Solyndra, Stimulus and Drilling ... This Is Crazy

Three stories, considered as a whole, describe a dysfunctional society. Unfortunately, it's ours they're describing.

(1) Solyndra is the "green" solar power "taxpayer investment" gone bad.

(2) Stimulating the economy is what government claims to be doing on our behalf when it borrows money to spend money, and tells citizen taxpayers that solid economic growth will result therefrom.

(3) Drilling for oil and gas is something our government actively discourages, even though finding more oil would help us achieve energy independence, create job growth, improve our national security and reduce the cost to consumers and companies of oil related products such as gasoline.

We'll begin with a few truisms. Common sense economics suggests that government should only do what it can do better than the private sector. In addition to restricting government to its proper role, investing OPM in competition with the private sector isn't a strength of bureaucrats.

Creating economic growth by the government borrowing money and then using that money to "stimulate" economic activity isn't a strength of bureaucrats either. Discouraging the investment of private money in worthwhile private projects through cumbersome and unnecessary government regulation is something bureaucrats do very well.

These three current examples (Solyndra, stimulus spending and drilling for oil and gas) represent political decisions made by the Obama administration which are directly opposed to what I believe represent the general preferences of the voting public. Let's look closer at each of them.

We'll begin with the latest chapter in the Solyndra story. E-Mails Reveal Early White House Worries Over Solyndra says in pertinent part:

"“One of our solar companies with revenues of less than $100 million (and not yet profitable) received a government loan of $580 million,” the investor, Brad Jones of Redpoint Ventures, wrote in December 2009 to Lawrence H. Summers, then the president’s chief economic adviser, referring to Solyndra. “While that is good for us, I can’t imagine it’s a good way for the government to use taxpayer money.”

The investment, Mr. Jones said, demonstrated broad problems with the government loan program. “The allocation of spending to clean energy is haphazard; the government is just not well equipped to decide which companies should get the money and how much,” he wrote.

Mr. Summers wrote back that he shared some of the same concerns, before offering a partial defense of the government effort.

“I relate well to your view that gov is a crappy vc,” Mr. Summers wrote, using a shorthand for venture capitalist. “But suppose we think there are all kinds of externalities to renewable investments. What should we do?”"

Larry Summers, the president's chief economic adviser at the time, acknowledged to Jones, a Solyndra investor, that "government is a crappy vc," as he told the truth about the government's investment competence. Since that's the case, why then is government speculating or "investing" taxpayer capital in the private sector?

Besides, government has no money of its own to invest in speculative ventures. We're net borrowers, remember?

So while government doesn't have any money to invest, private sector investors have both the money and expertise to make such decisions and investments. And using private venture capital funds doesn't put taxpayer funds at risk. Regardless of all this, government threw good money after bad and hurriedly invested borrowed money in Solyndra.

Meanwhile, the private sector investment pros asked Mr. Summers why government was engaging in such inappropriate behavior. No good answer from government was forthcoming, and that's because there was no good answer.

Next we come to government stimulus spending and its effects. It seems that one clear result of stimulus programs over time has been their ineffectiveness at improving the economy while jeopardizing the re-election prospects of politicians doing the stimulating. In Stimulus Has Been a Washington Job Killer, the history of stimulus spending is discussed. The first and last paragraphs of the editorial tell the story in brief:

First -- "Temporary, targeted tax reductions and increases in government spending are not good economics. They have repeatedly failed to increase economic growth on a sustainable basis. What may come as a surprise is that such policies are not good politics either. Their inability to deliver promised economic benefits has invariably led disappointed voters to turn against those politicians, Democratic and Republican, who have supported them."

Last -- "That temporary tax reductions and increases in government spending can jump-start the economy and sustainably boost employment and personal income may seem like a politician's dream policy. But the repeated failure of these short-term interventionist policies to deliver the promised economic benefits should make politicians think twice. Reliance on them has already cost dozens of members of Congress their jobs and two postwar presidents a second term.

So when hard times come, the government tries to "do something" to bring back good times, and that which they do is called stimulus spending. When this borrow and spend the money approach later proves to be ineffective, we blame the politicians for the hard times persisting and proceed to elect other politicians.

Of course, we added new debt along the way to the new set of politicians, since the old politicians "stimulated" the economy with freshly borrowed funds.

Finally, let's review drilling for oil and gas. Even though private sector drilling costs taxpayers nothing and would be beneficial to the economy if successful, our government actively discourages drilling. But it doesn't have to be that way. We could work our way to some level of energy independence if we unleashed the private sector. New sources of energy, more jobs, additional income, enhanced tax receipts and greater national security would be the result.

In How North Dakota Became Saudi Arabia, Harold Hamm is interviewed. And if you're wondering who Harold Hamm is and what he has to say about all this, here goes:

"Harold Hamm, the Oklahoma-based founder and CEO of Continental Resources, the 14th-largest oil company in America, is a man who thinks big. He came to Washington last month to spread a needed message of economic optimism: With the right set of national energy policies, the United States could be "completely energy independent by the end of the decade. We can be the Saudi Arabia of oil and natural gas in the 21st century."

"President Obama is riding the wrong horse on energy," he adds. We can't come anywhere near the scale of energy production to achieve energy independence by pouring tax dollars into "green energy" sources like wind and solar, he argues. It has to come from oil and gas.

You'd expect an oilman to make the "drill, baby, drill" pitch. But since 2005 America truly has been in the midst of a revolution in oil and natural gas, which is the nation's fastest-growing manufacturing sector. No one is more responsible for that resurgence than Mr. Hamm. He was the original discoverer of the gigantic and prolific Bakken oil fields of Montana and North Dakota that have already helped move the U.S. into third place among world oil producers.

How much oil does Bakken have? The official estimate of the U.S. Geological Survey a few years ago was between four and five billion barrels. Mr. Hamm disagrees: "No way. We estimate that the entire field, fully developed, in Bakken is 24 billion barrels."

If he's right, that'll double America's proven oil reserves. "Bakken is almost twice as big as the oil reserve in Prudhoe Bay, Alaska," he continues. According to Department of Energy data, North Dakota is on pace to surpass California in oil production in the next few years. Mr. Hamm explains over lunch in Washington, D.C., that the more his company drills, the more oil it finds. Continental Resources has seen its "proved reserves" of oil and natural gas (mostly in North Dakota) skyrocket to 421 million barrels this summer from 118 million barrels in 2006.

"We expect our reserves and production to triple over the next five years.""

Maybe Mr. Hamm is wrong, but maybe he's right. But right or wrong, he is willing to put his own money where his mouth is. That's the American entrepreneurial spirit at work. America needs more Harold Hamms and fewer bureaucrats in Washington.

More private sector MOM and less government spent OPM. I'll vote for that.

Hamm wants to be left alone to drill, and he isn't asking the taxpayers for the money to do so. He simply wants government to take its foot off the throat of those who want to drill our way to energy independence.

So there we have it. Solyndra receives taxpayer backed government funds and goes broke, proving once again that government is a "crappy vc."

President Obama wants to stimulate the economy by borrowing another $447 billion of OPM to refurbish underperforming schools and hire more public school teachers.

Harold Hamm just wants to invest MOM and for the government bureaucrats to leave him alone as he pursues his dream of achieving American energy independence.

Even though the president won't listen to Hamm, we can take some solace in the fact that voters are likely to do the right thing as a result of the current administration's insistence on doing over and over again the exact wrong thing.

What a strange world.

Thanks. Bob.