"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Wednesday, February 15, 2012

Basic Economics

Michael Boskin, writing in the Wall Street Journal, makes an essential point about Obama's socialist tendencies to think the government should (or can) target investments to particular industries:

Despite his record of picking losers—witness the failed "clean energy" projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists' view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that "the government is a crappy venture capitalist."

Look, this is pretty basic economics.   If an industry has sufficient potential to be profitable, private investors will fund its development by putting their capital at risk; that's what they do.   If an industry needs government subsidies, by definition private investors have concluded that it does not have the potential to be profitable, and have refused to risk their capital.   So, by definition, industries in which the government must offer subsidies are industries which are either too risky or else too quixotic (like, for instance, the solar energy industry).  

Unless, that is, your definition of "profitable" is funneling money to your own left-liberal constituencies and contributors.   Which is what Obama appears to be doing with "investments" in companies like Solyndra and LightSquared.

No comments:

Post a Comment