Far away futures

Another instance of Nevada getting cozy with corporations: http://tinyurl.com/z5d4bc6

Gov. Brian Sandoval called the Nevada Legislature into a special session in December that approved $210 million in tax subsidies and government spending to lure Faraday Futures, an international corporation owned by billionaire Chinese oligarch Jia Yeuting, to North Las Vegas. The company has a concept electric car to compete with Tesla, whose battery plant here in the North also received lavish subsidies.

No one really knows what this car the taxpayers have just gone into hock to lure here actually is. Supposedly it is an electric car that you somehow operate like a smart phone. Faraday promises to unveil the thing at the Consumer Electronics Show this month. The car (or whatever it is) will sell in the $100,000 range. Mr. Yeuting says all the right things about wanting to reduce China’s awful air pollution, but selling luxury electric cars to other Chinese oligarchs may not be the most efficient way to save the planet.

Republican Assembly district 25 candidate Jennifer Terhune said on Talking Truth to Power, the weekly radio show she co-hosts, that the package is unfair to small business. The legislature just imposed a massive tax hike on small businesses, and had the gall to tell us that taxes are not a major problem for business in Nevada. Then, the same legislature turns around and grants tax relief to an international corporation!

No wonder people like Trump.

Ms. Terhune’s point is confirmed when you look closely at the deal. Faraday Futures projects it will hire 4,500 workers. But according to the Small Business Administration, small businesses in Nevada created over 15,000 jobs in 2012 alone. 4,500 workers sounds like an awful lot, but in Las Vegas terms, it’s about the same number of jobs as an average strip mega-resort.

Tesla received tax breaks by promising to hire 6,500 workers. Tesla is not living up to that projection. On December 15, an audit done by Grant Thornton accountants was released that shows Tesla has only hired 3.4 percent of projected new permanent workers, and created only 35 percent of its projected construction jobs. Instead of over $1 billion in investment, Tesla has invested less than $200 million.

Electric cars are no sure thing. Nissan has spent over $5 billion trying to develop the Leaf into a winner. GM lost $50,000 on every Volt it sold. Two thirds of Tesla’s 2012 and 2013 drive trains will wear out around 60,000 miles and will have to be replaced. There is no guarantee that Faraday’s car will fare better. New technologies, like Google’s driverless cars—due to be available on the market soon—may make high end electric cars even less desirable.

Government should not pick economic winners and losers. If Faraday Futures works out, it may stimulate a depressed part of Nevada. The Las Vegas housing market needs a boost.

Or maybe not.

The lesson that should have been learned from the 2008 economic meltdown, but apparently wasn’t, is that government stimulation of markets causes a boom, but then comes the bust. When a small business expands into another storefront, it is usually because people have freely paid their hard earned dollars for the product, and the owner has prudently managed his assets and now can confidently expand.

But when central planners and politicians play favorites and subsidize businesses, they often turn out to be uncompetitive and a drain on everyone’s resources. Gov. Sandoval and the Legislature would have done better by North Las Vegas by reducing taxes and red tape on everyone so organic local businesses could thrive. Who knows? Faraday Futures may have come here anyway.