Middle class subsidizes billionaires

David MoonBlog

by David Moon

Amassing a fortune is difficult, but it is easier if you can figure out how to build an empire on free taxpayer money. Ask electric car guru Elon Musk. He owns 22 percent of Tesla, a $49 billion company—one that has received billions in government handouts.

Free money is a pretty nifty deal if you can get it.

Every business requires capital to organize, open and operate. Most investors who provide capital expect to receive a financial return on their investment. However, if a company can get capital from an “investor” who only seeks a social return, the intrinsic value of that free government money accrues to the owner of the company who receives it. Like Elon Musk.

To the people actually funding this type of capital handout—you and me—it is a transfer of money from mostly middle-class taxpayers to businesses and their organizers, including billionaires.

Tesla has been receiving direct payments of taxpayer cash and other payments for more than a decade, yet still hasn’t produced a penny of profit. Investors obviously (if not wisely) think Tesla is good risk; the company sold $2 billion worth of stock in May 2016 and raised another $1.2 billion in its recent stock and debt sale. If it still needs another $5 billion of outside investment to keep from closing its doors, Musk should fund it, not taxpayers. Forbes estimates he is worth $13 billion.

There is nothing virtuous about taking massive entrepreneurial risks with other people’s money.

It is immoral for a government to take money from taxpayers (or worse, borrow it on their behalf) to give it to a private business, especially when that business can compete in the public capital markets. If a real estate developer can’t make his numbers work without the injection of taxpayer funds, like Musk, he should dig into his own pocket and inject more equity into the project.

In 2000, Knoxville startup IdleAire sought to revolutionize the non-driving time that truckers spent in their vehicles, providing location-based air conditioning and other services that would have otherwise caused a driver to keeping his engine idling overnight. A large part of the company’s capital plan was to attract state and federal clean air grants. That is, free money. The company’s business model depended on it.

That taxpayer money was wasted. IdleAire filed for bankruptcy in 2008.

Private investors are often wrong about predicting the future viability of new technologies, but their batting average is repeatedly better than that of the government.

If a company’s business model requires government handouts to maintain viability, that business’s future depends on the largess of whoever controls the public coffers—and that is a vulnerable position for any company. Ask IdleAire.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN)