The Costs of Politicized Stimulus
When pushing his plans for large-scale federal “stimulus” spending during the depths of the (First) Great Recession, President Obama trumpeted the virtues of “green jobs.” The idea was that by targeting “stimulus” spending towards companies that sought to compete in an are beloved by environmentalists, the President would be able to ride the tiger of anti-business sentiment in his party while providing an injection of hundreds of billions that might save millions of jobs.
Unfortunately, it doesn’t look like it worked very well, as one of the flagship companies of the effort is filing for bankruptcy and laying off 1,100 workers. In addition to the workers thrown out of work, the taxpayers are going to get saddled with the cost because of loan guarantees given to the politically well-connected company.
If massive federal spending does actually succeed in permanently creating or saving large numbers of jobs (an assertion which is often long on rhetoric and short on evidence), it must rely on targeting companies based on their ability to compete rather than merely their participation in a political effort like “green energy.” If we are going to saddle our economy with huge new debts in the hope that we can stave off another recession, we really need to be more sure that the investments we make are cost-effective instead of merely politically convenient. The Obama Administration appears to have neglected that imperative the first time around.
UPDATE: CNBC blames competitive pressure from China. Apparently, even a giant government subsidy can’t change the realities of the global marketplace. As long as American workers are far more expensive and not far more productive than equally qualified workers elsewhere, subsidies and finger-pointing can’t produce increased employment. We have to adapt.
8 Responses to “The Costs of Politicized Stimulus”
CNBC is hitting pretty close to the mark.
In fairness here its pretty hard to compete when (Chinese – Suntech) is dumping below ‘their’ cost to produce let alone ‘ours’.
We gave Solyndra tax breaks, and then later loan guarentees. But, both of those hinge on being profitable – to either take advantage of, or to be able to pay back.
Pretty hard to do in in that scenario, even assuming Solyndra’s panels were comparable in cost to produce. I believe they were higher in this case which does not help.
China has decided it wants a dominant share of green energy in terms of batteries (electric vehicals) and solar panels, and is not at all shy about muscling its way in at whatever short term cost it takes to do so.
China’s banks are encouraged to make loans with less regard to whether they will be repaid. It’s a great way to create the illusion of growth, but eventually, putting money into non-productive ventures will hurt their economy. Of course, that’s not going to be much comfort those that just lost their jobs.
What I find unnerving is the apparent conservative idea that in order to compete we need to lower wages. In some cases lower wages is warranted, but overall a race to the bottom will only kill off the American consumer which in turn will strangle the same companies that lowered wages.
Since the most apt climate solution (carbon tax, as carbon is an externality) is politically incorrect in the US, we get poor solutions. Obama was once again forced by lesser people to pursue bad policies, and is blamed by said lesser people.
Absolutely.
I’m old enough to remember when we all feared the Japanese economic juggernaut. We were all fretting all our jobs would move to Japan. Then they went into economic free-fall and had (have?) their Lost Decade.
China is making mistakes. Yes, they are on top right now, largely because we sat on our dead arses and ignored our own economy. But they are making mistakes, they’re beginning to crack.
Back on-topic, be very careful pointing at a single bankruptcy as a sign of an industrial collapse. Start-ups rarely succeed, that’s just a fact of life.
And Logan, I hope you are at least consistent with your stand on subsidies. Are all government subsidies valueless, or just the ones Obama proposed?
The initial idea, that would spend money on things that needed to be done anyway, like infrastructure, seemed reasonable. In the long run, we would be moving spending up, not just increasing it over all. Of course it seems clear that DC is not capable of implementing such an idea without so much political baggage as to render the plan unworkable.
[...] Clearly, there were better ways to spend the stimulus: If Obama really wanted to create jobs, says Logan Penza at The Moderate Voice, he should have targeted companies based on their "ability to compete." But he [...]
[...] there were better ways to spend the stimulus: If Obama really wanted to create jobs, says Logan Penza at The Moderate Voice, he should have targeted companies based on their “ability to [...]