Saturday, September 17, 2011

Green jobs and Solyndra

The theoretical argument for government's terrible track record in research and development, evidenced by the gob smacking Solyndra failure, is attractive and simple. Unfortunately when we look into the details, we never find a practical example of the theory.

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The idea is that private equity is too risk adverse and covets a payback time line too short for foundational, ground-breaking innovation. Therefore it is efficient for government with its vast resources to spend a portion of them on research and development of its own. Since this kind of research is inherently riskier than private investment, its returns will be terrible and fraught with failure. That is why they are doing it!

But as Solyndra demonstrates, where is the ground-breaking technology? The business case demonstrated that it would fail in September of 2011. Its technology had been tried and failed numerous times before. And its cost structure was much higher than competing firms. We may never discover why the Obama administration viewed any of this investment as cutting the edge on anything.

Government R&D, even at its best, often looks more like the Shuttle program, where we take a very expensive program compared to less costly alternatives and run astronomically rising iterations of it with very little innovative variation, learning almost nothing.

In the case of Solyndra, all that we know for sure is that we backed a failed technology espoused by an Obama supporter. Neither fact is a recipe for success or advancement.

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