How President Obama’s Bureaucratic Investments Kill Jobs
May 30, 2012
It has to be hard to be a spokesman for President Barack Obama.
As many prominent Democrats who balked at the president’s recent attacks on private equity must have realized, Obama looks bad even when compared to his own attack-ad caricature of Mitt Romney.
The president argues he can create jobs by assailing job creators and spending their money on boondoggles that keep going belly-up.
In this context last week, he declared that Mitt Romney’s experience in private equity was “what this election will be about.” When you’re president, Obama said, your job is not to be an investor,
but “to figure out how everybody in the country has a fair shot.”
His vacant fairness rhetoric notwithstanding, President Obama has in fact made “investing” one of his main job responsibilities — regrettably for the American people.
Ask the President or any of his surrogates about their plan to turn around the economy and create jobs, they’ll almost certainly tell you we have to spend billions of dollars “investing” in infrastructure and clean energy.
“Government support,” President Obama said in his 2012 State of the Union address, “is critical in helping businesses get new energy ideas off the ground. Because of federal investments, renewable energy use has nearly doubled. And thousands of Americans have jobs because of it.”
When Maryland Governor Martin O’Malley was asked on Meet the Press this week what Obama’s plan was for job creation, he responded, “The plan is that in order to create jobs, a modern economy does require modern investments.”
David Gregory summed up the empty response, “So government’s gotta spend more money on particularly infrastructure in the country…Obama’s second term, government spends more ’cause it has to.”
By his own account and those of his surrogates, President Obama’s bureaucratic “investing” prowess is the key to turning around the economy.
His efforts so far have been a disaster. The Obama Department of Energy extended a $2.1 billion “investment” — a loan guarantee — to a green-tech company, Solar Trust of America, which declared bankruptcy last month. He lost another $530 million on Solyndra, a start-up where executives were making lucrative salaries, plus bonuses.
And for all the President’s promises of millions of “green jobs,” few have appeared. The White House claimed its “investment” in Solyndra would create 4,000 jobs, but at its height, the company employed just 585 people — and then it went bankrupt. The cost? Almost $1 million per temporary job.
The $34 billion Obama has spent on his loan guarantee program for green energy startups exceeds the GDPs of 104 of the world’s countries, but the sources he’s focusing on account for only a tiny fraction of America’s energy production, and they’re still not cost-competitive.
His stimulus package, too, was an indiscriminate “investment” which added $800 billion to our debt — and a failure by any reasonable standard.
If President Obama wants to make Mitt Romney’s experience as a private investor “what this election will be about,” it can only highlight this dysfunction of his bureaucratic model for job creation compared to private capital.
Private investors risk their own money because they think an enterprise will succeed, earning them a positive return. That’s what the word “investment” means.
And because they have their own resources on the line, private investors carefully pick companies that offer products and services other people actually want — things for which there is a demand. That’s how they hope to earn a profit.
Enterprises for which there is genuine demand are able to grow and employ people. So in addition to creating something others find useful, they create jobs as well.
Private investors do not, in general, purchase failing companies intending for them to go out of business. Since failing companies do not earn money, such a venture would work against their goals.
And because their own money is at risk, private investors monitor closely how their company is being run and intervene if they feel their funds are bring used unwisely or in ways that don’t contribute to the business’s growth.
Bureaucratic investment works on assumptions that are almost exactly the opposite.
Bureaucratic investors use other people’s money, taken by force, and give it to companies with no expectation of a positive financial return. These “investments” are, to all appearances, indistinguishable from reckless spending.
In fact, the bureaucrats are probably aware that their “investment” is highly risky and unlikely to be profitable, since if it weren’t, the venture would be able to attract private funding rather than needing a government handout.
Indeed, it is bureaucrats who at times “invest” even when advised emphatically that a business is likely to fail (as those in the Obama administration were warned about Solyndra).
Because they are using the taxpayers’ money, bureaucrats are not overly worried about whether the business they’re funding offers products or services that other people actually want to buy.
They’re far more preoccupied with other factors, such as whether the company fits into their ideological agenda, whether it’s located in a politically important place, and whether it offers the opportunity of financial gain for any of their donors, allies, or personal friends.
The fact that there is not demand for products like overpriced solar panels or electric cars is not an insurmountable hurdle in these cases, since bureaucratic investors can arrange coercion to push Americans to buy them, manipulate tax laws to incentivize consumption, and spend more government money to subsidize production. They might even require federal agencies and departments to purchase the products — at further cost to taxpayers — when it does not make rational sense.
Finally, bureaucrats don’t monitor with interest how the companies they fund are being run, as private investors do, so they don’t notice when employees use the money to pay themselves generous salaries and large bonuses even as their businesses fail.
These are the reasons the President’s bureaucratic investments are not a reliable engine for job creation or economic growth, and why, despite spending billions of dollars, he has so few jobs to show for it.
But the President’s failed model for job creation is more than just misguided — it’s also destructive.
To pay for his spending binge, he is taking money away from real investors — the Americans who actually are creating jobs and building businesses in the private economy. And in doing so, preventing jobs from being created. So it’s not Mitt Romney and private equity that are killing millions of jobs. It’s Barack Obama’s class warfare and incompetent bureaucracy.
Americans understand this as a matter of common sense.
If in this election President Obama wants to double down on his failure, be our guest.