Coyote Blog

Megan McArdle looks into where all that green seed capital is going.  It turns out it is going the same place most other government "investments" go -- to large, well-connected companies who don't actually need the money but will sure appreciate it come election time.

But I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital.  Established utilities, large multinational auto manufacturers, a global warehouse owner.  The bulk of these funds are not going to rectify some gap in the capital markets.  They're straight subsidies to huge corporations.  Even some of the smaller firms/deals are owned by large corporations like Total SA.

Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O'Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.

For years, socialists (and some sloppy capitalists) have operated under the assumption that production only requires labor and capital.  Socialists assume that if a government steals both, it can produce just as well as any of those greedy private companies.  Hugo Chavez has been operating under this assumption, but he has run into a problem:

The companies ceding control included BP Plc,
ConocoPhillips, Exxon Mobil Corp, Chevron Corp, France's Total SA and
Norway's Statoil ASA. All but ConocoPhillips signed agreements last
week agreeing in principle to state control, and ConocoPhillips said
Tuesday that it too was cooperating.

While the state takeover was planned well ahead of time, the oil
companies remain locked in a behind-the-scenes struggle with the
government.

Chavez says the state is taking a minimum 60 per cent stake in the
Orinoco operations, but he is urging foreign companies to stay and help
develop the fields.

They have until June 26 to negotiate the terms.

The companies have leverage with Chavez because experts agree that
Venezuela's state oil company, Petroleos de Venezuela SA, cannot
transform the Orinoco's tar-like crude into marketable oil without
their investment and experience.

In other words, beyond their workers and plant and equipment, he needs their brains.  And I hope the American companies refuse to give in to him.

I made this point earlier in this critique of socialism:

Hanging out at
the beach one day with a distant family member, we got into a
discussion about capitalism and socialism.  In particular, we were
arguing about whether brute labor, as socialism teaches, is the source
of all wealth (which, socialism further argues, is in turn stolen by
the capitalist masters).  The young woman, as were most people her age,
was taught mainly by the socialists who dominate college academia
nowadays.  I was trying to find a way to connect with her, to get her
to question her assumptions, but was struggling because she really had
not been taught many of the fundamental building blocks of either
philosophy or economics, but rather a mish-mash of politically correct
points of view that seem to substitute nowadays for both....

I
picked up a handful of sand, and said "this is almost pure silicon,
virtually identical to what powers a computer.  Take as much labor as
you want, and build me a computer with it -- the only limitation is you
can only have true manual laborers - no engineers or managers or other
capitalist lackeys"....

She
replied that my request was BS, that it took a lot of money to build an
electronics plant, and her group of laborers didn't have any and
bankers would never lend them any....

I
told her - assume for our discussion that I have tons of money, and I
will give you and your laborers as much as you need.  The only
restriction I put on it is that you may only buy raw materials - steel,
land, silicon - in their crudest forms.  It is up to you to assemble
these raw materials, with your laborers, to build the factory and make
me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how.  I need someone to tell me how to do it"

And
that is the heart of socialism's failure.  For the true source of
wealth is not brute labor, or even what you might call brute capital,
but the mind.  The mind creates new technologies, new products, new
business models, new productivity enhancements, in short, everything
that creates wealth.  Labor or capital without a mind behind it is
useless.

I offered more critiques of state-run companies here and here.  My more complete post on this topic his called wealth creation and the zero-sum fallacy.

My mom, who lives in Houston, spent much of today trying to get out.  Getting on Interstate 10 about 4AM, she doesn't seem to have made even 60 miles my 8PM at night, where she just plain couldn't drive any more.  Since she somehow got separated from my sister in their driving convoy, she pulled to the side of the road to rest.  Fortunately, a local minister and a fireman took her to a local shelter at a fire station to sleep tonight, where she reports all is well (many props to those folks).  Hopefully she can make it to San Antonio tomorrow, and hopefully they have not given away her reservation.

She reports that gas availability seems to worry folks the most.  No one was running their air conditioning, to save gas, and traffic was moving so slow that several were pushing their cars with the engine off down the road rather than running the engine.  There is apparently gas in inventory in the area, but tank trucks can't get to stations since inbound traffic is blocked.  Also, cars seem to be taking literally hours just to get to the next exit.  Yuk.

Since I grew up in Houston and know the people there fairly well, I can make one prediction:  They will evacuate this time, if only as part of the post-Katrina panic, but if the city is not leveled they are not going to do it again any time soon, no matter what is coming at them.

Update: Mom is back on the road this morning, and traffic is moving much better.  She reports she is 99 miles from San Antonio and has a half tank of gas.  That means in her first 27 hours of travel she made less than 100 miles of progress.  She says that there are hundreds of cars by the sides of the road that have run out of gas.

Final Update:  Mom reached SA OK, and in fact as of Monday morning is back at home in Houston.  The power is on, the cable is running, and the house is fine.  Mom lives does not live in a low-lying area, and her house has survived many hurricanes.  I know that Rita veered off from Houston, but was it really safer for her to be on the road for 30 hours, with no place to sleep at night, worrying every minute about running out of gas?

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