Veronique de Rugy is a Doctrix of The Economy, says the Sorbonne, which is weird because the impression yr Wonkette gets from reading her column is that she learned everything she knows about economics from a cardboard cutout of Ron Paul’s left nut. Witness her latest on the ever-comical National Review Online’s The Corner, in which she argues that Tesla is great and all, but the really important thing is that Tesla is terrible.
Or rather, to be fair, the idea of Tesla is terrible. It’s the old joke: It works in practice, but does it work in theory? Actually, to be really fair (because this stuff is important) she argues that “the government shouldn’t be in the business of lending money to private companies” because “most of the money goes to companies that could have gotten capital on their own,” and some stuff about “distortions” which are awesome when a guitar is doing them, but bad for the economy. Yr Wonkette learned everything we know about economics from the internet, but we feel pretty confident that we can eviscerate these are-you-even-trying crusts of hoary free-market dogma quite convincingly!
Let’s start with the premise: “the government shouldn’t be in the business of lending money to private companies.” Allow us to rephrase this more accurately: “the government should put US companies at a disadvantage against global competition by not doing a thing that every other industrial economy does, BECAUSE I SAID SO!” No really, it’s because Veronique de Rugy said so: “I believe… that’s absolutely not the role of the federal government.” Got that, idiots? It should not matter that you won’t find a major industrial economy anywhere in the world where the government hasn’t directly supported private companies, because IT IS WRONG! It was wrong of Europe to give loans to its auto companies in the recession; it was wrong when Japan did it; wrong for Brazil, wrong for China, IT IS JUST WRONG! Better for US companies to fail with their heads held high than to “succeed” like a bunch of common criminals!
But maybe they wouldn’t fail! Maybe “most of the money goes to companies that could have gotten capital on their own.” In the case of Tesla, this appears true: CEO Elon Musk has said that Tesla didn’t absolutely need the DOE loan to stay open, but that it was a huge help in helping the company realize its full potential. But Tesla is a small company, and Musk is a billionaire — the only way Tesla was going to fail was if Musk lost interest in funding it. But remember GM and Chrysler?
Months into the financial crisis, rapidly running out of cash, the auto companies couldn’t find anyone interested in buying their assets. Even if they could, no banks were in a position to lend to would-be acquirers, nor would they provide the financing needed to keep the automakers operating during the Chapter 11 process. When G.M. filed for bankruptcy in June 2009, a Federal District Court ruled that the Treasury was the only potential source for the $15 billion in DIP financing G.M. needed to continue operating.
In case you were wondering what Veronica the Rug thought of this whole arrangement, it was “cronyism, cronyism, and cronyism… BECAUSE I SAID SO!”
And then there’s “distortions.” Hoo boy, conservative free-market types LOVE lecturing us on the evils of distortions. Let us clue y’all in on a little something: labeling this or that a “distortion” is a fucking useless way of analyzing an economy. There are good effects, and bad effects. Full stop. Obviously de Rugy doesn’t bother discussing the good effects of government support for private industry, but here are a few: development of technologies that are awesome but might not return the immediate profits private investors are seeking; insulation from exogenous shocks to the economy; maintaining parity with all the other countries who do this shit all the time because they don’t care what Veronique de Rugy thinks.
And the bad effects? De Rugy does not explain these in her column beyond saying they’re bad, so yr Wonkette went and found some testimony she gave Congress on the subject. She makes two arguments, one of which makes no sense at all: “When the government reduces a lender’s exposure to fund a project it wouldn’t have funded otherwise, it reduces the amount of money available for projects that would have been viable without subsidies.” Can someone please explain this in the comments, because huh? However she does make a critique that actually makes some superficial sense: “the data shows that private investors tend to congregate toward government guarantee projects, regardless of the merits of the projects.”
In other words, private investors are stupid, and we must protect them from their stupidity. Got it! The proper course is to let our national economy succeed or fail based solely on the activities of these stupid investors, who love to invest in government-backed projects despite the data cited by de Rugy in her testimony that government-backed projects default on their loans at a higher-than-average rate. Because it is Right, and Pure, obviously.
So we come to the critical question: Why are there so many well-educated economists making such transparently silly arguments against policies that seem to work pretty well? Cuz it gets them paid, duh! As you may have heard, there’s a class of people in this country whose interests don’t align with the goal of broad-based prosperity achieved by government spending. Most obviously, more spending on us means more taxes for them. But you shouldn’t forget about wages: high unemployment drives wages down by increasing competition for jobs, which means fatter corporate profits. And the rentier classes, who derive their incomes from the interest on loans, real estate, royalties for mineral extraction, and so forth — they don’t want the moderate inflation that will come from economic expansion because the amount they make is stipulated in contracts; it doesn’t automatically increase when wages increase. Michael Lind is great on this.
Where were we? Oh yeah, Veronique de Rugy: sowing ignorance and derping all the way to the bank. In case that’s too depressing, here is a video of a tiny monkey eating a noodle: