The Fierce Incompetence of Central Planning
What if I told you you could get in on the ground floor (or low level) of a technology company. The company is a few years old, and has had increasing losses over it’s history: $27.2M three years ago, $114.1M two years ago, $232.2M last year and on pace to hit $160M this year. Those are losses. Their revenue for this year is on pace to be about $80M. In other words, the company is losing twice as much in costs as it generates in sales. They are, in fact, making a product for $3 and selling it for $1.
Two other facts you might find interest: (1) the company is in an industry that struggles to break even and (2) the company’s auditors cannot honestly say the company will be in business next year. Investors have put in $1 billion, and the company is now desperate for cash. Would you be willing to loan the company $535 million–more than half of its equity investment?
To put that in perspective, assume someone you know put up $100,000 for a Subway franchise. He has lost money for four years straight, sells sandwiches for $5 when they cost him $15 to make, his bank and his accountant say he has no chance of staying in business. Would you loan him $53,500 to open another store across town?
If you think this is a “good bet,” please contact me for a great deal on a slightly used, but historic bridge in lower Manhattan. This company (in case you’re wondering, it is the infamous Solyndra, circa 2010) is a stinker. But even with the benefit of hindsight, President Obama has no regrets over Solyndra. Obama, even now, defends the $535 million loan guaranty as a “good bet.”
This is why central planning will always fail. Not only are politicians not equipped to pick winners and losers, their hindsight is 20/2000–qualifying for legal blindness.
If you think this is an isolated incident, think again. Dick Durbin was warned repeatedly that his amendment to the Dodd-Frank bill would lead to increased costs for consumers. When those predictions become reality, he impotently tells consumers to bank elsewhere. As if the country’s smaller banks are less susceptible to his cost shifting than Bank of America.
Ignorance may be bliss, but it’s also the Democratic Party’s economic platform.