Lessons from Solyndra

February 10, 2012

In September 2011, solar energy giant Solyndra filed for bankruptcy and laid off 1,100 employees.  The collapse was a major embarrassment for the Obama administration; however, fallout from the bankruptcy has revealed a number of additional factors that speak to the broader implications, says Robert P. Murphy, a senior fellow in business and economic studies at the Pacific Research Institute.

Evidence of corruption and conflicts of interest has surfaced as investigators look more deeply into the company's relationships in Washington.  While any company can be expected to have tentative associations with various politicians, the pervasiveness of Solyndra's presence in the decision-making process that led to its loan guarantees is scandalous.

  • From 2008 to 2011, Solyndra spent almost $1.9 million on lobbyists.
  • A major fundraiser for the Obama campaign, George Kaiser, owns the firm Argonaut Ventures, which participated in the infusion of new money into Solyndra (and now stands ahead of taxpayers in the liquidation process).
  • Kaiser visited the White House repeatedly in 2009 and 2010 and (according to released e-mails) discussed Solyndra, despite earlier White House denials that the topic had ever come up.
  • A Department of Energy (DOE) stimulus adviser, Steve Spinner, whose wife's law firm represented Solyndra on the application, repeatedly pushed for the original loan guarantee to be approved.

These inside pressures likely had an influence on Solyndra's ability to win the DOE's support, and bring to light one of the many problems with Washington picking winners and losers: they are unlikely to do so without bias.

The results from the bankruptcy of Solyndra also emphasize many of the more fundamental problems with the government intervening in markets.

  • The demand for stimulus, as was acknowledged by the secretary of energy, comes from the fact that these companies are unable to gain funding from the private sector -- a fact that in and of itself should be a warning sign.
  • Additionally, by providing loans to these risky companies, the government inherently decreases the supply of loans available to other, market-approved businesses.
  • Finally, while government officials may agree that intervention is necessary for "green" products to achieve efficiency, this does not speak to the government's capacity to select them intelligently.

Source: Robert P. Murphy, "Lessons from Solyndra," Library of Economics and Liberty, February 6, 2012.

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http://www.econlib.org/library/Columns/y2012/Murphysolyndra.html#

 

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