Mis-State Of The Union

Mis-State Of The Union

January 25, 2011
Originally published in Forbes


Politicians rarely think voluntary markets are so grand that they couldn't benefit from a good ol' dose of compulsion. It's a shame, because that lack of commitment to free enterprise lets otherwise market-oriented legislators get owned in a State of the Union address.

Indeed, a modern marvel is the bipartisan consensus that a government incompetent to make paper clips should nonetheless spearhead core frontier areas like basic research, green and renewable energy, nanotechnology, science, tech and engineering education funding and more. Examples include the recent America COMPETEs Act that politicians tripped over themselves to support, and Republican inaction on eliminating in-your-face abominations like the ethanol rip-off.

Tuesday's State of the Union Address will take advantage of this state of affairs to call for more federal spending. We'll hear of the need for more outlays on infrastructure, education, green energy, basic research and other costly "investments" in the future, alongside contradictory promises to increase jobs and reduce the deficit.

It's a fairly smart move by the administration since the president knows Republicans rarely defend the market process on such core fundamentals; they needn't fear anyone articulating the damage government does to basic research by turning it into pork to channel back to myriad individual districts. Besides, Democrats and Republicans will be sitting together.

So naturally "unity," now that an election has been lost, will be a theme of the SoTU. Market failure is a taken as given, so a White House official can, as one in fact did, fearlessly tell The Wall Street Journal that "Obama's conception of competitiveness ... envisions stepping in where the market fails [and that] areas such as renewable energy and scientific research are underfunded by the private sector, because returns are uncertain."

Republicans say the same thing about basic research being "underfunded," so Congress, at this stage in history, is not an entity capable of fundamentally saying no to the new spending to be proposed. Let's hope that changes in coming weeks.

Otherwise, at exactly the wrong time, we stand to get yet more government steering while the market rows, like so-called partnerships and matching grants that seduce not-quite-private-sector opportunism.

For example, presidents have been promising energy independence for decades, as Jon Stewart pointed out on The Daily Show. But count on the speech calling for new billions in renewable energy, even after the stimulus money thrown at the same.

Policymakers need to avoid fostering borderline free enterprise, a new Declaration of Dependence on government on the part of America's most important wealth-creating sectors. While big government science and investment is a bipartisan passion now, the tone had been different in the mid-1990s, when Congress sought to reduce government with sweeping proposals like privatizing national labs and curbing business and corporate welfare. At that time Congress might've been willing to admit that NASA didn't invent Velcro, Tang or Teflon. Alas, that was then.

I submit that aggressive taxpayer funding of scientific and manufacturing research and education is incompatible with a future of optimally and lightly regulated science and manufacturing specifically, or with limited government generally. It's incompatible with optimal wealth creation.

The damage done by increasingly hefty and dominant government investment goes beyond undermining markets as a phenomenon to that of allocating the spoils artificially created when the government tax power gets involved in the very production of knowledge itself, rather than in merely protecting rights in the property and wealth that new knowledge makes possible.

Aside from anachronisms like the right to keep one's own money and to not fund investments chosen by others, the growth of government investment in our most important industries will generate artificially created conflicts, such as:

--Irreconcilable conflicts over the fundamental merits of basic vs. applied research.

--Distracting debates over the impact of private vs. public funding on discovery and well-being.

--False claims of objectivity of government science compared to "tainted" industry science, and the increasing chastisement of industry science and its wrongful exclusion from the marketplace of ideas.

--Potential needless confrontations being set up over the future intellectual property status of increasingly federally funded discoveries, undermining ownership, property rights and wealth creation.

--Conflicting commons vs. proprietary views of discoveries generated by political investment; that is, the "information wants to be free" ethic that permeates Internet policy can and will threaten scientific endeavors.

--Hurdles in public access to publicly funded scientific data upon which regulation of these new exalted industries get based. (With funding comes new regulation; one can count on that.)

Such artificially generated controversies undermine normal dispute resolution and wealth creation, and will foster a tendency for greater reliance on government intervention decades hence. The proper role of sound public policy is precisely the opposite, to avoid generating politicized situations, whether junk science, "climategate"-style battles or bubbles created by governmental investment (like the one to come in green energy).

Despite the State of the Union appeal, the national government's role in fostering what we might call knowledge wealth, as with other kinds of enterprise, is properly limited. But the federal role in liberalizing the American economy so that others can foster that wealth is of the utmost importance.

The nature of the relationship of the state to free enterprise hasn't changed simply because our economy has become high-tech, nor because politicians feel a need to react to a downturn. And getting policy correct now is arguably more important than ever; free enterprise is even more crucial to tomorrow's scientific, informational, intangible wealth creation than to the paper clips and widgets of yesteryear.

Anyone can propose a smorgasbord of subsidies to add to the billions already in place; that's following and pandering, not a leadership stance. Advocacy of spending does not equate with promotion of science and technology. There's also a bit of the broken window fallacy at play here: Not seen is the science and investment not created by the mis-direction of resources to this or that temporarily favored project or field.

Bolstering manufacturing and investment and science requires vigorous competition among ideas for private-sector funding, not a scientific New Deal that favors politically popular ones. Nor is it proper for scientific endeavors and applications to proceed walled-off from one another in a federal appropriations environment; that isolation undermines the swirling competition, cooperation and "co-opetition" and integration needed for the U.S. industries to surge and to stand up against overseas competition.

The national government can't be the supercompliant superprovider in an increasingly complex society with tacit knowledge dispersed in countless ways. If both parties think government can steer big technology and frontier investment, there's no reason it can't steer K-12 education, retirement and health care. There's supposed to be a difference in visions here, and it needs to extend, once and for all, to inflated claims about government investment.

Along with more rational tax policy like the R&D tax credit that we'll likely hear mentioned during the SoTU, aggressive liberalization, deregulation, antitrust reform and more that leave outcomes up to the free choices of competitive enterprise will produce the prominent economic and job-creating successes we hope to see. Federal investments, interventions, subsidies and regulations can easily foster an economy made up of suboptimal commercial entities that don't resemble or approach the potential they could achieve under actual enterprise; that will leave us poorer, more regulated and more shackled to Washington.