Posts tagged ‘Elon Musk’

Elon Musk, America's #1 Crony Capitalist

This is from a couple of years ago, so the numbers will only be larger:

Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.

And he's built those companies with the help of billions in government subsidies.

Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.

"He definitely goes where there is government money," said Dan Dolev, an analyst at Jefferies Equity Research. "That's a great strategy, but the government will cut you off one day."

The figure compiled by The Times comprises a variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars.

Demand Curve? What Demand Curve?

Today's little slice of economic ignorance comes from tech site Engadget, a frequent contributor of such morsels.  Apparently California is considering new penalties on auto makers for not selling enough electric cars, penalties which by their structure will be fed right into the pocket of Tesla, already a gaping maw of government subsidy consumption:

Assemblywoman Autumn Burke tells the Associate Press that she's introducing a bill requiring that car manufacturers sell at least 15 percent zero-emissions free vehicles within a decade. Companies operating in the state already have to hit yearly emissions targets and get credits for sales, but this would require that they embrace electric or hydrogen fuel cell cars in a big way -- not just one or two novelty models. And if they don't sell enough eco-friendly cars, they'd have to either pay a fine to the state or pay rivals that meet the targets. Yes, they might inadvertently help the competition.

If the bill becomes law, it could light a fire under car makers that have so far been slow to adopt emissions-free tech. Only 3 percent of all California car sales are either electric or plug-in hybrids.

The underlying assumption, both by Ms. Burke as well as the article's author, seems to be that lack of electric car sales is entirely a supply-side problem -- low sales are because auto makers don't make enough of them.  While I have no doubt that there would be incrementally more sales if auto makers had a larger variety of models with different combinations of features, all of this seems to ignore the demand side.  Automakers, who are constantly locked in a death struggle over tiny increments of market share, and who already pay penalties for not selling as many electric cars as politicians would wish them to, have every incentive to sell as many as they can.  The issue strikes me as one of demand rather than supply - given current technology limits and costs, and despite large financial incentives from the government in the form of tax subsidies, most buyers have eschewed electric vehicles to date.  Neither Ms. Burke nor the author even pretend that this law will change this demand situation.

Which is why critics rightly argue that this is just another way to funnel other people's money into Elon Musk's pocket, without his actually having to sell any more cars.  Tesla already depends on payments from other auto makers for electric vehicle indulgences for much of its revenue, and this can only go up under this kind of law.

The Problem with Elon Musk

When first presented with the idea of the Hyperloop (a train running in vaccuum in an underground tube), I was extremely skeptical it made any sense.   Sure it might work (after all the London tube started out as a pneumatic system much like those that older ones of us remember sending receipts around department stores).   But did it make any economic sense.  Was it really likely that, if we can't afford rail lines above ground easily, we could afford to build thousands of miles of air-tight large-diameter tubes?  Honestly, it looked to me like any other silly idea on the cover of Popular Mechanics, right next to the titanium zeppelin the size of Connecticut that would someday be doing construction work.

So enter Elon Musk, who is very passionate about the idea, claims to be convinced it will work, and appears to be putting some money behind it.   With his support, the idea must immediately be treated as more credible, and it does indeed get a lot of press.  But here is the problem for me with Musk:  With him, the idea must also be treated as very probably another attempt by him to drain money out of the taxpayers' pockets into his.  Because that is what he does in so many of his enterprises.

Ultimate Proof Green Energy is About Cronyism, Not the Environment

Government green energy programs are supposedly about subsidizing new energy technologies to reduce their cost and increase their adoption rate.  But it appears to me that they are in fact merely about subsidizing favored companies.

Why?  Well consider this:

Over the last couple of years, trade remedy actions on clean energy products have intensified. In the wind industry, the Wind Tower Trade Coalition, an association of U.S. producers of wind towers, brought an AD/CVD complaint against imported wind towers in 2011. The U.S. Commerce Department started an investigation, and announced a preliminary decision in December 2012.

This decision found both subsidization and dumping in relation to Chinese imports and imposed an antidumping tariff of between 44.99% and 70.63%, as well as countervailing duties of 21.86%–34.81%. The Commerce Department also established a separate antidumping duty of 51.40%–58.49% on Vietnamese wind tower manufacturers.

In the solar industry, in October 2011, the Coalition for American Solar Manufacturing, a group of seven U.S. solar panel manufacturers led by Solar World Industries America, accused Chinese solar panel companies of dumping products in the United States. The Commerce Department opened an investigation in 2011 and announced the final ruling in 2012. The decision was to impose antidumping tariffs ranging from 24% to 36% on Chinese producers.

All of those actions are not only not consistent with reducing the cost of new energy technologies, they actually raise the cost of wind and solar.  The only benefit of these actions is to improve the bottom line of crony-connected green energy companies.  There is no reason to believe that this cronyism is not the real rational behind the whole program.   If government subsidizes consumer solar purchases 30% and then raises solar panel costs by 30%, they are not making the technology cheaper for consumers, but just finding an excuse to pour tax money into the pockets of a few folks like Elon Musk.

Electric Vehicle Welfare Queen

No, we are not talking today about Elon Musk (though the name fits) but about this electric car buyer profiled in the WSJ:

Bronson Beisel, 46, says he was looking last fall for an alternative to driving his gas-guzzling Ford Expedition sport utility around suburban Atlanta, when he saw a discounted lease offer for an all-electric Nissan Leaf. With $1,000 down, Mr. Beisel says he got a two-year lease for total out-of-pocket payments of $7,009, a deal that reflects a $7,500 federal tax credit.

As a resident of Georgia, Mr. Beisel is also eligible for a $5,000 subsidy from the state government. Now, he says, his out-of-pocket costs for 24 months in the Leaf are just over $2,000. Factor in the $200 a month he reckons he isn't paying for gasoline to fill up his hulking SUV, and Mr. Beisel says "suddenly the car puts $2,000 in my pocket."

Yes, he pays for electricity to charge the Leaf's 24-kilowatt-hour battery—but not much. "In March, I spent $14.94 to charge the car" and a bit less than that in April, he says. He also got an electric car-charging station installed at his house for no upfront cost.

"It's like a two-year test drive, free," he says.

I hope you all enjoy Mr. Beisel's smug pride a driving a car using your money.

In my next post, I am going to dive deeper in the operating cost numbers here.  By the article, Mr. Beisel has cut his monthly fuel costs from $200 to $14.94, a savings of over 90%.  If these numbers are real, why the hell do we have to subsidize these cars?  Well, while it turns out that while the Leaf is a nice efficient vehicle, these numbers are way off.  Stay tuned.

Tesla Actually Strikes a Blow Against the Corporate State

Tesla Motors and Elon Musk, the folks who seem to perennially have their hands out for special government favors and taxpayer money, may have actually struck a small blow against the corporate state:

Tesla Motors Inc. says it’s won another round in its fight with established car dealers who want to stop the company from selling its electric luxury cars directly to consumers.

Tesla CEO Elon Musk says, via Twitter, that a New York judge has tossed out a suit brought by New York auto dealers who challenged Tesla’s direct sales model as a violation of the state’s franchise laws.

Mr. Musk spent Wednesday in Texas making the case for a legislative proposal to change the law to allow direct sales of electric vehicles by U.S.-based manufacturers.  Texas car dealers have opposed the measure, saying it would open the door for other car makers to sell electric cars direct to customers –  which could undermine the value of their franchises.

Government protections of middle men in the auto business (states generally do the same in the liquor business) are a classic example of crony capitalism.  Car dealers tend to have a lot of sway with politicians, not to mention with local media for who they are generally the largest advertisers, so they are able to engineer special privileges for themselves.  Congrats to Tesla for taking this on.

Matt Yglesias is Reinventing History

Matt Yglesias and I certainly do read history differently.  He writes recently in a Salon article:

The basic economic foundations of industrial capitalism as we've known them for the past 150 years or so have an activist state at their core. Building political institutions capable of doing these things properly is really difficult, and one of the main things that separates more prosperous places from less prosperous ones is that the more prosperous places have done a better job of building said institutions. There's also the minor matter of creating effective and non-corrupt law enforcement and judicial agencies that can protect people's property rights and enforce contracts.

The point is, it takes an awful lot of politics to get an advanced capitalist economy up and running and generating wealth. A lot of active political decisions need to be made to grow that pie. So why would you want to do all that? Presumably because pie is delicious. But if you build a bunch of political institutions with the intention of creating large quantities of pie, it's obviously important that people actually get their hands on some pie. In other words, you go through the trouble of creating advanced industrial capitalism because that's a good way to create a lot of goods and services. But the creation of goods and services would be pointless unless it served the larger cause of human welfare. Collecting taxes and giving stuff to people is every bit as much a part of advancing that cause as creating the set of institutions that allows for the wealth-creation in the first place.

This is counter-historical crap.  Unfortunately, my real job is taking all my time today so I can only give a few quick responses rather than the thorough beating this deserves

  1. Capitalism is not a "system."  It is an un-system.   It is an order that emerges from individuals exchanging goods and services to their mutual self-interest.  While it requires a rule of law, those rules can be exceedingly simple -- at their core they are "don't deal with other people via force or fraud."  Sure, case law can be complex - what happens to a land deed that has one boundary on a river when the river moves.  But I don't think this is what Matt is thinking of.  
  2. Yglesias is following the typical socialist-progressive line that our modern wealth creating capitalist economy was somehow created by the government.  I am sure this line works with the low information voter, but that does not make it any more true.  Industrial capitalism arose long before the government even acknowledged its existence.  The US economy was generating wealth - for everyone, rich and poor - long before politicians stuck an oar into the economic waters.  Go back even 85 years and you will not see anything in the "political economy" that would be recognizable to a modern progressive.  In other words, the wealth creation came first, and then the politics came second.
  3. Again we see this bizarre progressive notion that wealth creation is this thing apart, like a water well in the desert.  Income distribution in this model is a matter of keeping the piggy rich people from hogging all the water.  But in a free society, the economy and its gains are not separate from people, they are integral to the people.  Gains are not somehow independent variables, but are the results of individual gains by each person in the system.  People operate by mutual self-interest.  When I work for you, I get a paycheck, you get your products made -- we both gain.  Steve Jobs grew wealthy selling iPads, but simultaneously my iPad made me vastly better off.
  4. It is wrong to say that all distributions of wealth are arbitrary.  In a free society, there emerges a natural distribution of wealth based on people's exchange with each other.  And contrary to the progressive mythology, that system was floating all boats, not just the rich ones, long before the government gained the power to redistribute wealth.  Yglesias is right in saying that income distribution in a progressive political economy is arbitrary.  In fact, income in any government-managed economy is distributed arbitrarily to whoever can gain power.  I am always amazed at progressives who somehow have this vision that there will be some group of people with absolute power who wukk make sure there will be a flat and equitable income distribution.  When has that ever happened?  Name even a single socialist country where that has happened.
  5. What political decision has ever been made the grows the pie, except perhaps to keep the government's hands off pie creation?  When "political" decisions are made to grow the pie, what you actually get is bailouts of Goldman Sachs, wealth funneled to connected billionaires like Elon Musk, and Solyndra.  Politics don't create wealth, they are a boat anchor lashed to the wealth creators.  The only thing politicians can do productively is make the boat anchor lighter.