The Great Deformation (112 page)

It turns out that the Karma gets nineteen miles per gallon on a wells-to-wheels basis; that is, it has worse fuel economy than the Ford Explorer. So the question recurs as to why public money is being used to fund toys for rich people and to bail out the approximate $1.2 billion that has been invested in Fisker by Kleiner Perkins, Al Gore, and Qatar Holdings, among numerous well-endowed others.

THE PEOPLE'S CAR FROM GOLDMAN SACHS

To be sure, electric vehicles are the red-hot flavor of the month, even on Wall Street. That explains how Goldman Sachs got into the act, too, bringing to market in April 2010 the IPO of the Fisker Automotive clone called Tesla Motors. The latter also makes high-end electric-battery vehicles and was created by another billionaire venture capitalist who has also been a serial harvester of the Washington money tree, one Elon Musk. Indeed, so incestuous is the plot that Musk hired Henrik Fisker in one of the latter's earlier ventures to perform design work on an electric vehicle, then sued him for design theft when Fisker launched his own EV venture.

Not surprisingly, the ostensible reason Tesla got its very own $465 million loan guarantee from the DOE was to perform exactly the same gambit as Fisker. Tesla had developed a $110,000 electric vehicle called the Roadster, and so the taxpayer money was supposed to help it develop a people's car called the Model S which would retail at $55,000 before the $7,500 electric vehicle buyers' tax credit that Uncle Sam also had on offer.

Not surprisingly, Tesla has stumbled bringing its people's car to market just like Fisker has. In fact, Fisker is so far behind that even the DOE has had to freeze its funding; the company has fired the few workers who had been hanging around Joe Biden's empty car plant and now suggests the Atlantic may not appear until 2015, if ever.

Yet the Tesla stumble is the more egregious because it was brought to the public market by Goldman and its billionaire promoter in an utterly cynical manner as an upside call on the US treasury. As it happened, Tesla had lost in excess of half a billion dollars building and selling about two thousand Roadsters, not withstanding their $110,000 sticker price and well-advertised celebrity owners like George Clooney.

So with the company at death's door by late 2008, Elon Musk had to publicly confess that the long-promised high-volume S Model was a pipe dream and suspended development; that is, until Tesla could get on Uncle Sam's life-support system by obtaining the massive DOE funding needed to develop the “people's car” version of his electric battery vehicle. Not surprisingly, the Obama administration had no trouble believing that the world needed another car company, and that a true believer in the green gospel like Musk could bring a volume production vehicle to market.

In June 2009, Tesla got its $465 million in federal money and proceeded to plow it into the development of the S Model and funding of a corporate ramp job designed to suggest a muscular business with orders and factory production capability. To that end, it promoted advance sales through $5,000 deposits which conveniently could be recovered from $10,000 worth of federal and California electric vehicle tax credits.

This was cash-out financing for the prosperous classes. Not surprisingly, the company has booked about 10,000 orders and upward of $100 million of customer cash via this backdoor infusion from the IRS.

It also used $40 million of its federal loan in May 2010 to purchase the cavernous but shuttered General Motors–Toyota assembly plant in Fremont, California—approximately one mile from the Solyndra plant, as it turned out. The Potemkin village aspect here lies in the fact that the Freemont plant had assembled upward of 250,000 cars per year in its salad days compared to scheduled S Model production of less than 3,000 vehicles in 2012.

But a bulging order book, even if an artifact of EV tax credits, was exactly what Goldman needed to pump the Tesla story. So the IPO at $17 per share was launched in June 2010, just one month after the company acquired its taxpayer-financed manufacturing plant. After rising 40 percent the first day, Tesla became a favorite rabbit of the momo chasers, and spurred by
breathless “research” from Goldman and other Wall Street firms, the stock price reached $35 by later 2010 and has cycled around that level since. In short, Tesla has been valued at about $3.5 billion by the stock market on the strength of the S Model hype and the simulacrum of a company propped up by Uncle Sam's $465 million loan and EV tax credits.

The company's SEC filings leave little doubt that it is the humble taxpayers of America who have fueled Elon Musk's pretensions of grandeur. During the eighteen quarters since January 2008, Tesla has booked $500 million of revenues, but has racked up $750 million of net losses and nearly $1 billion of negative operating cash flow. Not surprisingly, in October 2012 Tesla got a delay from DOE on its loan repayment obligations and a waiver on its debt covenants. So as Tesla circles the drain, it is essentially following the playbook that had been used by its former next-door neighbor, Solyndra.

It goes without saying that Tesla would have been
Chapter 11
bait years ago without the $465 million federal loan, and will likely end up there anyway. Yet the question recurs as to why the public purse was opened to this scam in the first place. After all, the S Model has turned out to be a high-end luxury sports sedan which will retail with normal customer options for at least $75,000. Like all EVs, its environmental benefits are dubious at best. Unlike most of its more stodgy competitors, however, it does accelerate from 0 to 60 mph in 4.4 seconds.

In truth, the historic boundary between the free market and the state has been eradicated, and therefore anything which can be peddled by crony capitalists like Musk and Doerr in the name of social uplift is fair game. In this instance, the Obama administration adopted the entirely capricious goal of one million electric vehicles on the road by 2015 and had the dollars to throw at it, thanks to the bipartisan fiscal follies that have now become firmly entrenched.

While much of the funding for this misguided effort came from the Obama stimulus, the fact is that $20 billion came from the Bush administration's Advanced Technology Vehicles Manufacturing Loan Program. This was the source of the loan guarantees for both Fisker and Tesla and, more importantly, also provided the political cover.

Thus these EV boondoggles were not really Obama's green energy waste; these were “Republican loans” and had been applied for during the Bush administration under a program which it had embraced. Indeed, Fisker's lead director, Ray Lane, claimed to be a Bush-supporting Republican benefactor, and dismissed as “silly” the notion that an automotive company could be started without government aid.

He was correct on that point, although the idea that the government should be starting car companies, in a world drowning in auto capacity, was apparently not yet a well-known part of the Republican creed. So whether acknowledged or not, it was the Bush White House which paved the way for the abomination of Fisker and Tesla.

That a megalomaniacal promoter like Elon Musk could walk off with half a billion in taxpayer money, blow it in less than four years, and make himself the toast of Hollywood in the process is powerful evidence that the putative conservative party has vacated the ramparts of the US Treasury Department. The latter now stands politically helpless in the face of whatever flavor-of-the-month projects crony capitalist raiders happen to be promoting.

THE GREEN ENERGY DOG WHICH DIDN'T BARK

At the end of the day, Tesla and Fisker did not have much to do with real conservation. That is evident in the policy dog that didn't bark; namely, a rip-snorting increase in the gasoline tax. To be sure, it is not evident that dragging BTUs through the roundabout path of the electric power grid would really alter the carbon footprint of the typical auto's 10,000 vehicle miles per year. Yet if reduced gasoline consumption is the policy objective, a European scale fuel tax, say, $4 per gallon, would cut US consumption by upward of 3 million barrels per day, or about 35 percent.

In fact, it turns out that Secretary Steven Chu spent nearly as much time disavowing his earlier support for a stiff gasoline tax as he did handing out subventions to crony capitalists of the green energy persuasion. And that symbolizes the problem in a nutshell.

The virtue of a high energy tax is that it harnesses the pricing mechanism silently, efficiently, and relentlessly to the task of altering behaviors throughout the nooks and crannies of the entire Main Street economy. That would be especially true if the tax were levied broadly as a variable level on petroleum imports. Using that mechanism, policy could permanently fix a minimum domestic price floor at, say, a $125 per barrel equivalent by raising or lowering the levy to capture the difference between the floor and the world price.

Henceforth, every consumer and producer in the domestic economy would react as they saw fit to the rule of one price: $125 per barrel of liquid hydrocarbon equivalents, always and everywhere. Thousands of entrepreneurs would be thereupon unleashed to conserve liquid petroleum BTUs whenever investments, from insulation to solar panels to electric vehicles, were profitable under the floor price. Likewise, consumers might decide to
buy smaller cars with fewer features and less powerful engines under a guaranteed, permanent régime of high fuel prices. They might even choose to live in smaller houses or locate closer to work or make day trips by light rail.

By the same token, there would be no possible excuse for government subsidies and loan guarantees to encourage energy production or for the myriad oil and gas tax breaks now in place. With a permanent price floor, the message of the marketplace would be “Drill, baby, drill” wherever it was economic, including the cost of regulatory compliance. The big bucks would go to petroleum engineers and geophysicists, not K Street lobbies.

It goes without saying that there is a ferocious bipartisan consensus against a variable petroleum levy; that is, against drafting the marketplace to accomplish conservation goals set by the state, if goals must be set at all. Such a régime would put the energy branch of crony capitalism out of business. It would allow the state to sit back with its feet up on a stool, and to abolish its congressional committees on energy and its busy-body departments and agencies which ceaselessly meddle in markets and waste societal resources. Most importantly, it would remove the energy sector from the checklist of spending options next time Washington gets out the stimulus napkin.

THE MYTH OF INSUFFICIENT PUBLIC INVESTMENT

The massive green energy subsidies and tax credits contained in the Obama stimulus patently defy the fact that unlimited speculative capital is available for any alternate energy technology that appears even remotely viable. But there is a reason for this disconnect; namely, the false progressive narrative that the ills of the American economy are owing to too little “public investment.”

The Obama stimulus thus contained $85 billion for public infrastructure investments that turned out to be not so “shovel ready” as first advertised. Rather than being a fault, however, the big delay in executing these projects was the smoking gun; that is, proof that most of the public investment agenda had nothing to do with the long-term growth and productivity of the American economy, but was just an excuse to fill up the vicar's $800 billion deficit spending napkin.

The project list speaks for itself. It included $4.2 billion to repair and modernize Department of Defense facilities, $200 million for a new Homeland Security headquarters, $280 million for wildlife refuges and fish hatcheries, $500 million for Bureau of Indian Affairs infrastructure projects, $500 million for wildfire prevention, $650 million for the Forest Service, $750 million for the National Park Service, $750 million for federal buildings, and $4.6 billion for Army Corps of Engineers water projects—something
even Jimmy Carter found to be a net loss to the nation's economy more than three decades ago.

Some of these expenditures might well improve public amenities, but none of this involves productive capital investment. And none were so urgent as to require deficit finance, and self-evidently none of these and dozens of similar items straight from the congressional logrolling fest had anything to do with enhancing the long-term growth capacity of the American economy. So the progressive mantra that public investment had been an important feature of the Obama stimulus boiled down to about $30 billion for highways and bridges and $20 billion for assorted rail and mass transit projects. Behind this modest curtain, however, lies the truth about the “public investment” thesis; namely, that there is nothing there.

The federal government and the states spend about $150 billion each year on highways, roads, and bridges and that is actually too much, not too little. At about 1 percent of GDP these highway outlays are fully in line with postwar averages, so there has been no policy “neglect,” Republican or otherwise. But even this normal level of spending does not stimulate economic efficiency and growth but harms it: less than half of this $150 billion total is financed with user fees and gasoline taxes. This means that two classes of users, suburban commuters and long-haul trucking, are heavily subsidized by general taxpayers.

Ironically, progressives are always complaining that not enough freight moves by rail nor enough people by mass transit. Yet the stimulus bill poured $30 billion of general fund financing into the very system that biases transportation toward trucks and one-passenger car trips.

Beyond that, there is no evidence the nation's highway system is in disrepair. Outside local street and road disgraces in a few big cities like New York—where available funds are squandered on union and contractor corruption and absurdly inflated wage rates and work rules—the nation's highway system has not deteriorated from its five-decade standard condition. Indeed, the freight-hauling routes on the interstate highways—the only portion of the system that can significantly impact measured productivity in the GDP accounts—are in better shape than ever before.