Dustin Stockton is the chief strategist for TheTeaParty.net.
In one of the more overlooked passages of his recent State of the Union address, President Obama urged the nation to "double down on a clean energy industry that's never been more promising." It's a familiar enough call, a vague sentiment we've all heard often enough, but this time it struck a special nerve for me. It wasn't just the hard-sell phrasing, which recalled the salesman-in-chief backing the warranties of his bailed-out automakers. It was the timing.
Just days before the president's speech, a local news team had caught employees at Solyndra destroying millions of dollars worth of equipment, despite owing taxpayers half a billion dollars. The cynicism of these acts shows the wasteful, entitled culture that thrives wherever handouts pay the bills and perfectly symbolizes the wealth destruction wrought by a political pet projects. But Solyndra was just the canary in the coal mine. Obama said in the State of the Union that he "will not walk away from the promise of clean energy," but less than 48 hours after his speech, it's clear that the green house of cards is already coming down.
The latest card to fall is Ener1, the Indiana-based electric car battery maker that received a $118 million grant from the Department of Energy as part of the president's economic stimulus package and just filed for bankruptcy. Though only $55 million of the grant has been paid out to Ener1's EnerDel unit, the entire company's assets are being listed in the bankruptcy at $73.9 million, or less than the amount the government has committed to give it (the company had also applied for nearly $300 million more in government loan guarantees). How on earth do you double-down on an "investment" strategy that involves giving away money to firms who can't stay in business?
But the problem is not only that government gambles recklessly on shaky firms, it's that the government investments haven't been able to create markets out of thin air. Though the idea is that grants and loans are a bridge to competition on the free market, that's rarely how it actually works. Instead, government subsidies form whole bubble industries that create a few jobs and even more photo-ops, and then disappear in a cloud of taxpayer money.
And here Ener1 is another perfect example: The firm was the leading partner in the EV manufacturer Th!nk, which went bankrupt last summer (for the fourth time) after making a handful of cars for its only client, the state of Indiana. Ener1's write-down for its investment in Th!nk was some $73 million, but more importantly it had lost its major client. Rather than spurring innovation or fostering competitiveness, government subsidies had simply allowed one company to prop up its own client rather than competing with China and Korea, creating a chain of weak, government-dependent firms across the economy. And when Th!nk failed, as inevitably happens when you offer a slow, homely car for $40,000, it dragged Ener1 down with it (with shareholders crying collusion all the way).
From Th!nk to Tesla and Fisker, the electric car business has become an icon of anti-competitive patronage: The government doesn't just subsidize manufacturers and battery suppliers, it gives consumers tax credits worth $7,000 a pop to buy the products they make. And yet, even with supply- and demand-side stimulus, President Obama can't get consumers to actually buy electric cars. His own goals called for Th!nk to build 5,000 of its cars next year (none of which will be built), and he expects 120,000 Chevrolet Volts to be bought by Americans too. Problem is, GM will only try to sell 45,000 of them (at most) because the Volt didn't even hit its 2011 goal of 10,000 units. Obama might think that this is a situation that calls for "doubling down," but there's no part of that business he hasn't subsidized already, and none of it has made a lick of difference with consumers. Even Ener1's CEO admits that "our business plan was impacted when demand for lithium-ion batteries slowed due to lower-than-expected adoption for electric passenger vehicles."