The Heritage Foundation Is Wrong In Opposing All Federal Loans and Loan Guarantees

by Richard Caperton

This year, hundreds of small businesses will expand operations with money borrowed from the government. Thousands of 18-year-olds will pay their freshman-year tuition with money borrowed from the government. Farmers will plant crops, using money borrowed from the government.  And, countless communities in developing countries will clean their water with American-made products, or distribute life-saving American-made medications, which they will buy with money borrowed from the government.

But, according to the Heritage Foundation, the bankruptcy of one company renders all of this irrelevant.  In an interview that aired today on E&E TV’s OnPoint program, Heritage senior policy analyst David Kreutzer offers this outlandish answer:

Monica Trauzzi: Under what circumstances then should the government be giving loans?

David Kreutzer: I don’t think the government should be giving loans. That should not be a business…. They’ve proven over and over that they’re not good at this….

In fact, the government has a strong track record of running loan and loan guarantee programs. The Export-Import Bank, for instance, issues loans and guarantees to borrowers in foreign countries, so that they can buy American-made goods. Not only does Ex-Im support job creation across the U.S., but it actually makes money for American taxpayers. Each year, Ex-Im returns money to the Treasury because it brings in more than it spends.

Or, take the Small Business Administration, which provides low-cost loans to growing American companies. SBA’s support has helped Nike, Apple, and FedEx grow into global powerhouses.

Or, consider Chrysler and General Motors. Both companies borrowed money from the government to avoid catastrophic bankruptcies that would have reverberated throughout the economy, and both companies have paid back their loans in full.

Most relevant to Kreutzer’s argument, though, is the Department of Energy’s Loan Guarantee Program. Although Kreutzer derides it as a “bad way to allocate capital,” there’s no evidence backing up his claim that, “We’re going to get bad projects … at the expense of taxpayers.” In fact, the Loan Guarantee Program has backed dozens of innovative projects that will ultimately be strong investments for taxpayers.

While all the attention has been on Solyndra, DOE has enabled what will be the first commercial cellulosic ethanol plant in the U.S., the largest wind farm in the world, some of the largest solar arrays in the world, and the first nuclear power plant built in the U.S. in a generation.  Best of all, DOE’s guarantees will create more than 60,000 jobs all across the country, and will move us along the path to a lower carbon future.

But, Kreutzer ignores these benefits, and simply says, “The lesson here is that the political process is a bad way to allocate capital, because they allocate it according to political rates of return and not economic rates of return. We’re going to get investment where we shouldn’t have investment or we’re going to be subsidizing investment that would take place anyway and give firms additional profit at the expense of taxpayers.”

As a matter of ideological purity, this is all well and good.  But, as a matter of energy policy, it’s silly.

Markets allocate capital in response to a set of market conditions, some of which are created by government. Among these conditions, our government currently gives more than $4 billion a year in subsidies to the fossil fuel industry. Worse, we allow these companies to send millions of tons of carbon dioxide into air free of charge, even though the cost to society of this pollution is billions of dollars. And, we’ve been providing this leg up to the fossil fuel industry for at least 90 years.

The federal government has an impressive track record of making critical investments in small business, education, agriculture, and manufacturing, all of which have improved our country. The DOE Loan Guarantee Program is yet another success story in this long line.

— Richard Caperton is a senior policy analyst with the energy team at the Center for American Progress

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2 Responses to The Heritage Foundation Is Wrong In Opposing All Federal Loans and Loan Guarantees

  1. Raul M. says:

    Shouldn’t D.C. Lobbyists afford their own safe and secure storm shelter as they do live and work there in the area and business does think that they are necessary for the proper functioning of the gov.
    Gov. Thinks they are necessary for the proper functioning of the gov. As in Keystone Way?

  2. Chris Winter says:

    The Heritage position:

    Massive subsidies to oil companies are OK, but subsidizing solar is wrong. And loan guarantees for nuclear power plants are fine (as is the Price-Anderson Act), but renewable energy sources don’t deserve them.

    Along with this, the government has no business picking winners and losers.

    Heritage, thy name is hypocrisy.

    I’d go so far as to say the headline on this post could safely have omitted the last eight words.