The Solyndra Mistake

Obama is getting  criticism over the colossal failure of Solyndra, the solar manufacturing company whose stimulus package loan-guarantee had been touted as a promising investment in green jobs. 

But as others have pointed out, the failure of one investment does not argue against government investment more broadly, as many are claiming.  It could have just as easily been the case that Solyndra would have been a good investment, both in terms of creating jobs but also in easing the transition away from our dependence on dangerous fossil fuels. 

All this worry about the idea of state funding certain industries is missing a key point: these industries are vital to the national interest. The most obvious example of this is military contracting. No one ever argues that military industries shouldn't be supported by the state. The same logic applies to things like environmental, health or infrastructure industry. There are many areas of life in which there exists no natural market.

The upset over the auto and bank bailouts was based in the incorrect assumption that it was another example of the government interfering the markets, or even a government "takeover". Yet these were highly unusual cases in which the market had broken down, and the government had a national interest to uphold. In neither case was the government interested in entering these markets more than temporarily - a fact proved shortly thereafter. You can argue the counter-factual that it was bad policy, creating moral hazard and we would have been better off. But as it stands the interventions stabilized both areas in which we intervened.  Will automakers and bankers be more reckless, assuming that they might get bailed out in the future? I see no evidence of this. Automakers have gotten severe concessions from unions, and banks have tightened lending considerably.

The real question is not whether the government should be intervening in markets.  It always has and always will, as there are national interests that require investment, yet because individual companies face great risk and little reward, there is little incentive to pursue projects of great national importance.  Solyndra may have been a mistake, but it was part of an enormously important larger national project.