Solyndra’s Game Rigging

Please enjoy today’s guest blog from Dick Richards:

Solyndra provides us a teachable moment in the great debate over government’s role in the economy. First, let’s eliminate the usual suspects. The lesson is not about:

  • Green jobs
  • Taxpayer dollars going down the drain
  • The wisdom of guaranteeing this particular loan for that particular company
  • The influence peddling that may have occurred in this particular case
  • Whether the administration is Democrat or Republican
  • The government picking winners and losers (as if they could).

All of those are troublesome, but do not shine a light on the deepest problems with Solyndra. The real problem is how government makes it decisions. By its very nature, government is coercive. There is a good reason for that–some people will not behave without restraint. Thieves, for example, do not tend to respond to incentives or norms of decency and so must be dealt with forcibly by a neutral authority.

In our form of government, people in power derive their authority from the people who elect them. Whenever government is involved, the decisions it makes are subject to the whims of whatever group of people exerts more influence at the moment. When we set up situations where the central government decides which constituencies to reward, we will always get decisions based more on politics than the merits of the particular case.

In business matters, this is disastrous. Companies have to sort through enormous amounts of information, much of it ambiguous and uncertain, in order to know what ventures are likely to be profitable. They do not always get it right–no one can. When left to function freely, though, the market weeds out bad decisions quickly. Capital does not tend to flow to unsuccessful ventures when the investors are likely to lose. When shielded from the dynamic of free markets by government interference, wealth flows not to the competent, but to the influential.

Government should operate as a neutral referee. If a referee were to give one football team first downs for going seven yards while requiring the other team to go ten, we would all say that the game is rigged. Granting government loan guarantees for some companies but not for others is the same thing–a rigged game. The solution is not re-rigging the game to be “fair,” but refraining from influencing the outcome altogether. Enforcing contracts and preventing violence or fraud are the only roles government need play.

The Solyndra case exemplifies a central, inescapable flaw in the liberal point of view. In response to perceived social inequities, government is seen as the Great Arbiter of economic decisions. Unfortunately, when government sets out to pick winners and losers, it usually screws up. When it screws up, the people who made the flawed decisions do not suffer–we do and as a result have less wealth to truly help those in need.

This isn’t just about loan guarantees; it is about every single special benefit the government bestows on any business, group, or industry, no matter how noble the cause. Game-rigging is an inevitable part of government meddling in the economy. Eliminate that and we change the game altogether–for the good.

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About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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