Crony capitalism is an emerging political issue. From socialists like Sen. Bernie Sanders (I-VT) to conservatives like Sen. Mike Lee (R-Utah), there has been a bipartisan call to end crony capitalism. Both parties want to stop wealthy individuals from using the government to underwrite bad investments.
When the 2008 crash hit, voices on the right and left were outraged that the Bush administration and Congress allowed a bailout of Wall Street with no repercussions for those who got us there. Liberals called for criminal prosecutions and conservatives called for no government bailout.
Billionaires using friends in the federal and state governments to underwrite risky investments from failed green energy programs to precarious space exploration are not a new phenomenon, yet that practice seems to getting more pervasive and involving more taxpayer???s money. Rich individuals love the idea of investments where they make money if the idea or technology works, and the taxpayers pick up the tab if it fails.
The many companies run by Elon Musk are excellent case studies in cronyism. Recently, members of Congress have raised concerns about the lack of oversight into SpaceX???s, Musk???s space exploration company, regarding a launch failure it suffered in late June. However, SpaceX???s use of government funding, subsidies and tax credits is the big scandal.
A June article by Los Angeles Times, ???Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies,??? provided evidence that the government is loading up Musk???s three companies, SpaceX, Tesla and SolarCity, with taxpayer-backed subsidies. This is not fair to Americans who are hurting right now that they are being used to pad the pockets of a guy who is already super rich???yet his companies would be belly up without massive infusions of money from taxpayers.
The Times reported ???Tesla and SolarCity continue to report net losses after a decade in business, but the stocks of both companies have soared on their potential; Musk’s stake in the firms alone is worth about $10 billion.??? Of course the stock is soaring, because the government has subsidized the billionaire???s companies with even more billions. Investors know the government is insuring that money will flow into a crony???s company and that makes it a good bet.
SolarCity has been the beneficiary of $750 million from the New York taxpayers to build a solar panel factory in and has secured a lease for $1 a year with no property taxes. The federal government has provided direct grants of about $500 million. Solar analyst Travis Hoium had this to say about SolarCity: ???Simply put, the company wouldn’t exist in the form in which we now know it without the government funding.???
Tesla motor company has secured $1.3 billion in incentives to help build a battery plant in Nevada. USA Today reported that the Tesla $127,000 deluxe electrical performance sedans were undrivable because of a tech glitch. The government is subsidizing the manufacture of cars that would cost the average American about two and one half years to buy. The cars are very expensive and they don???t seem to work well. I would not invest in this company, yet it seems that the Obama Administration has already made that decision for me when they gave them $452 billion as part of the Stimulus plan.
SpaceX company has been awarded billions of dollars in government contracts with much of the work yet to be completed. For example, the SpaceX rocket that recently exploded was being launched in an attempt to deliver cargo to the International Space Station as part of a $1.6 billion contract. While Congress has questioned the technical investigation into the failure, SpaceX continues to compete for government contracts.
There have been multiple articles recently on SpaceX purchasing $165 million of SolarCity bonds. Elon Musk owns more than 20 million shares, which is 20 percent of SolarCity. Musk will personally benefit substantially if the SpaceX purchase brings other investors to SolarCity.
It is unusual for a company to utilize cash to invest in the debt of a higher risk company, because it is not a good business decision. It may be good for one man, Musk, but it is not a smart investment for everybody else.
In June 2014, the NASA Office of Inspector General found that SpaceX could not identify the costs incurred and was not able to separate the amounts billed and collected for Space Act Agreement contracts. These are the very same type of contract NASA issued to SpaceX to launch cargo to the International Space Station.
A grand total of $4.9 billion in government money has been entrusted to Elon Musk from the taxpayers. Let???s hope that the government does not throw more good money after the bad and continue to prop up Musk???s companies that are not making any money.
Brian Darling is a former staffer for Sen. Rand Paul. Follow him on Twitter @BrianHDarling