The investment that’s Left

Last week the president took time off from golf and fundraising to brag about what a great thing he did in bailing out the UAW General Motors:

“Now, I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.”
Barack Obama, Pueblo, Colorado – Thursday Aug 9

“I want to say what we did with the auto industry, we can do it in manufacturing across America.”
Barack Obama, Colorado Springs, Colorado – Thursday Aug 9

That’s what we’re all afraid of.

The president should have waited to comment on the wonderfulness of Government Motors, as these stories from Forbes and Investors Business Daily show:

General Motors Is Headed For Bankruptcy — Again
Obama’s $25 Billion Government Motors Lemon

Any competent CEO/CFO would insist on knowing these facts, certainly he would do so before wishing GM’s fate on every other US manufacturer. I’m sure Mr. Obama did know these things. Think about it. Unlike every other CEO/CFO, he has the CIA, the NSA, the CBO, the GAO, the FBI, Tim Geithner, Harry Reid and John Corzine to help him out with industrial intelligence.

The president failed to mention his accomplishment in trashing the contracts for GM bondholders. Nor did he speak of raping Delphi salaried pensioners. Recognizing those acts as counter to the rule of law would involve ideas, not intentions.

At the moment, the GM bailout is just barely a better investment than A123 and Solyndra, two “green” initiatives the president has funded. He is at least consistent. The president dumped $500 million into A123 for batteries, and $500 million into Solyndra for solar electricity to charge the batteries.

What’s the return on investment from that? A bunch of temporary jobs in China, a taxpayer funded bankruptcy and the Chevy Volt.

And the winner the statists picked is… China

China just bought the battery manufacturing darling of the US DoE and the Granholm adminstration.

A company that two years ago was one of the most promising U.S. innovators in the clean-fuel auto industry was rescued from collapse Wednesday. Its buyer: A Chinese auto-parts company.

Wanxiang Group Corp., one of China’s biggest parts makers, offered a $450 million lifeline to A123 Systems Inc., a maker of advanced batteries for electric vehicles that received U.S.-government backing. The deal would put the firm’s lithium-ion technology and its U.S.-funded manufacturing plant into the hands of a company that has slowly acquired a passel of auto assets across the Midwest.

A123 has ripped off the American taxpayer for $249 million in grants from the U.S. Department of Energy. It was one of former governor Granholm’s favorite picks, to the tune of $100 million. The Chinese are grateful, I suppose, for taxpayer assistance while A123’s stock dropped from $26.00 to $0.82. Without said assistance, A123 might have been gone before they could buy it. Worse yet, from Obama’s point of view, Bain Capital might have turned it around.

TOC has mentioned A123 as an excellent example of government “investment” failure.

So. Is anyone wondering why the Chinese didn’t buy Solyndra? My guess is that they, unlike the Obama administration, sometimes know a hopeless investment when they see one. And the fact that Obama himself deigned to appear at, and specifically cite Solyndra, while leaving A123 to the likes of Debbie Stabenow, does tell you that the more money government uses to tilt the market the higher the political profile, and the worse the results. A123’s jobs may be going to China now, but at least there are still jobs.

"Advanced Default and Battery Capital of North America"

Here is a local #Greenfail noted by the Mackinac Center.

Our former Governor’s big bet on big batteries didn’t work out: A123 Systems stock is trading at $0.82, down from $26.00. Click the link above at #Greenfail if you are not familiar with this corporatist morality tale. And, click the link below: This is not the first time I’ve mentioned A123, but it could well be the last.

I wonder what the press conference will look like when A123 hits $0.00?

Watch Jennifer Granholm predict 63,000 jobs would be generated by her consummate central planning winner picking. Watch as the president, Mr. “Electricity rates would necessarily skyrocket,” calls in to support the faithful. See the SecEng, Mr. “I want $10 per gallon gasoline” support her wisdom. Carl and Debbie are just along for the ride; on your back.

Jennifer? Carl? Debbie? mr. president? … Lithicus? (For an explanation of that last reference, you’ll have to go here.)


Veronique de Rugy, NRO: Life Saver: The Battery?

I do see the immediate benefit for the factory owner that will receive the stimulus money, but this money has direct and indirect costs that will ultimately hurt the economy. First, let’s remember that this money doesn’t fall from the sky; in order to spend it, Obama needs to either tax Americans or borrow money (that, or print money), which means less capital for private businesses and potentially higher interest rates in our future. For that factory owner to get his cash, others have to give it up.

Second, you have seen the data but it bears repeating: According to Harvard economist Robert Barro, $1 spent in government spending means that the economy will skrink by $1.10.

Anne E. Kornblut and Peter Whoriskey, WaPo: Obama pours energy into electric-car batteries, but will it jump-start industry?

…the administration’s $2.4 billion investment in the development of batteries and other electric-car technology in the United States is an enormous bet on a product that has yet to gain broad commercial success. Major manufacturers have yet to sell electric cars in the United States. Hybrids, though they have been around for a decade, represent less than 1 percent of the nation’s roughly 250 million-vehicle fleet.

“The battery story is highly questionable,” said Menahem Anderman, the founder and chief executive of Total Battery Consulting. “Basically, there’s really no proven market, neither electric vehicle nor plug-in hybrid electric vehicle — and there’s really no battery company in the United States that has a verified product.”

Although U.S. battery makers could export their products, the global market is glutted, according to analysts. Anderman said global capacity to build car batteries in 2014 will be three times greater than demand that year.

…in 2015, the domestic capacity to build batteries will be more than twice the demand.

Default and battery


I think this discussion merits more visibility than just an addition to the comment thread on the post wherein I complained (also here) about the subsidization of battery manufacture in Michigan, so I am replying here. 

You wrote:

In a ideal world, government would not get involved in free enterprise. I’m no fan of picking winners and losers either. The invisible hand is far better at that.

But we don’t live in a ideal world. Michigan has a strong interest in bringing jobs back to its economy, and encouraging new industries. The federal government has an interest in shifting us away from foreign oil.

If government did nothing, battery production and jobs would stay in Asia. A123 already has production facilities in China and Korea. The only reason they are now expanding in Michigan and Massachusetts is because tax breaks made it economically competitive. That is the unfortunate reality of the non-ideal global economy we live in.

If I understand you correctly, government should remain on the sidelines, do nothing to encourage development of the alternative energy industry or jobs. Am I representing your views correctly?

I am not a shill for corporatists, far from it. I’m simply someone who want [sic] to see us transition to electric vehicles as quickly as possible, and lithium-ion batteries are a technology that makes that possible.

Once it becomes a mass market, battery subsidies will not be required. But at this point government can play a role, can build some roads into the wilderness, can help promote the general welfare.

We are about to see explosive growth in the EV industry, and our elected officials want some of that growth to occur in the US. As much as I would prefer the purity of free markets, I can’t fault them for that.

You approvingly refer to Adam Smith. Let me remind you of what that means:

From Book II, Chapter III of The Wealth Of Nations:

It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expence, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.

Book IV, Chapter I

We do not, however, reckon that trade disadvantageous which consists in the exchange of the hard-ware of England for the wines of France; and yet hard-ware is a very durable commodity, and were it not for this continual exportation, might too be accumulated for ages together, to the incredible augmentation of the pots and pans of the country. But it readily occurs that the number of such utensils is in every country necessarily limited by the use which there is for them; that it would be absurd to have more pots and pans than were necessary for cooking the victuals usually consumed there; and that if the quantity of victuals were to increase, the number of pots and pans would readily increase along with it, apart of the increased quantity of victuals being employed in purchasing them, or in maintaining an additional number of workman whose business it was to make them.

Book IV, Chapter II

By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?

Book IV, Chapter VIII

It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interests has been so carefully attended to; and among this later class our merchants and manufactures have been by far the principal architects. In the mercantile regulations, which have been taken notice of in this chapter, the interest of our manufacturers has been most peculiarly attended to; and the interest, not so much of the consumers, as that of some other sets of producers, has been sacrificed to it.

So. If you misrepresent my views, it is only by not going far enough. I do indeed mean, “If it is less expensive to manufacture batteries in Asia, then that is exactly what should be encouraged.”  Adam Smith agrees, and so should you if your objective is to rapidly increase market penetration of electric cars.

What you could be promoting to more effect is the manufacture of nuclear generating stations in order to “fuel” the many electric vehicles you see on the horizon. This could be done by petitioning the general government to get its regulatory house in order so that such plants may be constructed more quickly. (I suggest ‘Nucleus’ as a handle.)

Imagine the consumer anger if their new electric cars can only be charged on days matching the last number in their license plate – and certainly not at home. Imagine the objections of the Envirostatists if we have to build dozens of coal plants in short order. These are outcomes detrimental to the success of electric vehicles.

You mention that the general government wants to wean us from foreign oil. If this is true it represents nearly half-a-century of failed intervention and wasted treasure.

If this were true we’d be drilling in ANWR and off the coasts of Lake Michigan and Florida, and the regulations for extraction of natural gas from shale deposits would be far less onerous. Your faith in government is, to be charitable, misplaced.

Remember Jimmy Carter’s Synfuels Corporation? Congress killed it in 1986 after it consumed several billion dollars in order to produce nothing. This wasteful agency lasted only (?) 6 years, but Carter’s legacylation still costs us a billion a year in tax credits.

You appear to imagine that union labor in Michigan can contribute to your goal even though only “tax breaks made it economically competitive”. In perpetuity? We already have more than sufficient evidence that this is not a realistic expectation.

You seem to understand that A123 has been involved with government in a dance of extortion and bribery wherein the moral questions are sufficiently, and intentionally, confused so as to excuse both parties from public approbation. This sleight is accomplished via the euphemism “public funding.”

If Michigan actually has a “strong interest” in creating jobs, it should let the jobs be created. That is, it should pass right to work legislation, eliminate corporate income tax and cease picking loser after loser.  You might have at least a pragmatic point if a “winner” had ever been selected.  But there’s no example.  Let’s take subsidies for the film industry…  Sorry, I digress.

Charged against Michigan in the area of “encourag[ing] development of alternate energy,” must be the twin debacles of ethanol (local and national bankruptcies abound, while we continue to apply devastating tariffs on Brazilian ethanol) and windmill manufacturing (which represents nothing not easily duplicated at lower cost by those pesky Asians).

So, in the case of batteries, I would like you to tell me how the short-sale of capital to Asian lenders can permanently improve domestic labor prospects. In other words, is borrowing from China to temporarily fund US jobs a good idea? If so, is the assertion that it is a good idea because these are “technology” jobs in a world where technologies are frequently outmoded? Please include your detailed thoughts on this Mackinac Center for Public Policy analysis when replying.

The non-ideal global economy could move closer to the ideal global economy if the government would cease to line the pockets of corporatists at the behest of their lobbyists.

So I, for one, do fault them for that.