Wednesday, December 28, 2011

Why Does Business Respond To Incentives?

Prospects Darken For Solar Energy Companies

"Although global demand for solar power is still growing — about 8% more solar panels will be installed this year compared with 2010 — bankruptcies, plummeting stock prices and crushing debt loads are calling into question the viability of the solar energy industry that since the 1970s has been counted on to advance the world into a new energy age. Only a handful of manufacturers are now profitable in the face of too much capacity, which has contributed to a plunge in prices as government subsidies have been curbed.

I've read many economist's attempts to debunk the Austrian theory of trade cycles by asking (sneeringly) why businessmen would be so stupid as to continually "malinvest" during times of government-induced low interest rates.  After all, the shtick goes, wouldn't they eventually learn that it's a fool's game?

It's not an implausible argument, but same economist-pundits, so far, remain silent as to why businessmen, over and over again, form entire companies in unprofitable industries simply because the government is offering tax advantages and loans that can be wiped out with the next change of Congress.

I think there's a parallel here they're ignoring.

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