I haven’t said much about Solyndra because I am of two minds about it and I didn’t want to confuse the issue while it was still a “scandal”

However, now that its cooled down, I’ll say this: Solyndra does show us the general folly on industrial policy. Not because the federal government invested in a project that went bad. Lots of folks invest in projects that go bad.

Instead, because the federal governments rules defining who could take the grant actually caused other companies to take a pass on the funding and directed resources precisely towards a company that was taking taking an unwise leap.

However, that being said I think people are wildly off base in getting caught up in this as an example of the government “wasting our money.” That the government wastes taxpayer money in pursuit of its goals is something to be thankful for.

Why?

Because the real alternative to putting money on the table is command and control.

The government and more importantly the people of the US want to do something to promote clean energy. There are basically three ways to go about this:

1) We could have a carbon tax. That would be the best way to do this because it could correct an externality while raising money that could be used to lower other taxes or in the future offset the deficit. No offsetting the deficit, now. But, that’s another story.

2) Second best would be for the government to promote clean energy through grants. The looser the grants the better generally speaking. However, people are worried about wasting money so there are all sorts of qualifiers that lead to bad industrial policy such as Solyndra.

3) The worst option would be for the government to mandate the use of renewable fuels or outlaw certain fossil fuel plants. This actually taxes no money and “wastes” no tax payer money. However, it has the highest cost to the actual citizens of this country. It would cause energy prices to be higher than they need to be in order to achieve clean energy goals.

My fear is that in our zeal to prevent the government from wasting money we will actually default to (3). That’s because the public desire to promote clean energy is not going to go away because people bad mouth Solyndra. It’s only going to manifest itself in an even worse form.

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