Subsidies Have Consequences

THE TROUBLE with the ruling class is that it doesn't have a clue about business. To an Obami like Jay Carney, White House press secretary, the failure of corporate crony Solyndra is “just the way business works.” You win some, you lose some.

Only, of course, the way business works is that when you lose it's supposed to be your money that gets lost. As Matthew Continetti points out, under Obamian crony capitalism with its subsidies and its loan guarantees the crony capitalist “privatizes any gain while socializing the risk.” No wonder financiers and CEOs are such enthusiastic campaign contributors. No wonder the OWS protesters are so confused.

But subsidies have consequences when it's time to start “socializing the risk.” That's what the Meltdown of 2008 was all about. Politicians had subsidized mortgage credit for decades, and when that wasn't enough they set goals and timetables to force banks to lend to unqualified buyers. Higher and higher went the real estate prices; lower and lower went the credit standards. When the whole thing flushed down the toilet the politicians and their willing apologists in the media blamed “greedy bankers” and deregulation.

Now the politicians have sent the victims of another subsidy scheme into the streets. Bigger and bigger went the college grants and loans; higher and higher went the college fees. Now the whole higher education boondoggle is about to flush down the toilet and the demonstrators say it's all about corporate greed. Graduates of liberal “studies” programs are outraged that their $50,000 in government-subsidized college debt plus $5 adds up to a meal at McDonalds.

It's not surprising that these lefties are protesting on Wall Street and blaming the Jews for everything. Jews are the paradigmatic middle-men, and Wall Streeters are just glorified peddlers. More than stock pickers or derivative wizards, Wall Streeters are in the business of flogging government debt to the widows and orphans, and to the world's pension funds: federal debt, state debt, development agency debt, school district debt, hospital, county, city--you name it, they sell it. Here's news for those na�ve lefties. Wall Street didn't create all that debt. They just flogged it to the rubes, and got handsomely paid for doing the dirty work for the politicians. “Up north” in England they have a saying for that. “Where there's muck there's brass.”

Subsidies almost always end in tears. Remember the Savings and Loans? They had a special subsidy that allowed them to charge more interest than regular banks. It paid for a lot of lousy management until the Feds deregulated bank interest rates and the S&Ls started drowning in bad debt. Remember the auto companies?

Now the government wants to make a dog's breakfast of the electric utility industry with its renewables mandates. Oregon's Shepherds Flat wind farm is the poster boy for that.

The State of California now mandates 33 percent renewables for electric utilities like Socal Edison by 2020. So what does Edison do? It signs a contract to buy wind power for 20 years from Caithness Energy, owner of the Shepherd's Flat wind farm in northern Oregon. General Electric, led by friend-of-Obama CEO Jeff Immelt, is supplying the 300 odd wind turbine generators. But don't worry about SoCal Edison. Writes Robert Bryce:

The majority of the funding for the $1.9 billion, 845-megawatt Shepherds Flat wind project in Oregon is coming courtesy of federal taxpayers. And that largesse will provide a windfall for General Electric and its partners on the deal who include Google, Sumitomo, and Caithness Energy. Not only is the Energy Department giving GE and its partners a $1.06 billion loan guarantee, but as soon as GE�s 338 turbines start turning at Shepherds Flat, the Treasury Department will send the project developers a cash grant of $490 million. Google paid for a $100 million equity share in the project.

It's estimated that the investors will make 22-30 percent return on equity on the project. Corporate greed, perhaps, but who can blame them? In a couple of years this firestorm of subsidies will have done so much damage that we'll have a complete green meltdown. The politicians will turn around and blame Wall Street and the corporations for the mess. Then they will jerk the subsidies away, and everyone will cheer.

After the firestorm dies down folks like Google that build backup power to keep their server farms up 24-7 will buy the bankrupt wind farms at pennies on the dollar. They are the folks that could really use wind power�if it is almost free. Hey, that is just the way that business works!

Business is really good at doing stuff, and when the political activists are determined to force us to eat our peas, business will always be there to sell the peas to Uncle Sam and make lots of money at it.

To turn around and blame the resulting consequence on corporate personhood or corporate greed is what Big Daddy used to call “mendacity.”

Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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