Too good to be true
Not a day goes by without someone claiming that they’re sitting on the proverbial gold mine, if only government would stump up a bit of cash. That someone is often a person who has a direct financial interest in the idea, and/or has done quite well at a previous venture, so brings survivorship bias into play. I’ve been successful in the past; trust me when I say that this is a sure thing!
Alas, in the real world governments that listen to these people often end up losing whatever taxpayer monies are given to them. Not because the projects fail – they might operate for a considerable amount of time – but because their continuance often depends on a constant flow of government assistance. This week’s lesson in why industrial policy is generally a bad idea comes from the land of the free:
“New York spent nearly $1 billion over the past decade on Elon Musk’s ambitious plan for what was supposed to be the largest solar-panel factory in the Western Hemisphere, one of the largest-ever public cash outlays of its kind.
‘You almost have to pinch yourself, right?’ New York’s then-Gov. Andrew Cuomo said at a construction ceremony for the factory in 2015. ‘That this is too good to be true.’
Eight years later, that looks like a pretty good assessment.
The suppliers that Cuomo predicted would flock to a modern manufacturing hub never showed up. The only new nearby business is a Tim Horton’s coffee shop. Most of the solar-panel manufacturing equipment bought by the state has been sold at a discount or scrapped.
A state comptroller’s audit found just 54 cents of economic benefit for every subsidy dollar spent on the factory, which rose on the site of an old steel mill. External auditors have written down nearly all of New York’s investment.”
In Australia, plenty of prominent ‘capitalists’ have been calling for the government to match the green subsidies recently offered by the US government’s Inflation Reduction Act, which are gigantic – “a Goldman Sachs report projects its myriad green subsidies will cost $1.2 trillion”.
That’s about the size of Australia’s entire economy. Not one to waste a perceived opportunity at securing some free cash, Australia’s second-richest person, Andrew ‘Twiggy’ Forrest, called for Australia’s government to match the US:
“Forrest said the development of a green hydrogen industry was crucial for hard to abate sectors that couldn’t reduce substantial amounts through electrification, and it would support Australia’s economy and provide full employment for decades if Australia could get its share.
‘You can all see it. I mean, just drive down Nullabor highway. You know, you’ll see blue sky as far as the eye I can see. You stop the car, stick your hand out and get blown off,’ Forrest said.
‘It’s only one part but, there’s 70,000 gigawatts right there. Many times Saudi Arabia, right in that little patch of Australia. I can take you to other parts where we can grow and grow and grow. But it can’t happen now. It literally cannot happen (if Australia does not respond to the US Inflation Act).”
If a billionaire can’t make it happen without considerable taxpayer support, then it’s probably not a great investment. The claim of “full employment for decades” – a siren song to politicians – most definitely falls into the ‘too good to be true’ category, and should be a massive red flag.
That, and good luck convincing people to live along the Nullabor highway:
The Nullabor highway, Australia’s longest straight road.
Can industrial policy create full employment, as claimed by Forrest? Sure, in the same way that war employs everyone, or that the Egyptians managed to create jobs with the pyramids. But many of those jobs were socially wasteful, because what was produced was not very productive, and they pulled resources from elsewhere in the economy at great cost.
When billionaires come knocking, policymakers would be wise to remember that for every Fortescue Metals Group there’s an Anaconda Nickel. Forrest has no idea if green hydrogen will be viable in the future, which is why he’s so desperate for government support: heads he wins, tails he doesn’t lose.
If something sounds too good to be true, it probably is – there is no free lunch!