Paul Krugman is a Nobel-winning economist with expertise on international trade, yet he has a disturbing habit of pontificating with confidence on matters where he is either deliberately misleading or is simply ignorant of the basic facts. I have previously documented this habit when Krugman commented on the Waxman-Markey cap-and-trade bill, and more recently when he carelessly repeated “facts” about mercury emissions that were obviously nonsense to anyone with common sense.
Yet even in these examples, one had to actually know the relevant literature to be able to uncover Krugman’s misleading and/or simply false claims; the layperson wouldn’t really know where to begin. It’s rare that Krugman says something that is blatantly, demonstrably false; he usually covers his tracks pretty well, so that his fans will think Krugman’s critics are simply nitpicking and demonizing the poor guy.
Well, none of that applies to Krugman’s recent commentary on J.P. Morgan’s $2 billion trading losses. Ever eager to turn a liability into an asset, Krugman wrote:
[A]n interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on [the J.P. Morgan] case (actually I don’t wonder — they won’t).
The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.
And JPMorgan is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of too-big-to-fail. There have been government losses on these programs, and will be in future — and misbehavior like what seems to have happened here feeds such losses. And as best I can tell, JPMorgan’s story looks a lot more like actual malfeasance.
But of course JPMorgan wasn’t doing do-gooder liberal stuff like solar, it was just engaging in financial tricks of little or no social value. That makes it all OK. [Bold added.]
In this short commentary, Krugman has outdone himself. He manages to blend in a combination of (a) blatant, demonstrable falsehood, (b) misleading innuendo, (c) attacks on the motivations of those who disagree with him, and to top it off (d) a hypocritical implied criticism of the very policies he himself supported.
First, the actual falsehood: Krugman says that Solyndra is the only DOE-backed company to lose money. That is not true. Last October, Beacon Power filed for bankruptcy. Here’s the way Reuters covered the story, in a piece with the title “Beacon Power bankrupt; had U.S. backing like Solyndra”:
Beacon Power Corp filed for bankruptcy on Sunday, just a year after the energy storage company received a $43 million loan guarantee from a controversial Department of Energy program.
The bankruptcy comes about two months after Solyndra — a solar panel maker with a $535 million loan guarantee — also filed for Chapter 11, creating a political embarrassment for the administration of President Barack Obama, which has championed the loans as a way to create “green energy” jobs.
Beacon Power drew down $39 million of its government-guaranteed loan to fund a portion of a $69 million, 20-megawatt flywheel energy storage plant in Stephentown, New York. [Bold added.]
As the part I put in bold underscores, when Beacon Power filed, this was a huge embarrassment for the people who had been explaining away Solyndra as a lone bad apple in an otherwise great loan-guarantee program. This was a big deal for anybody who was remotely following energy issues from a political perspective.
In fact, Krugman’s apparent ignorance of this case made me wonder if he had some subtlety in mind when he said that only Solyndra so far had lost taxpayers money. For example, shortly after filing for bankruptcy, Beacon Power struck a deal with the DOE to sell its plant and other assets, to try to pay back its loan. So maybe that’s what Krugman had in mind?
Only problem is, back in early February, Beacon Power found a buyer for its plant, and at the time a DOE official estimated “[t]he deal would allow the U.S. Department of Energy to recoup more than 70 percent of the investments made through its loan guarantee program.” So I’m sorry Professor Krugman, Solyndra was not the only company in the DOE program to lose taxpayers money so far. Here’s a list of other “Stimulosers” compiled by IER (though on some of them the issue is government aid in general, not necessarily the Obama DOE’s loan guarantee program).
More generally, Krugman is wrong when he points to the “actual malfeasance” of the J.P. Morgan losses, in contrast to the implied nobility of the DOE’s backing of renewables. The reason Solyndra was such a big scandal was not the jeopardizing of half a billion dollars in taxpayer funds; the government squanders that kind of money before lunch. No, Solyndra was a legitimate scandal because the government violated its own internal rules, pushing through Solyndra’s application even though several people had raised red flags repeatedly throughout the process. (I give an overview of the whole sordid affair here.)
Here again, the corruption was not confined to Solyndra. In previous IER blog posts we’ve touched on the dubious government support given to Iberdrola and Abengoa. Rep. Darrell Issa’s committee released an entire report detailing the risks to taxpayers because DOE ignored its own rules in numerous cases. This issue isn’t just about Solyndra, and it’s not just about probabilities and the fact that some loans eventually go sour.
Finally we come to the matter of Krugman’s own hypocrisy. He is making it sound as if the critics of the Solyndra loan have no standing, because they must have supported government support for big Wall Street banks. But that’s not true at all. Of course the Institute for Energy Research doesn’t take a stand on such outside matters, but I personally—as well as many other critics of the DOE loan program—opposed TARP at the time (i.e. not just after it became chic to do so), and consistently oppose government intervention in support of any company that fails the profit-and-loss test, whether the company is in finance or renewable energy. It is Paul Krugman who supported TARP (though he didn’t like the specific details) and of course thinks FDIC was a necessary invention of the 1930s to prevent another banking panic.
In summary, Krugman’s recent musings on Solyndra versus J.P. Morgan show that he is either ignorant of the basic facts on the DOE’s loan program, or he intentionally misled his readers. Either way, his accusations of hypocrisy miss their mark, and if anything apply to himself. As the cases of Solyndra and J.P. Morgan both show, when the taxpayers are ultimately backstopping large companies, we can expect them to behave more recklessly than they would in a free market.