Tag: cronyism

House Testimony on Energy Subsidies

I testified to a House committee today on Department of Energy (DOE) loan programs. These were the Bush/Obama-era subsidies to Solyndra and other renewable energy businesses.

I discussed five reasons why the loan programs should be repealed:

1. Four Decades Is Enough. The federal government has been subsidizing solar and wind power since the 1970s. These are no longer the sort of “infant industries” that some economists claim need government help. Solar and wind are large and mature industries, and they already receive subsidies from state governments, particularly in the form of utility purchase mandates, which are in place in 29 states.

2. Failures and Boondoggles. The DOE claims that Solyndra’s bankruptcy was the exception, and that the agency’s overall loss rate on loans is low. But as an economist, I’m more concerned with whether the overall benefits of projects outweigh the costs, and that appears not to be the case for numerous projects. The Ivanpah solar project in California, for example, is producing less electricity and consuming more natural gas than promised, and its cost per kwh is at least three times more than for natural gas plants.

3. Corporate Welfare and Cronyism. The Washington Post found that “Obama’s green-technology program was infused with politics at every level.” Public opinion polls have shown plunging support for both politicians and big businesses over the years, and one of the reasons is such cronyism. Businesses and policymakers would gain more public respect if they cut ties to each other by ending corporate welfare.

4. Private Sector Can Fund Renewable Energy. Most DOE loan guarantees have gone to projects backed by wealthy investors and large corporations, such as Warren Buffett and General Electric. Such individuals and companies are fully capable of pursuing energy projects with their own money. Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy since 2004. With that kind of private cash available for renewables, we do not need the DOE handing out subsidies.

5. Subsidies Distort Decisionmaking. Federal energy subsidies create counterproductive incentives in the economy. For example, subsidized firms tend to become slow and spendthrift, thus subsidies undermine productivity. Also, because subsidies are not driven by consumer demands, they can induce firms to invest in activities that will not succeed in the marketplace in the long term.

You can watch the full hearing here. My testimony is here. More background on energy subsidies is here.

Solyndra: A Case Study in Green Energy, Cronyism, and the Failure of Central Planning

Back in 2011 I wrote several times about the failure of Solyndra, the solar panel company that was well connected to the Obama administration. Then, as with so many stories, the topic passed out of the headlines and I lost touch with it. Today, the Washington Post and other papers bring news of a newly released federal investigative report:

Top leaders of a troubled solar panel company that cost taxpayers a half-billion dollars repeatedly misled federal officials and omitted information about the firm’s financial prospects as they sought to win a major government loan, according to a newly-released federal investigative report.

Solyndra’s leaders engaged in a “pattern of false and misleading assertions” that drew a rosy picture of their company enjoying robust sales while they lobbied to win the first clean energy loan the new administration awarded in 2009, a lengthy investigation uncovered. The Silicon Valley start-up’s dramatic rise and then collapse into bankruptcy two years later became a rallying cry for critics of President Obama’s signature program to create jobs by injecting billions of dollars into clean energy firms.

And why would it become such a rallying cry for critics? Well, consider the hyperlink the Post inserted at that point in the article: “[Past coverage: Solyndra: Politics infused Obama energy programs]” And what did that article report?

Cronyism in Maryland

Martin O’Malley, the former governor of Maryland and Democratic presidential candidate, is no Bill and Hillary Clinton, who have made more than $100 million from speeches, much of it from companies and governments who just might like to have a friend in the White House or the State Department. But consider these paragraphs deep in a Washington Post story today about O’Malley’s financial disclosure form:

While O’Malley commanded far smaller fees than the former secretary of state – and gave only a handful of speeches – he also seemed to benefit from government and political connections forged during his time in public service.

Among his most lucrative speeches was a $50,000 appearance at a conference in Baltimore sponsored by Center Maryland, an organization whose leaders include a former O’Malley communications director, the finance director of his presidential campaign and the director of a super PAC formed to support O’Malley’s presidential bid.

O’Malley also lists $147,812 for a series of speeches to Environmental Systems Research Institute, a company that makes mapping software that O’Malley heavily employed as governor as part of an initiative to use data and technology to guide policy decisions.

I scratch your back, you scratch mine. That’s the sort of insider dealing that sends voters fleeing to such unlikely candidates as Donald Trump and Bernie Sanders.

These sorts of lucrative “public service” arrangements are nothing new in Maryland (or elsewhere). In The Libertarian Mind I retell the story of how Gov. Parris Glendening and his aides scammed the state pension system and hired one another’s relatives.

In some countries governors still get suitcases full of cash. Speaking fees are much more modern.

More Companies Escaping America’s Masochistic Corporate Tax System

Last August, I shared a list of companies that “re-domiciled” in other nations so they could escape America’s punitive “worldwide” tax system.

This past April, I augmented that list with some commentary about whether Walgreen’s might become a Swiss-based company.

And in May, I pontificated about Pfizer’s effort to re-domicile in the United Kingdom.

Well, to paraphrase what Ronald Reagan said to Jimmy Carter in the 1980 presidential debate, here we go again.

Here’s the opening few sentences from a report in the Wall Street Journal.

Medtronic Inc.’s agreement on Sunday to buy rival medical-device maker Covidien COV PLC for $42.9 billion is the latest in a wave of recent moves designed—at least in part—to sidestep U.S. corporate taxes. Covidien’s U.S. headquarters are in Mansfield, Mass., where many of its executives are based. But officially it is domiciled in Ireland, which is known for having a relatively low tax rate: The main corporate rate in Ireland is 12.5%. In the U.S., home to Medtronic, the 35% tax rate is among the world’s highest. Such so-called “tax inversion” deals have become increasingly popular, especially among health-care companies, many of which have ample cash abroad that would be taxed should they bring it back to the U.S.

It’s not just Medtronic. Here are some passages from a story by Tax Analysts.

Teva Pharmaceuticals Inc. agreed to buy U.S. pharmaceutical company Labrys Biologics Inc. Teva, an Israeli-headquartered company, had an effective tax rate of 4 percent in 2013. In yet another pharma deal, Swiss company Roche has agreed to acquire U.S. company Genia Technologies Inc. Corporations are also taking other steps to shift valuable assets and businesses out of the U.S. On Tuesday the U.K. company Vodafone announced plans to move its center for product innovation and development from Silicon Valley to the U.K. The move likely means that revenue from intangibles developed in the future by the research and development center would be taxable primarily in the U.K., and not the U.S.

So how should we interpret these moves?

It’s a Very Merry Christmas for Washington Insiders

Last year, while writing about the corrupt and self-serving behavior at the IRS, I came up with a theorem that explains day-to-day behavior in Washington.

Simply stated, government is a racket that benefits the D.C. political elite by taking money from average people in America

I realize this is an unhappy topic to be discussing during the Christmas season, but the American people need to realize that they are being pillaged by the insiders that control Washington and live fat and easy lives at our expense.

If you don’t believe me, check out this map showing that 10 of the 15 richest counties in America are the ones surrounding our nation’s imperial capital.

Who would have guessed that the wages of sin are so high?

D.C., itself, isn’t on the list. But that doesn’t mean there aren’t a lot of people living large inside the District.

Politicians and Their Friends

The Sunday Washington Post has a lengthy story on Terry McAuliffe’s highly successful “business” career. McAuliffe, of course, is the longtime Democratic fundraiser and “first friendof Bill Clinton who is now the Democratic nominee for governor of Virginia.

How did a lifelong political operative make many millions for himself? The Post reviews:

The pitches to potential investors in a new electric-car company have been unabashed about its promise: It will enjoy “billions” in government subsidies and tax credits, will rise to a dominant position in the U.S. electric-car industry and, perhaps most critically, has a politically connected founder with the savvy to make it all happen….

The prospectus, along with other documents reviewed by The Post, shows how GreenTech fits into a pattern of investments in which McAuliffe has used government programs, political connections and access to wealthy investors of both parties in pursuit of big profits for himself.

That formula has made McAuliffe a millionaire many times over, paving the way for a long list of business ventures, including his law firm, from which he resigned in the 1990s after profiting — along with his partners — from fees paid by domestic and foreign clients seeking results from the federal government.

A review of McAuliffe’s business history shows him often coming out ahead personally, even if some investments fail or become embroiled in controversy.

Or as McAuliffe told the New York Times:

”I’ve met all of my business contacts through politics. It’s all interrelated,” he said. When he meets a new business contact, he went on, ”then I raise money from them.”

And how did Bill Clinton meet his very good friend? Was it in high school? College? At Oxford? The local Kiwanis Club? No, President Clinton was down in the dumps after his electoral thumping in 1994 and needed to get in gear for his reelection campaign. Harold Ickes, “his politically astute deputy chief of staff,” urged him to meet McAuliffe, who had been a fundraiser for President Carter, when he was 23 years old, and Dick Gephardt. McAuliffe quickly recommended renting out the Lincoln Bedroom, and that worked so well that they became fast friends, maybe even “best friends.”

Government on the Friends and Family Plan

In his stirring speech to the 1984 Democratic National Convention, then-New York governor Mario Cuomo used an extended metaphor of the whole nation as a family. So maybe it should come as no surprise to discover that his son, current New York governor Andrew Cuomo, uses the New York State government as a jobs program for his friends and their families. The Empire State Development Corporation in particular is chock-full of his donors and friends, and their young sons–not to mention Cuomo’s political advisers.

He’s not alone in spending (other people’s) money to help family and friends. The Washington Post reported in December on the family-friendly atmosphere at the Metropolitan Washington Airports Authority:

Meet the Kulle family: mom Helen, daughter Ann Kulle-Helms, son-in-law Douglas Helms, son Albert, daughter-in-law Michele Kulle and Michele’s brother, Jeffrey Thacker.

They all worked for the Metropolitan Washington Airports Authority. All at the same time.

One MWAA board member, 

who has had at least three relatives, including a daughter-in-law, work at the agency, said family members are employed frequently, particularly among board members.

“If you ask a third of those folks, their relatives work there,” he said. “I never thought that we were doing anything wrong.”

“This is a government town and an agency town,” Crawford said. “If there’s a possibility that you can hire a relative … it was the norm.”