FreedomWorks Fails Basic Math And Economics To Smear Renewable Energy Investments

Fri, 2012-07-06 17:11Farron Cousins
Farron Cousins's picture

FreedomWorks Fails Basic Math And Economics To Smear Renewable Energy Investments

The corporate funded, Libertarian/Conservative “think tank” FreedomWorks is doing their best to convince Americans that taxpayer-funded energy subsidies and loans are a waste of our resources. Of course, that doesn’t apply to the massive giveaways to the dirty energy industry, only to the federal loan programs established to invest in cleaner, renewable energy companies.

Touting the superiority of the so-called “free market” over the actions of the government, a recent report titled “Free Markets, or Government Knows Best?” by Wesley Coopersmith broke down the amount of money that the federal government has allocated to renewable energy projects, per the American Recovery and Reinvestment Act of 2009, and compared the amount of money given to the number of permanent jobs created by each company. Here’s what Coopersmith had to say:
  

Under the 1705 loan program, taking up half of the funding form the Loan Guarantee Program, 2,378 permanent jobs were claimed to be created. If you do the math right, this works out to costing the taxpayer $6.7 million per job created. I don’t know about you, but if it takes the government $6.7 million to create one permanent job, something is wrong.

The combined amount of money given to alternative energy companies, through the 1705 and 1703 Loan Programs, totals around $19.2 billion. According to the US DOE, 3,498 jobs have been or will be created because of these loans. This comes out to almost $5.5 million in cost per one permanent job created.

Unfortunately, these projected permanent jobs created are an overestimation, if you take away the jobs lost due to six of these companies going bankrupt. Solar Millennium Inc., LSP Energy LP, Ener1 Inc., Beacon Power Corp, Abound Solar, and Solyndra LLC combined have received over $3.5 billion from the Logan Program yet have produced zero jobs and hurt the fragile U.S. economy.
 

Coopersmith also provided a helpful chart that shows exactly how much money each (of a select few) company received and how many permanent jobs were created. For credibility purposes, Coopersmith even linked back to the U.S. government’s official website and used their own numbers on permanent jobs per company, as well as how much each received.

The problem with Coopersmith’s analysis is that he omitted several important numbers in his calculations. For example, he only lists the permanent jobs created by each company, failing to add in the number of construction jobs that would be created by each project. He also used the total amount of money that had been allocated to each company, not the amount that had actually been paid.
  

Solyndra is the best example here – Coopersmith says that zero jobs were created by the company because of their bankruptcy, resulting in a net of zero jobs and an investment loss of $535 million (the total amount allocated to Solyndra.) However, the company actually only received $70 million, making Coopersmith’s entire calculation of $6.7 million per job created inaccurate.

The underlying argument that FreedomWorks is trying to subtly slip into our brains is that “many” of the companies that received these loans, like Solyndra, are now bankrupt and out of business. This is meant to show us that the government has no idea what they are doing.

However, investment bankers typically use a rule of 1/3, meaning that the average investor can expect one-third of their investments to fail. Considering that the government’s loan programs have given money to 33 companies and only six of them have gone bankrupt, the government is running an average better than that of a professional investment banker. Score one point for the government.

But in order to make his argument that “free markets” can do a better job, Coopersmith then shows us a chart with the number of total jobs created by the dirty energy industry – an industry he claims is costing the U.S. taxpayer “a whopping zero dollars!” The chart can be viewed here, and here’s the summary from Coopersmith:
  

These nine companies alone, granted they are some of the larger energy producing companies in the country, provide our country with nearly 303,000 jobs while at the same time costing the taxpayer a whopping zero dollars!
 

Among those companies listed are four of the top five oil companies in the U.S.BP, Exxon, Chevron, and ConocoPhillips (Royal Dutch Shell was omitted). These companies, as Coopersmith would have us believe according to his own numbers, employee a staggering 270,000+ employees in the United States, and aren’t costing the taxpayers a dime…unless of course you factor in the $2 billion a year in federal subsidies and tax breaks that the top five oil companies receive every year, and the additional $5 billion a year that flows to other companies within the dirty energy industry.

That gives us a total of $7 billion a year – straight out of the pockets of the American taxpayer – that is flowing to these industries. And not only did Coopersmith grossly overstate the numbers of jobs each company produced, but he failed to make the same distinction of “permanent jobs” and “temporary jobs,” as he did with the renewable energy company chart.

This means that he either lied about his numbers for the oil companies, or he included temporary jobs as well. Either way, the math that Coopersmith failed to do shows that the top five oil companies in the United States employ 248,000+ Americans, at a cost of more than $8,000 every year to the taxpayers. That’s an $8,000+ difference between Coopersmith’s number of 0.

But the poor math skills and misrepresentation of facts are really just the jumping off point. Again, the goal of the piece, and the goal of FreedomWorks, is to convince us that the free market can do it better than the government. Here’s what Coopersmith has to say:
  

So what’s the issue? Why can’t the government do just as good of a job at producing energy that private sector companies can? To answer this question we must go back to the fundamentals of economics. In the real economy, for businesses to survive they must make a profit by meeting the demands placed upon them by you and I–the consumers. What the government is trying to do is create a demand for alternative energy that is simply not there. Instead of responding to the demands of consumers, the government has its own agenda it wants to force into the market. That agenda is the reduction of greenhouse gases via green energy. Unfortunately for them such a market does not exist so companies like Solyndra and Beacon Powers go out of businesses costing taxpayers literarily billions of dollars.
 

The problem with FreedomWorks’ argument is that the free market doesn’t actually exist in the energy industry. By definition, a “free market” is one that operates without any interference or aid from the government. Since all forms of energy are receiving subsidies of some form or fashion, and all are regulated in some way, the “free market” principles do not apply to the industry.

Furthermore, Coopersmith’s claim that the “basic” laws of supply and demand are to blame for the failure of renewable energy programs is preposterous. He tells us that there is a lack of demand, when really there is a lack of supply. Sure, there are plenty of renewable energy projects and companies pumping out solar, wind, geothermal, and other clean forms of energy – the problem is that there is no infrastructure to bring these energy sources to the mass market.

In order to have a truly capitalist-driven, free market, consumers have to be able to freely choose products. In most of the country, consumers only have one choice for electricity for their homes – one company who determines where their electricity comes from. Without a green infrastructure in place to compete with coal-fired power plants and the like, consumers have no say in where they get their power.

Again, that’s not a demand problem, it is a supply problem. In fact, polls show that 77% of the country believes that we should be developing renewable energy sources to provide electricity, which tells us that there is ample demand, we’re just lacking a viable delivery system.

FreedomWorks and Coopersmith would have us believe that simply because the members of the dirty energy industry are making huge profits, and a few renewable energy companies have gone bankrupt, that this shows that private industry can do it better than our government.

But amidst all that money FreedomWorks mentions these companies are raking in, they left out another tiny little detail – the cost of their negligence. A great example is the Deepwater Horizon oil rig explosion and subsequent oil leak into the Gulf of Mexico. Taxpayers (so far) are on the hook for $10 billion to clean up that mess, while the company is expected to have to pay more than $35 billion for the cleanup. That total doesn’t include the settlements that the company has to pay, which already total at least $20 billion.

The Exxon Valdez disaster cost taxpayers millions of dollars, and resulted in hundreds of millions of dollars being lost in other industries. Every oil spill, every mountaintop blown off to extract coal, every fracking earthquake, every contaminated waterway costs both taxpayers and the company responsible for these disasters time and money. None of these were factored into FreedomWorks’ equations.

Given the track record of the dirty energy industry when it comes to creating irreversible disasters that destroy both our environment and our economy, I’m going to have to disagree with FreedomWorks that the private sector knows best.  Money isn't the only measure of success.

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