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Crony Capitalism and Phony Energy

Thursday February 16th, 2012   •   Posted by Emily Skarbek at 6:52am PST   •  

A revolving door between green energy firms and the Department of Energy is a prime example of crony capitalism in full swing. As the Washington Post reports, rent-seeking businessmen like Sanjay Wagel are going where the money is.

Following an enduring Washington tradition, Wagle shifted from the private sector, where his firm hoped to profit from federal investments, to an insider’s seat in the administration’s $80 billion clean-energy investment program.

He was one of several players in venture capital, which was providing financial backing to start-up clean-tech companies, who moved into the Energy Department at a time when the agency was seeking outside expertise in the field. At the same time, their industry had a huge stake in decisions about which companies would receive government loans, grants and support.

Just how profitable was this move for the political entrepreneur? Over the course of three years, the Department of Energy gave $2.4 billion in public funding to “clean-energy” companies in which Wagle’s former firm, Vantage Point Venture Partners, had invested. Overall, the Washington Post reports “$3.9 billion in federal grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.”

No one should be surprised by these figures. When government gets into the business of “investing” in particular types of industries and companies, rent-seeking businessmen will come drooling after the dole. These handouts stifle real competition and destroy wealth in the process of chasing income transfers from taxpayers to snake-oil (eh, solar-power?) salesmen.

The guise of green energy is a perfect prop for passing legislation. The moral high-ground of green energy allows politicians to pass policy that favors special interests and voting blocks, creating rents for friends at the expense of taxpayers directly and to the detriment of real competition. President Obama is at it again, supporting New Alternative Transportation to Give Americans Solutions Act designed to subsidize the migration of American vehicles from gasoline to liquefied natural gas-powered engines.

The Natural Gas Act will create federal tax credits for natural gas vehicles, storage facilities and fueling stations for a five-year period.

Speaking in front of UPS and other trucks equipped with Westport engines, the president told the large crowd of UPS employees and supporters that the Natural Gas Act was good for the economy and the environment.

Pandering for votes doesn’t get more obvious. But perhaps dangerous, discriminatory, and detrimental regulation does. As Alex Tabarrok posts over at Marginal Revolution, the worst may be yet to come.

Featured Image:
© Peter Gustafson |

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February 2012