How to Swap the Obama Budget for an Optimistic Economic Growth Agenda

New spending in President Obama’s $3.8 trillion fiscal year 2013 budget would increase investments in education, manufacturing and R&D, transportation projects, electric vehicle incentives and the like. While those upticks apparently lie within discretionary spending caps he’s agreed to with Congress, taxes would rise regardless.

This escalating “declaration of dependence” on federal dollars by our most crucial manufacturing, infrastructure and frontier industry sectors should concern us. Republicans will pounce, of course, but they too vote to boost government investment in “basic science,” technology and manufacturing (such as the America COMPETES Act).

Reasons to reject this new spending abound, apart from simply not being able to afford it. (We’ll get to alternatives in a second).

– Government “steering” while leaving the market to merely row can create artificial booms, as we’ve seen in housing and green energy, in Solyndra and the Superconducting Supercollider.

– Government funding of big projects comes with regulatory strings attached.

– Politicians don’t choose projects rationally; and others, difficult as it is to believe, might invest more wisely than they.

– Agendas can become grandiose, like the Federal Communications Commission’s “National Broadband Plan.

– Subsidies do not likely alter the overall ratio of GDP spent on R&D, anyway, as the work of Terence Kealy demonstrates. Government spending up? Big deal, private spending down.

– Taxpayer funding of targeted higher education can create gluts of the wrong kind of graduates. Wages should perform this allocation job.

– Taxpayer funding can foster poor intellectual property outcomes like compulsory licensing and uncertain ownership rights.

– Taxpayer funding can undermine safety. “Undiscovery” of even the riskiest science (nanotech’s largely fictional “gray goo” for instance) isn’t possible. Liability and insurance must evolve and govern. Subsidies can propel risky technologies ahead of the natural ability to properly assimilate them, or worse, prompt liability waivers as in homeland security and nuclear power.

The bipartisan songsheet declares that government investment in “basic research,” etc. is needed. But there are natural flows to human discovery and knowledge, and basic and applied research are not enemies. The Wrights needed to study propeller behavior in wind tunnels first; it didn’t matter that the War Department was blowing cash on Samuel Langley’s catapulting his aerodrome into the Potomac. Rip-stop nylon needed to be invented before I could fly a powered-parachute ultralight aircraft.

So scrounge a few scarce billion dollars from a people already stretched to the limit; so what? Tax and spend didn’t account for the American cornucopia and former job machine, and it can’t rescue us now.

The real surge will finally come when policymakers see governing as the progressive separation of state and economics. As Competitive Enterprise Institute president Fred Smith likes to say, we must stop trying to picking the particular R&D horses to run on the racetrack and instead improve the business and regulatory track so everyone can go faster, and let jockeys keep more of their earnings.

Here are some ways to do the fiscal year 2013 kickstart that the budget reneges on:

– Privatize: During the 1990s, proposals to spin off commercial components of federal labs to private industry, and to allow employee buyouts, were common. This, the opposite of the modern spending approach, needs congressional champions.

– Consider prizes rather than grants as one element of the transition to invigorated private funding.

– Roll back or avoid major new or contemplated industrial mandates, starting with net neutrality, health care’s decoupling from the voluntary sector, Internet privacy legislation, onerous cybersecurity mandates.

– Instead of over-funding and over-regulating critical infrastructure, liberalize networks like transportation, electricity, and telecommunications, and get spectrum out of the oversight of regulators so secondary markets can price, allocate and optimize it.

– Relax anti-consumer, predatory antitrust activism such as that against Google and the blockage of AT&T/T-Mobile. In constraining productive firms, antitrust corporate welfare hobbles industry sectors, deprives consumers of competitive counter-moves, and undermines wealth creation and R&D processes.

– Permit freer trade in skilled labor (and pathways for unskilled for that matter): Bright foreign Ph.D.s want to stay and create U.S. jobs after graduating. There’s always going to be an America , but I’d like it to stay here rather than relocate along with the would-be Americans that we turn away (and end up having to compete against).

– Admit when safety regulation makes us less safe: Many emergent technologies can make our environment cleaner and us healthier; Exaggerating risks overlooks stagnation’s hazards, and assigns an undeserved priestly status to regulators who can’t agree on a food pyramid.

– Liberalize capital markets; here, Obama’s apparent forthcoming effort to address capital gains tax parity is welcome: Capitalism ranks among the world’s great democratizing forces, but post-Enron Sabanes-Oxley regulation has distressed small business, as Dodd-Frank will do for the rest.

– Foster crowd funding of entrepreneurial ventures that securities laws now discourage, via proposals such as those noted by the Small Business & Entrepreneurship Council.

Finally, policymakers must address over-regulation generally: Some 60 agencies issue over 3,000 regulations yearly among tens of thousands of Federal Register pages. A few steps would include:

– A bipartisan “regulatory reduction commission” to assemble yearly packages of reductions

– A temporary freeze in rulemaking and unfunded mandates on states

– Sunset old rules and put an expiration date on new ones

– Require fast-track congressional approval for controversial or costly agency rules (REINS Act)

– Add greater regulatory flexibility for smaller business (FREEDOM Act)

– Create a basic regulatory report card to accompany the federal budget so we see the “regulatory tax” as well as the fiscal one.

The formula for prosperity’s never been complicated; control interventionist and spending impulses and enlarge liberty instead.

Or, before getting all excited about electric cars, show me workable electric motorcycles first as proof-of-concept. I’m a biker, and just I ain’t seen ‘em.