Thursday, September 1, 2011

On the joy of spending other people's money on people that you really like

If an entrepreneur is about to start a new business, he investigates every possible thing that can go wrong. 
If an investor is about to throw some money into a new enterprise, he investigates every possible thing that can go wrong. 
After all, these two hypothetical guys have something at stake: their money or their reputations. 

Would you invest in an entrepreneur's project if he had nothing at all at stake in the business?  If he didn't have any of his own money in the project? 

Here's Barack Obama at a plant/factory called Solyndra back in May of last year.  He's making a victory lap in front of the Solyndra employees, having succesfully shat $530,000,000.00 of taxpayer money into the business.  We'll never know why.  He didn't put any of his and Michelle's money into the place, as far as we know. 

There was apparently nothing special about Solyndra.  They were a good candidate for the Green Jobs scam of the last two years.  Their primary business was solar panels, but it could just as well have been Bottled Fairy Farts.  It was politically expedient for Obama to squat over Solyndra and bury the company with unearned dollars. 

Here's the great Milton Friedman on the 4 types of spending:

There are four ways in which you can spend money.

1)  You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.
2) Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. 3) Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!
4) Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

So what's the big deal?  Obama took a massive stimulus dump over a solar panel factory.  Jobs were "created".  Here's NBC:

President Obama faces political catastrophe in the form of Solyndra -- a San Francisco Bay area solar company that he touted as a gleaming example of green technology. It has announced it will declare Chapter 11 bankruptcy. More than 1,100 people will lose their jobs.

During a visit to the Fremont facility in spring of 2010, the President said the factory "is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. "

It's not his statements the administration will regret; it's the loan guarantees. The President was celebrating $535 million in federal promises from the Department of Energy to the solar startup. The administration didn't do its due diligence, says the Government Accountability Office. "There's a consequence if you don't follow a rigorous process that's transparent," Franklin Rusco of GAO told the website iWatch News.

The President touted the federally back money as a way to create jobs. The President's opponents immediately jumped on the deal as Solyndra made its first layoffs.

Republican Congressman Cliff Stearns of Florida warned, "I am concerned that the DOE is providing loans and loan guarantees to firms that aren't capable of competing in the global market, even with government subsidies."

Another critic, Fred Upton of Michigan: "The unfortunate reality is that loan guarantee highlights many of the systemic flaws associated with the stimulus in the mad dash to spend hundreds of billions of dollars."


Tim Lebsack said...

Politicians will never stop spending other people's money. We must stop giving our money to politicians.

CenTexTim said...

Tim - I don't know about you, but I don't 'give' my money to politicians. it's taken from me at the point of a gun. Other than that, you're spot on.

Here's another example that illustrates Allen's point..

A green jobs program in one of America's greenest cities is being called a bust 16 months after a $20 million federal grant to weatherize homes in Seattle ended up putting just 14 people to work in mostly administrative jobs and upgrading only three homes in the area.

There's more at the link.

I just don't get why more people fail to understand the economics behind this type of government nonsense. Ignorant, stupid, indifferent, or all of the above?

The Whited Sepulchre said...

Yeah. Agreed.
And they're actually lobbying for another stimulus.

Nick said...

It was just a few months ago I blogged about the closing of a plant at Solyndra. Im not surprised theyre bankrupt.

Both Obama and Boxer led their green cheers there.

Smarter, more humble people would be ashamed of such mistakes. Theyre running victory laps and bowing for encores.