VW and the subsidy scam

Volkswagen trunk ornaments bearing the VW logo lie next to the Golf VII assembly line at the Volkswagen factory in Wolfsburg, Germany.
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Volkswagen trunk ornaments bearing the VW logo lie next to the Golf VII assembly line at the Volkswagen factory in Wolfsburg, Germany.

If you're already outraged by the news that Volkswagen lied and cheated its way to supposedly low emissions results for its cars, prepare to get a little more outraged. According to a new report in the Los Angeles Times VW didn't just mislead its customers, but it also bilked the U.S. taxpayers out of $51 million worth of "green" subsidies for making these supposedly more environmentally friendly vehicles.

There's plenty of reason to be angry just with Volkswagen, but the subsidy outrage is one of those things that couldn't happen without the government's stupidity, duplicity, or both. And this case really should force us all to ask why we need taxpayer-funded subsidies for any reason to any private business... ever.

Let's first just strip away the particulars of this case and get right to the core of the matter. I want someone to explain something to me: why is it ever a good idea to provide a subsidy to a large, multi-bullion dollar private company? If the product you want that company to make were really needed and demanded by the free market, wouldn't that company and others like it just want to make it on their own and reap the profits? And if the government is paying a large corporation to make a product the public doesn't need or want, isn't that fascism at worst and a waste at best?

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It's possible you could make a better argument for providing a subsidy to a smaller company to make a needed product faster and better to meet some vital public demand. But that scenario is fraught with serious questions as well. One of them is trying to figure out why the government would see the profitability and great need for a product made by a small firm before bigger firms would notice the same thing and jump in with private investments or buyout offers of their own.

Now, let's bring in the specifics of this VW story to see how we're not just talking economic folly here but political ideology too. "Green subsidies" are mostly the result of politicians hoping to spend their way to an environmentally friendly reputation and the big donations that can come from that from traditionally green donors in Hollywood and Silicon Valley. For those politicians, the actual results don't matter; it just has to look like they care and look like they've put something into action. And that kind of attitude is contagious. Once the recipient of the subsidies sees the politicians are really only doing it for show, they often follow suit. In VW's case we have a most extreme example, as the company created software to simply make it appear it was being green.

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Subsidies have always come with some serious moral questions, but they've usually been confined to the act of financially supporting a wealthy company with public money. Now, this case shows how subsidies can just as easily encourage more corruption and other bad behaviors beyond just taking money from poor people and giving it to the rich. Throwing other people's money around has a way of encouraging all kinds of bad things from theft to deception and worse. In Volkswagen's case, it appears we're getting all the bad subsidy side effects in one story. No one should be surprised if this leads to executive resignations, massive fines, and maybe even some kind of criminal conviction. But while it rightfully should also lead to the abolition of these kinds of subsidies and programs, it probably won't.

Corporate executives might have it really good these days, but they've got nothing on the political class. In fact, being a politician today means never learning anything and never having to say you're sorry. Maybe they just need a subsidy to fund a course to teach them how.

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.