paths (and, naturally, calling for government to pay for them).
Ever get the idea that we’re all now serfs on a huge plantation paying for the whims of our “leaders”.
There’s a lot being written and said about the latest batch of ObamaCare waivers and the fact that many have gone to companies in Nancy Pelosi’s area. And, of course, the agency granting them has claimed that Pelosi had absolutely no effect on them being granted.
Okay, that’s not the important point anyway. Tim Pawlenty actually manages to stumble across it as he claims cronyism in their grant:
"I don’t blame people for trying to get out from underneath it — that it is an awful law," Pawlenty said. "But when you have that many needs for exemptions, it tells you that the law — it is a warning sign that the law is broken and doesn’t work."
Ya think? You have about 26 or 27 states challenging the Constitutionality of the bill and its individual mandate. You have hundreds, if not thousands of companies, agencies and businesses seeking waivers. And obviously, there’s an organization in place to grant those waivers. Imagine a job where you review and grant waivers to a law. I don’t know about you, but that would tell me there must be something fundamentally wrong with it.
Pawlenty is also correct about his broader point – those without the ability to appeal for a waiver are stuck with paying the piper:
"Another example of really crony politics or crony capitalism, if you’ve got the right connections, the right lobbyists, the right interest group, you get your special deal, and the rest of us get our wallet out, and that’s in the tax code, it’s in earmarking, and now you see it in ObamaCare.”
Yes, exactly. His larger point is absolutely correct. Those without the connections do indeed end up having our wallets looted. Cronyism is certainly alive and well and very prevalent not only in the treatment of ObamaCare, but in other areas as well. Which brings up an ironic point – for the party of “fairness” this seems singularly unfair. Yet Democrats aid and abet it – in fact, just like Republicans, they use this sort of process to gain favor with certain constituencies … at the expense of others. And by expense, I’m including paying the bill too.
ObamaCare is an obviously wretched law. What was supposed to be insurance reform ended up being a polyglot of government bureaucracy at a huge and unaffordable price.
Now we hear the House GOP members saying that repealing it is “hard”. We hear candidates like Romney and Gingrich saying they agree with parts of it, like the individual mandate. Cronyism is directly linked to power – it’s a give and take process that benefits politicians. It comes as no surprise to me that both sides are engaged in it up to their necks. The problem is it is unlikely to ever get fixed since it is the fox guarding the hen house and enjoying the job.