When losing $535 million is smart

Markets tend to overshoot, and the same goes for public policy — when they act, they are rarely on the money, and more likely to go much too far, or nowhere near far enough. When fashion enters the picture, the over-shooting can become considerable. So it is with green energy — starting a few years ago, investors from around the world piled in with billions of dollars for various technologies; where the markets were not perceived to be responsive, the Chinese, German, Japanese, South Korean, Spanish and U.S. governments, among others, stepped in to help. More recently, we are seeing some remorse.

Venture capital investment in green technology companies is down sharply this year, write the Washington Post’s Juliette Eilperin and Steve Mufson. Great Britain is cutting back on subsidies for solar panels. In the U.S., it is harder to find bank financing, reports AOL Energy’s Shifra Mincer, and the political blowback continues from the collapse of Solyndra, the government-backed solar panel company from California.

On the last item — the bile-laden politics that surround the Solyndra bankruptcy, and a possibly lost $535 million government loan — we are starting to see pushback from the Obama Administration. Given the backdrop, it’s easy to grasp why: At a time everyone is clueless as to the source of the world’s next industrial boom, along with the accompanying jobs, leading Western and Asian governments are not prepared to simply abandon the one sphere where there is some consensus of potential.

In a speech at Yale, David Sandalow, assistant secretary for international affairs at the U.S. Energy Department, made the case for a government role in innovation when private sources of major invention — such as fabled Bell Labs — have almost all closed their doors.

Sandalow’s assertion is that a half-billion dollars is a lot of money, but that in approving the federal innovation loan program under President George W. Bush in 2005, Congress anticipated some degree of failure, and appropriated $10 billion to cover it. Solyndra falls into that category, he said. "Loans for innovative technologies involve extra risk. Many innovations are successful. Some change the world. But innovation is never a sure thing," Sandalow said.

The larger narrative is the rivalry for great power between the U.S. and China, so Sandalow predictably trotted out Beijing’s investment figures for last year — $30 billion in credit for solar panel manufacturers, he said (solar panel installation in Xinjiang, pictured above). Yet while the market corrects itself, Sandalow’s principal message is valid — U.S. industry in fact is increasingly sitting on the sidelines and watching for signs as to when to jump into the economy. Until it gets that signal, it will continue to preserve its huge and growing cash horde.