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Open Letter to a Department of Energy Official

Mr. Daniel Poneman
Deputy Secretary
U.S. Department of Energy

Dear Mr. Poneman:

In today’s USA Today, you struggle gamely to prevent the bankruptcy of the heavily subsidized – and politically well-connected – solar-panel producer Solyndra from raising doubts about the alleged wisdom of government subsidies to sexy industries (“‘Perfect storm’ sank Solyndra“).  Disappointingly, you play a trump card favored by crony capitalists: “competitiveness.”

After asserting that the prize for “winning” is “a vast economic and employment opportunity to be seized by companies that succeed in this sector,” you warn ominously that “Our competitors know this, and are playing to win.”

Economies grow (or stagnate) depending on how little (or how much) their governments interfere with producers’ abilities to specialize in those activities for which each has a comparative advantage.  Anyone who understands the principle of comparative advantage knows that a country that “wins” an advantage in one industry necessarily “loses” an advantage in other industries.  To understand comparative advantage, therefore, is to understand that economies (unlike firms in the same industry) don’t compete with one another.  To understand comparative advantage is also to understand that, with free trade, a comparative disadvantage at producing, say, solar panels is in no way a disadvantage at consuming solar panels.  Quite the opposite.

Rather than excuse Solyndra’s failure as being the unlikely result of a “perfect storm” of bad luck, you should recognize that this failure is evidence of the truth of Paul Krugman’s 1994 observation that “a government wedded to an ideology of competitiveness is as unlikely to make good economic policy as a government committed to creationism is to make good science policy.”

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030