A couple of weeks ago I wrote about a story in Wired regarding the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program. The gist was that government subsidies to particular manufacturers are putting non-recipients at a competitive disadvantage in obtaining private capital. The author, a former Tesla Motors official, noted that “this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.”

An article in yesterday’s Wall Street Journal builds on this theme by detailing the political shenanigans surrounding the DOE’s awarding of a loan to Finnish high-end automaker, Fisker Automotive:

When tiny Fisker Automotive Inc. hit a financing glitch last year, threatening its plan to build a fancy gasoline-electric hybrid car in Finland, it turned to the U.S. Department of Energy…Within months, Vice President Joe Biden, the former senator from Delaware, was helping lure the embryonic car company to a shuttered General Motors Co. factory four miles from his house in Wilmington, right across the tracks from Biden Park. Soon, Fisker Automotive, a two-year-old business that has yet to sell a car, won loans from the federal government totaling $528 million.

A DOE spokesman claimed that, in the Journal’s words, the subsidy decision process is insulated from politics. Oh sure, and I drive an emissions-free car that runs on fairy dust.

As the following snippet illustrates, multiple Delaware politicians teamed up to tilt the system to their state’s advantage:

On June 1, GM said it was closing 14 plants, including the one in Delaware…State officials and politicians were determined to keep it alive. In the middle of August, they learned the plant had drawn interest from Fisker. CEO Henrik Fisker came to see it and dropped by the office of a Delaware senator, Tom Carper, a Democrat. The visit unleashed a flurry of activity. Gov. Jack Markell, also a Democrat, quickly called an old friend at Kleiner Perkins to check on Fisker. Kleiner Perkins itself has political roots. A leading partner, John Doerr, sits on President Barack Obama’s economic advisory board, and another partner is former Vice President Al Gore.

Of course, the story can’t end without some grandstanding from the master of hyperbole himself, Joe Biden:

In a rousing speech, Mr. Biden recalled how every election year, including his first in 1972, ‘I would stand here at this gate and shake hands at every shift.’ He told of many ‘long talks’ he said he had had with Mr. Fisker. He called the project ‘a metaphor for the rebirth of the country.’

The article is long, but worth the read for those concerned that American capitalism might be taking a corporatist turn for the worse.

Stifling Innovation with Subsidies is a post from Cato @ Liberty - Cato Institute Blog

The Obama administration and its allies in Congress want the federal government to expand its role in subsidizing health care. We are told that this expansion will restrain rising health care costs. But an OMB report yesterday that the government made $98 billion in improper payments last year — $55 billion of which came from Medicare and Medicaid — ought to raise suspicions about that claim.

According to Reuters, OMB Director Peter Orszag told reporters that the embarrassing figures from Medicare and Medicaid demonstrate the need for health care reform. I would concur if “reform” meant reducing the government’s role in health care. However, he means the opposite, which raises the question of how giving more money to an already waste-prone and bureaucratic federal health system can possibly make sense for the economy.

The administration has promised to cut down on improper payments with the aid of a new executive order. According to the Associated Press:

Under the executive order, every federal agency would have to maintain a Web site that tracks improper payments, error rates and outstanding payments. If an agency doesn’t meet targets for reducing error rates for two years in a row, the agency director and responsible official will have to directly report to OMB to explain the delinquency and new actions they will take.

Somehow I doubt this will amount to much of a deterrent. The AP also said the administration plans to impose penalties on government contractors who receive improper payments. But last month it was reported that “the Department of Defense awarded nearly $30 million in stimulus contracts to six companies while they were under federal criminal investigation on suspicion of defrauding the government.”

Democrat Tom Carper, chairman of the Senate subcommittee on federal financial management, seemed to partly understand the broader meaning of the improper payment estimates:

It goes without saying that these results would be completely unacceptable in the private sector, as they should be in government, especially at a time of record deficits…Unfortunately, these numbers may still be just the tip of the iceberg since they don’t even include estimates for several major programs, including the Medicare prescription drug plan.

Yes, Senator, which is precisely why bigger government – be it stimulus, bail outs, or health care reform – is an inferior option to letting the marketplace provide for our wants and needs.

Carper is also right about the $98 billion figure being the “tip of the iceberg.” As has been noted here before:

The Government Accountability Office estimates that the two major government health programs are currently losing a combined $50 billion annually to such payments. But that estimate probably low-balls the actual losses. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.

See this essay for more on fraud and abuse in government programs.

$98 Billion in Improper Payments is a post from Cato @ Liberty - Cato Institute Blog

A deep fissure between federal lawmaking practices and the Internet-fueled expectations of the people is just starting to open.

Here’s a fascinating interview with Senator Tom Carper (D-DE), in which he justifies not reading the legislation that he votes on.

He’s right that the bills Congress passes are almost incomprehensible, but he draws the wrong conclusion from it. It’s not OK to pass bills that you can’t read and literally don’t understand.

Congress and the bureaucracy will come to learn a lesson that other parts of our society have learned: The Internet changes things.

Because it is now possible to see legislation before Congress passes it, Americans now expect to see legislation before it passes. And they will come to expect that their representative understand it—in detail.

A machine has grown up in Washington over the past two hundred years where representatives rely on colleagues who rely on staff to write bills. This has not produced a desirable body of federal law, and it is not a process that the public will accept for much longer.

Carper: We Trust Our Staff So You Can Trust Us is a post from Cato @ Liberty - Cato Institute Blog