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Thread: Obama-backed electric car battery-maker files for bankruptcy

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by Free_Radical View Post
    In other words, they're investing capital in speculative enterprises with the expectation that it'll generate a return of some sort. Sounds like they think they're a venture capital firm.
    No... Helping companies capture positive externalities (or pay for negative ones they create) is a fundamental role of government in a capitalist society. Every capitalist economist all the way back to Adam Smith himself will tell you that.

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by teamosil View Post
    The thing you're missing IMO is the positive externalities. A company which is producing value when you take the positive externalities into account is "worth saving" even if it will never be profitable in the market, which doesn't take those externalities into account.
    And that is where Obama failed. Solyndra was NOT producing value. In fact, it's process was not competitive with anybody else in the same market, and it was doomed to failure, no matter how much money could be thrown at it. I am not against Obama steering taxpayer money to companies that need it, and can eventually pay it back, but Obama has not gone about this in any kind of intelligent way.
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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Just for background in case I'm using terms people aren't familiar with:

    What an externality is is a cost or benefit from something a company or person does that they don't pay or get. There are negative externalities and positive externalities. A negative externality is a cost that a company foists on others, a positive externality is a benefit that the company gives others that it can't charge for. In short, externalities are the things that the market doesn't take account of.

    An example of a negative externality would be a corporation that is manufacturing widgets. It has two options for how to make the widget. One process costs $10, but involves dumping waste in the lake. That waste causes $10 worth of damage to fishermen, property values around the lake and water treatment plant costs. So really it is costing $20 for every widget they make, even though the company only pays $10. The other option is a process where they could make it for $15, but not dump waste in the lake. Left to it's own devices, the company will just do the $10 process, but that is actually the less efficient way to make the widgets. So, government has to step in. It can either forbid dumping waste in the lake or it can make the company pay $10 per widget to pay for cleaning it up, which has the same effect.

    A positive externality is, for example, a shipping company decides they need a lighthouse on a particular rock. That benefits all the other shipping companies too, but there is no way to make them chip in, so the company that builds the lighthouse is unable to recoup the whole benefit of their work.

    Every economist alive, going all the way back to Adam Smith himself, has agreed that government needs to regulate externalities. Otherwise it is just inefficient. The market doesn't account for them in any way, so the market just acts like they don't exist.

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by teamosil View Post
    No... Helping companies capture positive externalities (or pay for negative ones they create) is a fundamental role of government in a capitalist society.
    Yes, they are investing capital in speculative enterprises with the expectation of generating a return, in this case, "capturing positive externalities". How is that different from a venture capital firm?

    Every capitalist economist all the way back to Adam Smith himself will tell you that.
    Please quote Adam Smith and every "capitalist economist" as saying, "Helping companies capture positive externalities (or pay for negative ones they create) is a fundamental role of government in a capitalist society."

    Brian

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by Free_Radical View Post
    What "positive externalities" are you referring to?
    Green technology has huge positive externalities. Reducing global warming, positioning the US to lead the coming boom in green tech, reducing oil dependency, preparing us for when oil starts to run short, etc. All the benefits created by these companies that they can't capture- that they can't charge for- are positive externalities.

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by teamosil View Post
    Just for background in case I'm using terms people aren't familiar with:

    What an externality is is a cost or benefit from something a company or person does that they don't pay or get. There are negative externalities and positive externalities. A negative externality is a cost that a company foists on others, a positive externality is a benefit that the company gives others that it can't charge for. In short, externalities are the things that the market doesn't take account of.

    An example of a negative externality would be a corporation that is manufacturing widgets. It has two options for how to make the widget. One process costs $10, but involves dumping waste in the lake. That waste causes $10 worth of damage to fishermen, property values around the lake and water treatment plant costs. So really it is costing $20 for every widget they make, even though the company only pays $10. The other option is a process where they could make it for $15, but not dump waste in the lake. Left to it's own devices, the company will just do the $10 process, but that is actually the less efficient way to make the widgets. So, government has to step in. It can either forbid dumping waste in the lake or it can make the company pay $10 per widget to pay for cleaning it up, which has the same effect.

    A positive externality is, for example, a shipping company decides they need a lighthouse on a particular rock. That benefits all the other shipping companies too, but there is no way to make them chip in, so the company that builds the lighthouse is unable to recoup the whole benefit of their work.

    Every economist alive, going all the way back to Adam Smith himself, has agreed that government needs to regulate externalities. Otherwise it is just inefficient. The market doesn't account for them in any way, so the market just acts like they don't exist.
    I know what an externality is. What "positive externalities" does "green" energy produce?

    Brian

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by Free_Radical View Post
    I know what an externality is. What "positive externalities" does "green" energy produce?

    Brian
    There are a lot of externalities in green technology, but the problem with Obama is that he is not looking at the negatives as well as the positives, in regard to invividual companies. In the case of Solyndra, they had a process of producing solar technology that was not competitive with other companies in the same market, and thus doomed to failure.

    What Obama is doing is much like throwing crap against a wall. Some of it will stick, but a lot of it will fall to the floor and be lost. Except Obama is not doing this with crap, but with OUR MONEY......... Well, after a few more years, crap might be worth more. LOL.
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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by Free_Radical View Post
    Yes, they are investing capital in speculative enterprises with the expectation of generating a return, in this case, "capturing positive externalities". How is that different from a venture capital firm?
    It's different because positive externalities don't necessarily align with success in the market. You can measure how wisely a vc firm invested by looking at how well the companies they invest in do on the market, but you can't when you're looking to boost up companies that create positive externalities rather than profit.

    Quote Originally Posted by Free_Radical View Post
    Please quote Adam Smith and every "capitalist economist" as saying, "Helping companies capture positive externalities (or pay for negative ones they create) is a fundamental role of government in a capitalist society."
    Honestly, that's just basic economics. It isn't something controversial. What is controversial sometimes is whether a particular externality really exists, whether government should limit itself to the most extreme externalities only, etc. But everybody agrees that it needs to make companies internalize the costs of negative externalities and help them capture the benefits of positive externalities. For example, patent law is a way that the government helps companies capture the benefits of positive externalities.

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by danarhea View Post
    There are a lot of externalities in green technology, but the problem with Obama is that he is not looking at the negatives as well as the positives, in regard to invividual companies. In the case of Solyndra, they had a process of producing solar technology that was not competitive with other companies in the same market, and thus doomed to failure.
    Hindsight is always 20-20. Certainly there were some people that claimed that before the government invested in them, but there were also lots of people that thought it was a very solid technology. In hindsight Fox and whatnot spam the comments made by people that didn't believe in it of course, but that doesn't mean that would have been clear in advance. Some VC firms in high tech industries aim for a 5% success rate. Meaning that only 1 in 20 companies they invest in makes it. You can't really expect that government will see 100% success. Especially since VC firms' goals are precisely aligned with market success where the government's goals are not.

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    Re: Obama-backed electric car battery-maker files for bankruptcy

    Quote Originally Posted by teamosil View Post
    Green technology has huge positive externalities. Reducing global warming...
    Totally speculative.

    ...positioning the US to lead the coming boom in green tech...
    Speculative.

    ...reducing oil dependency...
    This only creates a "positive externality" if the benefits outweigh the cost. Perhaps on a very, very long time scale, this will be the case, but in the short to medium term, it has cost us billions and hasn't reduced our dependency one bit. Moreover, oil and natural gas are versatile, cheap, and relatively abundant, so there is no pressing need to transition away from them at this point. The amount of capital we're wasting on "green energy" could be put to better use developing the extraction of shale deposits in our country, and when you factor in this opportunity cost, the investment in green energy arguably creates a negative externality in the form of higher energy prices and greater scarcity.

    ...preparing us for when oil starts to run short, etc.
    Seems like you already covered that with "reducing oil dependence", and that won't be for a very long time.

    All the benefits created by these companies that they can't capture- that they can't charge for- are positive externalities.
    The benefits you cite are mostly speculative. At present, we have numerous viable energy sources (two of them domestic) that we should be exploiting aggressively. The opportunity cost associated with green energy investment, in my opinion, creates a negative externality in the form of higher energy prices and slower economic growth.

    Brian

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