Forbes’ Paul Roderick Gregory has some advice for Obama’s Department of Energy from a former Soviet planner:
To: Jonathan Silver, Head of Department of Energy Loan Program Office
From: Alexander Vaibakov, Former Head Technology Planning, USSR State Planning Commission (Gosplan)
October 10, 2011
Dear Mr. Silver:
I see from the New York Times article “Market Risks Are Seen in Energy Innovations” that you could benefit from my over thirty years of experience with Gosplan (The USSR State Planning Commission). Apparently, Congress has given you the job of the central planning of new green new technologies. I cite your testimony: “Congress directed us to identify technologies that could be brought to market in an effort to leapfrog the United States forward and re-establish innovation leadership. Our job is to identify those technologies and build them out.” I appreciate your command of jargon and buzzwords. We were masters of that in Gosplan. With the Solyndra case heating up, you need to be able to speak so that no one understands you.
I sympathize with you. I can understand better than others, as a former state planner myself, how difficult your task is.
My last decade of work at Gosplan also required me to identify and bring on stream new technologies. Let me confess I introduced not one new technology, but believe me it was better that way. I did do some slight modifications of existing technology and rebranded them as new technologies. Maybe you should learn this trick.
Before that I worked in the material balances department, where we had to match supplies and demands for different products. Your testimony about electric cars and batteries tell me you have to worry about this problem as well.
So my work experience covers both matching supplies to industry demand and also identifying new technologies.
In both jobs, I learned the best way to balance supplies and demands was simply never to change anything. In fact, the worst thing that could happen was when some hot shot wanted us to try a new technology. Boy, did that mess up our balances. We had to throw out Nikita Khrushchev in 1964. He wanted us to plant corn everywhere and start production of chemical fertilizers. Our life became easier when more reasonable leaders took his place.
It looks like you are stuck with the job of central planning, which your big boss calls government-private partnership. After fifty years of planning we finally gave it up as a losing enterprise. But it looks like your boss wants to try his hand at it anyway.
Planning for you is more difficult than it was for us. Unlike us, you must plan in a market economy. You cannot force anyone to buy your new and marvelous technologies, no matter how well they save the environment or reduce that dreaded carbon footprint. People really do not know what is good for them, but you cannot do anything about that.
Not burdened by the marketplace, we could bury our mistakes. When we produced new machines and technologies that no one wanted, we simply ordered buyers to buy them. If they refused, we would not give them the other things they really wanted. No one knew about our mistakes. The pesky market means you cannot bury yours. Your producers, like Solyndra, who make things no one wants go bankrupt, and everyone will know.
Take your Solyndra problem and your oversupply of lithium batteries. In both cases, customers did not want to buy your product, even though, as you say, the factories were built on time and at the projected cost. Well, at least we did not have to worry about the Chinese producing the cheaper products that undercut Solyndra. After all, we had a foreign trade monopoly to handle all that. We also did not have a problem with selling our cars, even if they ran on electric batteries. We produced so few that our people stood in line for years no matter how bad they were.
The problem with the market is that you never know in advance what people want to buy. We could at least tell our companies what to produce and what to buy. We ordered the number of cars produced. We had no problem with determining how many batteries we needed, as you can see. You, on the other hand, must give money to build battery factories without knowing how many electric cars will be built to use the batteries. When the cars are not bought and you have too many batteries, the battery company goes under. Everyone knows about it, and you’ll be called before Congress, and Congress does not understand how difficult central planning is.
I do see that you are learning some of our tricks. If your loans to electric car producers cause them to produce too many, you can bribe consumers to buy more cars. That will solve the problem. If it costs you $20,000 to produce the car including the battery, just offer consumers a bribe of $10,000 or even $15,000 — just enough to get them to buy cars they do not really want.
We also did not have to worry about where the money was coming from. You see, we in Gosplan simply took the profits from those companies doing well and gave them to those that were failing. As I understand it, you cannot do this directly. I guess you’ll have to lobby Congress to take profits from the successful companies to give to those losing money. That’s what we did, but we did not have to bother with a Congress. Maybe you can figure a way.
You have found the right formula, I see, in at least one area. In your testimony before Congress you said that you can make “safe” loans to wind and solar power generators. In fact, you say, electric utilities are prepared to contract for this power even before you make the loan to build the windmills or solar generators. You appear to have learned another old Gosplan trick. You simply write a rule that says that utilities must supply a certain percent of the market from renewable energy, no matter what the price. Even if they pay 20 times more than for conventional energy, they still have to buy. You have definitely outwitted the market. It may make little sense from an economic point of view, but believe me, few will notice what you are doing.
In closing, let me say that I am available to consult with your central planners from the Department of Energy. I have a number of useful tricks up my sleeve that will hide your errors and give you what we used to call “an easy life.”
If your big boss could get rid of markets altogether, all you have to do is repeat the same plan year after year. Everything will balance. Nothing changes. Everybody just repeats what they did last year.
I look forward to hearing back from you.