Monthly Archives: November 2014

Another comedy of errors when government tries to play venture capitalist

This project, in which the federal government attempts to unilaterally create a manufacturing industry in Oregon to produce politically-correct streetcars, really has it all.

As reported in the Washington Post, politicians, including then-Transportation Secretary Ray LaHood and Rep. Peter DeFazio (D), descended on Portland to join executives at a politically connected company in DeFazio’s state of Oregon, United Streetcar, to launch a boondoggle “meant to show how federal backing could spark a rebirth in American manufacturing.”  Whoops.  The effort has been a predictable failure for all of the usual reasons.

Most obviously, none of the luminaries seemed to consider whether the business-unfriendly locale of Portland could viably house such a manufacturing endeavor.  The company even had the fantasy to export its machines.  According to LaHood, “These are the first streetcars to be manufactured in America in nearly 60 years.”  No one seemed to wonder why, and apparently David Ricardo was unavailable to advise on the concept of comparative advantage.

Sure enough, the company couldn’t seem to muster the engineering expertise to be able to compete with other domestic and foreign competitors.  It tried the time-honored tradition of spreading out the supply chain—to “300 suppliers in 32 states,” each of which with a Congressman to keep the money flowing—but it backfired.

The politicians’ assumptions about how many people would actually want to ride the trains were inflated (as they always are).  Their assumptions about how many cities would jump on the bandwagon to build streetcars were wildly optimistic.  Their dreams of obviating local buyers’ pesky diverse preferences weren’t realized.  Officials piled on the usual rhetoric about how such mass transit projects would spur economic development along their lines.  LaHood admitted that, thanks to the essentially unlimited flow of stimulus money, cities didn’t really have to worry about prioritizing or managing projects with any discipline:  “we didn’t have to pick and choose.”

Meanwhile, other cities simply ignored better bids from overseas manufacturers to “buy American.”

Another left-wing local Congressman, Earl Blumenauer (D), proposed to double-down on the central planning:  the federal government should just buy a bunch of the cars (from, presumably, the same company in his district that has donated to his campaigns) and then give them to cities.  He lamented, in the Post‘s words, that the Federal government “essentially ceded the market in light-rail cars to big foreign competitors.”  Every aspect of this endeavor has been based on political calculations as opposed to market forces, which is apparently Rep. Blumenauer’s preferred economic model.  The Soviet experiment didn’t teach him any lessons about the likely result.

This episode serves as a potent reminder that when government imposes its utopian vision for how city-dwellers should live, then tries to implement industrial policy to pick winning companies, with minimal resource constraints, the results are always disastrous.  LaHood laments that “maybe our calculations weren’t right.”  When have they ever been?

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