First, let us examine the term investment. It means simply taking assets today in a reasonable and well thought out anticipation of the return of those assets plus more, the return on the investment.
Thus one may invest in the stock market, and unfortunately may not see either the principal or the return. But let us take a simple example, say venture investment. Here is how it goes:
1. Some entrepreneur comes up with an idea.
2. They prepare a plan, develop a prototype or proof of principle, they get letters of intent from customers, they assemble a team, and
3. Then they go to an investor to show the investor what type of return they may get if the investor puts in money. Up to this point the entrepreneur has spent all their own funds. The investor does due diligence on the investment and the entrepreneur and only after significant investigation doe the VC invest the money.
4. Then the VC sits on the Board and like a hawk watches the entrepreneur perform to the plan that he gave the VC. If the entrepreneur does not meet the plan he is toast! If he does then hopefully there is a liquidity event.
5. At the liquidity event, a sale or IPO, the investors are first to get their money back plus a return and then the entrepreneur shares.
Second, now is this what the Government does? No way. Let me give a few examples.
1. The Electric Car: DOE has been "investing" on the electric car since 1970! That is 40+ years. Billions and billions. Now would any rational investor do this! No.
2. Internet. DoD, namely ARPA invested in the initial net. It almost died in the 1980s, and it was saved almost single-handedly by Bob Kahn and Vint Cerf who managed to keep the non-DoD side afloat.
3. NIH, now this a research, not "investment" and it has been productive as a means to fund research. Research is not investment in the classic manner. It uses money for no particular financial return, that is NOT investment.
Third, the problems with Government investment are simply:
1. The investment decision makers are Government employees who have nothing at risk. If they had to bet their life, their incomes, perhaps we could start to call it an investment, yet they have no risk.
2. The Government never kills a dumb idea, the electric car! Thus unlike real investments which often go wrong, a Government investment just lives forever! Special interests are born and the "investment" becomes another drag on the taxpayers.
As the left wing writer in the Post states:
There is a similar emphasis on the private sector in the president's proposal for a National Infrastructure Bank, which will not only help to insulate the government's investment decisions from the political process but will focus on projects with demonstrable financial returns. Toll roads, smart grids, wind farms, freight lines and air-traffic control systems would compete for funding on the basis of their ability to generate user fees to repay the bank's bondholders.
In the energy sector, (the current President) expects to untap tens of billions of dollars in private investment with modest amounts of seed money and the right regulatory incentive - in this case a requirement that 80 percent of electricity comes from environmentally clean sources by 2035.
This is total nonsense. Let us briefly look at Air Traffic Control systems. The FAA has been spending billions on a 1940s vintage system and upgrades have been near impossible to deploy. The FAA is the problem and not the solution.
Private investment is ruthless, not like the Government. The worst disaster will be the Broadband program of NTIA and RUS which gives away billions to entities which for the most part have no demonstrable experience in doing what they were committed to. So the money is equal to that dropped by helicopters!
Did we not have almost a trillion in Stimulus, signs all over our highways with massive interstate traffic jams burning excess fuel while states paid government employees to sip coffee on the road sides! That is Government Investment, a total waste.
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