I’m reprinting this in full from Chris Good at the Atlantic. Someone please tell me how this is supposed to work, even in theory. And someone please tell me how speeding up the process of picking winners doesn’t simply make well-prepared regulatory capture specialists like T. Boone Pickens (whose PR blitz seems to have worked to get him into the DoE inner circle) richer simply because they’ve got the resources to hoover up contracts.
Chu Works to Get the Green Cash Flowing
After environmentalists and mainstream politicians alike succeeded in dedicating a good chunk of President Obama’s stimulus package to green energy, Obama’s new energy secretary has been working on ways to make that happen more efficiently. Last week, Energy Secretary Steven Chu (who holds a Nobel Prize in physics) announced a slew of reforms to how the department doles out money, and a department official says more are on the way. The goal: streamlining the process so stimulus dollars can get spent sooner.
Many have posed the economic crisis as an opportunity for green revolution, and at a roundtable discussion on energy yesterday at the Newseum, the economy/energy/environment nexus was on the tip of many tongues.
“We have a plan going forward where we can reduce what could have been years down to months, and we feel very strongly that this thing will work,” Chu said of DoE spending as luminaries such as Bill Cinton, Al Gore, T. Boone Pickens, Senate Majority Leader Harry Reid, and House Speaker Nancy Pelosi listened.
Chu’s reforms include rolling appraisals of applications for loans and funding, using outside contractors to underwrite loans, more staff and resources to process applications, and simplifying application paperwork. Chu has appointed Matt Rogers, a former senior partner at consulting giant McKinsey & Company, who also worked on energy procurement reform as part of Obama’s transition team, to implement these reforms and oversee the stimulus money.
The stimulus placed $38.7 billion in the department’s hands, with heavy emphases on alternative energy, efficiency, and infrastructure modernization. DoE says it will start offering loan guarantees under stimulus provisions early this summer, and that 70 percent of the stimulus cash will be spent by the end of next year.
To hear politicians and activists talk about the timing of stimulus cash flow, “now” seems to be the only acceptable answer. A significant part of Chu’s job, so far, has been changing the way the department operates in order to make that happen.
I'm sure that new, entrepreneurial types (vetted, of course), will get the lion's share of the money. After all, we are now operating in a new, improved fashion. Forget the old way of thinking. Campaign contributors and wealthy folks (the usual suspects) won't see a nickle of this money. Wishful thinking.
By the way, Barack, what happened to that line-item veto you talked about during the campaign? Have not heard that mentioned at all since election day.
I'm sure that new, entrepreneurial types (vetted, of course), will get the lion's share of the money. After all, we are now operating in a new, improved fashion. Forget the old way of thinking. Campaign contributors and wealthy folks (the usual suspects) won't see a nickle of this money. Wishful thinking.
By the way, Barack, what happened to that line-item veto you talked about during the campaign? Have not heard that mentioned at all since election day.
I like how Good includes “(who holds a Nobel Prize in physics)” to lend some kind of weight or credibility to Chu. I'm sure Chu's accomplishments in physics are laudable, but that has nothing, nothing at all, to do with managing a bureaucracy and allocating its resources. Fatal Conceit, anyone?
That said, given the time sensitivity of the stimulus, I'm sure its supporters will be excited about this sort of thing.
This concern over cronyism seems silly and useless. First of all, who is better prepared to act upon receipt of federal funding than someone such as T. Boone Pickens, who already has the necessary amount of capital to make a significant and immediate contribution to our renewable energy resources. Secondly, to think that this sort of thing (cronyism via government contacts) wouldn't happen in the same way in a society with extremely limited government interference (cronyism via business contacts, perhaps leading to monopolization via clique, a la the Duponts, the Morgans, etc.) is a little dense. Government, in this case, is simply a powerful party with a great deal of accesible capital, thus their economic interactions are little different than that of any other economic or financial power. The simple answer here is that entities in power generally act to consolidate their power, thus Pickens goes to the government for contracts, preferential treatment, etc. My central gripe with a wholly libertarian socio-economy is that whereas government is at least somewhat accountable to the polity, business is much less so. I could go on and on, but I'll leave it at that. Feel free to respond “robustly.”
p.s. – I'm tired of “robust” the adjective and “robustly” the adverb. Both Holder and Obama seem to feel an obligation to modify every possible part of speech with the word.
Andrew, There is in fact variation in the degree to which governments involve themselves in economies and thereby make themselves targets of capture. If you're denying that there such variation, then you're just wrong. If you have been following this blog, you see that I have no gripe with government per se. I also want government to be accountable, which is one among many reasons it needs to be limited. We are in fact moving in a direction of an even more corporatist system. If the source of your complacency about this is inevitable, then I'm sure you're wrong.
I certainly wouldn't deny variation in “the degree to which governments involve themselves in economies.” I should also add that I have no fondness for corporate welfare or the subsidization of particular industries due to the influence of aggressive lobbying. However, I wonder if you could illuminate for me (no sarcasm intended) the manner in which existing mega-corporations would exist under your vision of limited government. I absolutely agree with you that for government to be truly accountable it must limited, but what is there to thwart the growing scope of a corporatist system? I'm not suggesting that big government is a necessary foil to big business, nor do I believe that the existing collusion is tolerable, but I've yet to find anyone addressing the negative implications of corporatism from a libertarian perspective. Maybe you could direct me to some helpful reading material?
What a great point! If only Chu had any kind of experience in management or resource allocation…
Is there any irony at all to posting this on the internets? This distributed packet network designed and built by a similar-seeming small group of technology czars at DARPA?
Yes, I know Will that funding can do bad. On the other hand, of all places to suggest it always goes bad …
I may have peculiar views for a libertarian. But I think there are terrible agency problems inherit in the current structure of the corporation, which are partly responsible for the financial collapse, so I would consider major reforms to the laws that constitute the corporate form. But I don't know enough about it to say much very specific about it.
My favorite idea for limiting favor-seeking behavior, which I understand could only be imperfectly implemented, would be a constitutional amendment requiring generality or non-discrimination in government spending. Basically, a subsidy is legal only if everyone gets it.
Here's our recent Cato Unbound symposium on corporatism.
http://www.cato-unbound.org/archives/november-2…
Here's James Buchanan arguing for Hayek's generality amendment.
http://www.cato-unbound.org/2005/12/05/james-m-…
I hope you find it useful.
I love the Internet! But the Defense Department wasn't trying to give me a way to Twitter my pals, that's for sure. I'll be equally delighted if green investment somehow stumbles into the cure for the common cold, but is that the idea?
I also don't think it's ironic that my entire education was provided by state institutions, yet I think education would be better if it wasn't provided so much by state institutions.
damn these friedmanites and their shock doctrine!
I think this might be a moment when we pause to consider what “good government” would look like, as opposed to the recent icons (“big government” or “small government”). I believe you've touched on what “good government” might mean in recent posts, Will.
I think if we can get a DARPA-type guy into DOE, with guts and good judgment, that will be the best for us. DARPA was dealing with the millitary-industrial complex, after all, and they managed to fund some good projects with small money. They achieved leverage.
> And someone please tell me how speeding up the process of picking winners doesn’t simply make well-prepared regulatory capture specialists like T. Boone Pickens (whose PR blitz seems to have worked to get him into the DoE inner circle) richer simply because they’ve got the resources to hoover up contracts.
It won't make them richer. They crowd out any competitors at all times, always. They would get the lion's share no matter how slow the process is.
A quicker process will just get the same money to them, quicker. They spend less time holding open their wallets, reducing the risk of hand cramps.
BTW, they were trying to create a “research network” and succeeded beyond their dreams.
I disagree. Speed matters. The contracting process can recognize merit. But the costs for smaller but more meritorious firms to quickly turn around good proposals is relatively higher. So speeding it all up increases the likelihood of even lower returns from government investment and the likelihood that Pickens ends up with a bigger share of the booty.
Agreed. Which is to say that the expected probability of the results they got was basically zero. So, interesting question, is government investment any more likely than private investment to produce “black swan” innovation? I think that is perhaps the only semi-plausible argument in favor of it.
That's begging the question. There are perfectly reasonable mental models of this situation where the exact opposite outcome occurs (where lowering the “activation energy” required to apply for funds leads to a relatively higher proportion of funds going to smaller-and-worthier applicants, which leads to better returns on government investment (it may also lead to more money, in absolute terms, in Pickens pocket… but if our goal is stimulus and not “screw T. Boone Pickens,” that might be a necessary evil)).
Let me take a crack at it.
Perhaps the major lesson of the 1990s in Silicon Valley was that a 'portfolio approach' to investment in high-tech startups works adequately well. Sure – there were the Pets.com, Boo.com and Webvans. But there were also Paypal, EBay, and Amazon. Most significantly, we all learned that the return on investment in startups proved extremely hard to predict up front.
At first (late 1980s – early 1990s) VCs took more conservative approaches. Yet for every Oracle and Sun there was a Next or massive over-procurement in fibre. More permissive times saw remarkably similar rates of success. In the end the VCs were (and still are) shoveling money out with pretty minimal attention to even trying to 'pick winners'. They don't want out and out frauds, but if you have a half-way plausible business plan (customer? product? risks? budget? project plan?) they are usually good with the cash.
The lesson is that thinking too hard about things wastes time. And what you don't want are a small number of mega-projects. Rather, you want a large number of small to medium sized projects, which implies a larger number of due diligence and oversight teams — exactly the management structure the piece suggests Chu is putting place.
Rather, you want a large number of small to medium sized projects.
Amen, brother! All growth and innovation comes from smaller, nimbler companies, not to mention new jobs. With few exceptions, large corporations either cut jobs or move them overseas to enact cost savings. They get the wagons in a circle and their idea of innovation is a new spin or lobbying to preserve the status quo in whatever industry their failing in (auto? finance?).
Rather, you want a large number of small to medium sized projects.
Amen, brother! All growth and innovation comes from smaller, nimbler companies, not to mention new jobs. With few exceptions, large corporations either cut jobs or move them overseas to enact cost savings. They get the wagons in a circle and their idea of innovation is a new spin or lobbying to preserve the status quo in whatever industry their failing in (auto? finance?).
There's a great book called “Where Wizards Stay Up Late”. I think it shows that some smart people in the 40's, 50's, and 60's, visualized something like out internet. They built it. When I say “succeeded beyond their dreams” I mean less in the tech achieved, but more in the follow-on market and economies of scale.
Isn't that exactly what we want again? If there are any energy technologies around the corner, and if the time is right to seek them – I'm saying do it, and then step back for the commercialization phase.
(Check Vannevar Bush on “as we may think”)
I was watching the pilot of “The Time Tunnel” recently. Lots of irony there, streaming it over household Wifi … esp. when they send someone “to the history computer” to learn the exact hour of the Titanic's impact.
I'm watching their pilot on a computer that can the wikipedia “history computer” to tell me that.
Oh, they chose a high number for their 1968 series. They said the Time Tunnel cost $9B if i recall correctly. My history computer cost $600
T. Boone Pick-your-pockets is absolute slime.
A billionaire who wants checks from US taxpayers so he can line his pockets. Hey, retard, if your ideas are so good you would be able to use your own capital or raise more to implement them. If you need free money from the government, it means your ideas suck.
T. Boone Pick-your-pockets is absolute slime.
A billionaire who wants checks from US taxpayers so he can line his pockets. Hey, retard, if your ideas are so good you would be able to use your own capital or raise more to implement them. If you need free money from the government, it means your ideas suck.