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Elon Musk Shows Us How to Thrive in the Government-Directed Economy
Here’s a simple truth: The government picks winners and losers every single day. It does this in small dollars, but usually large. It does this in virtually every arena of the economy larger than a lemonade stand. It does this when those who hold power decide to invest in one area and not in others; it does this when they decide to build a piece of hardware in one state and not another; it does this when it decides to expand an entitlement into one space and not another; and it does this when it decides what the rules are regarding how businesses are financed, regulated, and taxed.
Those who know how to navigate an economy driven by the state will succeed. They do so regardless whether the market has determined their product as the best or not—sometimes it has, sometimes it hasn’t. Sometimes the consumer has no real ability, thanks to the aforementioned mix of laws and regulations, to go in another direction. Sometimes the only consumer is the government, meaning the appropriators, bureaucrats, and administrators who dream fondly of working some day for the contractor titans they fuel with other people’s money.
This is what life in a government directed economy is all about: protecting your revenue streams, locking into long-term rents, and finding new avenues where the case for redistribution can be made on any basis—ideally a moral one, which tugs at the heartstrings of people, and distracts from the endless profiteering which actually drives policy.
So subsidizing prescription drugs for the elderly becomes a human right; electric cars become not just a promising invention but an investment with the whole planet at stake; and a second engine for the F-35 becomes the difference between whether you favor an America that bows to China or not.
Consider just one individual as a perfect example of the government’s chosen winners: Elon Musk, the South African billionaire whose every media profile requires a comparison to Tony Stark. The sheer amount of the money he’s relied on from the U.S. taxpayer over the years to make his billions, ought to be instructive to you all on how to thrive in this reality. Just look how much $120,000 can buy.
While he profited in the millions from the sale of PayPal, Musk actually became a billionaire thanks to a 25% stock gain in his company, Tesla, which would not exist but for the largesse of the U.S. taxpayer. Consider: Musk says he believes the entire automobile industry will be electric someday. But it’s primarily your money he’s putting behind that thesis, not his own. In fact, Tesla only exists thanks to nearly a half-billion dollar low cost loan through the Advanced Technology Vehicles Manufacturing Loan Program.
The ATVM, while implemented by President Obama, was made possible thanks to the Energy Independence and Security Act of 2007 – passed with the votes of 95 House Republicans and was signed into law by President George W. Bush. He hailed it as a “major step toward reducing our dependence on oil, confronting global climate change, expanding production of renewable fuels and giving future generations a nation that is stronger, cleaner and more secure.” Musk, who owns 26 percent of Tesla, hailed it as a ton of cash.
There’s also the $344 Million in cheap government loans for SolarCity. SolarCity’s inventive new technology aim: put 160,000 solar panels on homes at military bases. For the company, the Obama administration’s loan was “a windfall.” Notes CNN: “The company has installed 16,000 rooftop units since its founding in 2006, so this program will boost its business by a factor of ten.” Well, doing business in the private sector can be a lot more demanding.
Musk, of course, is the chairman of the board and a major original investor. Last month, SolarCity announced it’s planning an IPO which will likely make him even richer—he owns 25 percent of it.
Solar panels and electric cars are typical items of derision from the right, though. But that’s not true of this last one: the more than half a billion in taxpayer dollars you’ve sent to Musk’s major project, SpaceX. Yes, you probably read all the coverage describing SpaceX as the first private this and private that. But the truth is that you funded this project, you bought and paid for it, and you—or rather, the government—is the only real customer. As if a few dead celebrities’ ashes could justify building a full-blown rocket.
Here, once again, Musk is the taxpayer-funded winner—he plans an IPO for SpaceX, of which he owns a majority stake, for next year. Soon he can afford to build a giant tower with his name on it in the middle of Manhattan.
Now, you may like borrowing against your children’s future to fund rockets more than you like it for solar panels and electric cars, or vice versa. But these are arguments about what purpose these things serve, which fall back to the same case one way or the other… and in the end, winners get picked, losers don’t, and agency heads and the next crop at Congress decides how to divvy up the pie based on who they want to work for after they retire. Rinse, repeat.
At some point aren’t we going to ask the real question, the deeper one, the one that puts us in this mess in the first place, and the only question with any possibility of ending the cycle of winners and losers under Democrats and Republicans: Aren’t there some things the government just shouldn’t do?
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I have no interest in SolarCity or Tesla.
Before condemning SpaceX you need to consider the alternatives. NASA wasted hundreds of billions on the Shuttle and ISS – going nowhere. Does it really make sense to point a finger at SpaceX and scream about $500M??? This is less than the cost of a single Shuttle launch! And we are actually getting something for the investment.
SpaceX is showing that space can be made accessible at surprisingly low cost.
Would I prefer that SpaceX was founded by, say, John Stossel or Robert Zubrin? Sure. But what of it? The fact is that they are creating the infrastructure that will get us to space.
What is truly appalling is that what SpaceX is doing could have been done 40 years ago.
Ben writes: “At some point aren’t we going to ask the real question, the deeper one, the one that puts us in this mess in the first place, and the only question with any possibility of ending the cycle of winners and losers under Democrats and Republicans: Aren’t there some things the government just shouldn’t do?”
Oh yesssssssss. Lots and lots and lots of things. Nobody in DC seems to realize it, though. Except maybe Jim DeMint.
As BlueAnt says, SpaceX is about as bad as McDonnel Douglas is when it develops a new jet fighter of the Airforce on the taxpayer’s dime.
Note, though: the marginal cost of each single Space Shuttle launch was about half a billion dollars, so the value seems pretty decent with SpaceX.
And now SpaceX has picked up a private contract as well!
Of course, all conservatives with an interest in space would know this already because they’d be following Rand Simberg’s Transterrestrial Musings.
Pretty much everyone, including those Reps and Dems that vote for all these give aways, would answer in the affirmative and be happy to treat us to a long, earnest speech about it. Then, when the gaze of the fiscally sane once again was turned elsewhere, they would go right back about the business of serving their own self-interests.
So I think a better, even deeper question is this: will it ever be possible to get us off the trajectory of fiscally-induced national suicide we are on while we have career politicians (i.e., no term limits), an impenetrable tax code (i.e., no simple, transparent tax scheme, which prohibits special deals for political friends), and abstruse, multi-thousand page laws, which simply afford more opportunity for self-dealing by these careerists (who can’t even be bothered to read the legislation before they pass it)?
Term limits, a super-simple “fair” or flat tax, and a page limit on laws. It’s ridiculous that we have to impose such measures, but the alternative is to continue watching as this slow-motion seppuku reaches its conclusion.
This post describes what is properly known as crony capitalism. It’s characteristic of any system run by an oligarchy. In the US both major parties are part of the ruling oligarchy. Both take advantage of the revolving door between government and business, and both enrich themselves by peddling influence whether in power or not. The antidote for this is a (small “r”) republican government with limited and enumerated powers. Such has not existed in the US for about a half century. Nor will it be recovered even under a Romney administration.
Since we’re partly talking about space subsidies, it’s particularly worth expanding your question to:
The worst state in the union for corporate incentives is New Mexico, partly due to the governorship of Gary Johnson, now the Libertarian Party candidate for President. Johnson’s particular enthusiasm was for space subsidies, although Elon Musk appears not to have been seduced by them (NM was the pioneer in private sector launches, but SpaceX until recently used exclusively Air Force sites, and the current governor, Martinez, is cutting back on the pork).
Are you under the impression that Washington and Jefferson’s America was not awash with crony capitalism? Even when Jefferson’s budget cuts involved asking questions like (literally, although the answer turned out to be yes) “does every cabinet department need a clerk?” there were cronies making out like bandits on land sales, public contracts, monopolies, etc.
The answer isn’t so much the exciting “return to the founders!” war cry, but in the dry details of procurement policies, regulation review, and oversight of the details. Neither Mitt, nor anyone else, could fix it, but he can and should mitigate it.
This difference between then and now is one of magnitude. A small and limited government will be prone to minor amounts of crony capitalism. A large bureaucracy allied with a professional ruling elite will be prone to massive amounts of cronyism. The solution was and remains limited government.
I brought up the recent SpaceX launch on the Ricochet Audio Meetup, so I’ll do a partial defense of Musk here.
Musk founded SpaceX a year before Tesla Motors. He funded it with $100 million of his own money for 6 years, and they had a viable prototype going before they got that $1.6 billion contract with NASA in December 2008.
We can argue about the usefulness of taxpayer funded space exploration–I’m in favor of it, for complicated long term reasons–but this is a case of private enterprise succeeding where government (i.e. a moribund NASA) has failed. Paying SpaceX to carry out functions the government previously undertook does “choose” a winner, of sorts, even though there weren’t exactly tons of competitors. But that is a lesser evil than letting the function go unfilled.
In short, if a government outsourcing contract is choosing a winner, and this is unacceptable, then we are saying we want no private contracting at all. We want all government functions to be executed by wholly owned state bureaucracies. This does not strike me as a recipe for better anything.
A simple law that outlaws all guaranteed loans, bailouts, and subsidies to corporations would do wonders. Why won’t anyone in Congress propose this?
The only time the federal government should be giving money to a corporation is through fee for goods/services contracts. And then only to assist in carrying out constitutionally mandated functions.
This difference between then and now is one of magnitude. A small and limited government will be prone to minor amounts of crony capitalism. A large bureaucracy allied with a professional ruling elite will be prone to massive amounts of cronyism. The solution was and remains limited government. ·2 hours ago
I think things are better now than they were then. Even before Van Buren developed the formal spoils system, what we would now view as corruption was relatively open. Today no one has the kind of commercial relationships with the government that made many American businessmen rich, with large contracts at surprising prices, outside a few government dominated industries (defense, mostly). Others make money from the government, through loans, contracts, subsidies, etc., but much of it is available to SMEs etc., connected only through lobbying organizations.
I’m in agreement with NormD and BlueAnt.
It seems to be apples and oranges to compare SolarCity/Tesla Motors to SpaceX. Solar Panels and Electric Cars is an attempt (like Solyndra) to create a market demand where there is none. SpaceX is providing a service that the government had been doing itself but decided to outsource it at a fraction of the cost. Now, I wouldn’t be surprised if there were aspects of this that I’m unaware of that could change my opinion.
If the conservative position is that government shouldn’t be involved in space exploration then its an easy jump to say they shouldn’t be handing out contracts for sending payloads into space. I don’t know if government should or shouldn’t be involved. I’d be curious to read a discussion on that. I view space exploration as akin to the Lewis & Clark expedition (loosely, I’m not drawing strict comparisons here). It’s not that private enterprise can’t do it but it hasn’t so far.
Yes, but the shorter list is the things government should do. At least that seems the tack taken by the founders.