The Trouble With Crony Capitalism

Yesterday the Department of Energy approved $1 billion in new loan guarantees to “green energy” companies. Drudge is headlining the fact that, as reported by Mark Hemingway in the Weekly Standard, most of that amount–$737 million–is going to SolarReserve LLC for a solar-thermal project in Nevada. SolarReserve’s “investment partners”–I take it that means owners–include the Pacific Corporate Group’s Clean Energy and Technology Fund. One of Pacific Corporate Group’s principals is Nancy Pelosi’s brother-in-law, Ronald Pelosi. Another of SolarReserve’s owners is Argonaut Private Equity, whose managing director, Steve Mitchell, is on Solyndra’s board of directors.

My guess is that government underwriting of SolarReserve’s project is a horrible idea. But suppose it isn’t: who is going to believe that the Obama administration wasn’t influenced by Pelosi’s brother-in-law’s involvement in the project? Likewise, who will believe that Democratic donor George Kaiser’s involvement in Solyndra was irrelevant to the government’s misbegotten support for that company? Hemingway writes that “[i]t’s increasingly hard to tell the government’s green jobs subsidies apart from the Democrats’ friends and family rewards program.” That’s true, and whether “green energy” corruption is real or only perceived, it breeds cynicism and erodes trust in government–which, not coincidentally, is at an all-time low.

But the problem goes deeper still. When the federal government gets into the business of picking winners and losers among private businesses, it is easy to identify the winners–they are companies like Solyndra and SolarReserve that get government money or loan guaranties. But what about the losers? A much larger number of companies who don’t get federal money are in that category, and how will we ever know who they are, let alone know whether they were losers because someone involved in them is a Republican donor?

There is no such thing as “good” crony capitalism. Once the government gets into the business of favoring some private businesses over others, the results can only be bad, and not only, or even primarily, because of the loans that wind up costing the taxpayers.

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