Bad Alliances

 

Bad Alliances

  President Dwight Eisenhower warned against an industrial/military complex that could not only be corrupting, but draw us into war. President George Washington warned against foreign entanglements. President Franklin Roosevelt warned about public unions that would find government negotiating contracts with the people that elect them. They were all right, but we did them anyway.

  Now, the big temptation, partly a political agenda, and partly an attempt to create jobs, is the alliance, or investment of government in businesses. I write "now", but I really mean relatively new because this has been going on in the states as well as federal government for some time. Joint government/business ventures have been pushed, on the state and federal level, by politicians, business people, and local community leaders, including the media, for several years. It sounds good, but isn't.

  It poorly allocates taxpayer money. The government picks the winners and losers. Incentive is created for businesses to "invest" in politicians (same goes for the current tax codes). Taxpayers have little upside and lots of downside. When businesses fail, the taxpayers lose all; when business succeed, taxpayers may get jobs, but no control over whether the businesses stay or move-on. It creates too-big to fail entities. It creates amoral relationships because money is amoral.

  A glaring example is Solyndra, the solar energy company to whom the government loaned and guaranteed millions of dollars. This supported a political agenda of "green energy". Another is Freddie Mac and Fanny Mae, whose government guaranteed financial support of the housing industry, combined with the government's unholy political alliances with the banking industry, were a major cause of our recent Great Depression II.

  For a period of time I headed a non-profit community industrial development group. We raised private money to build an industrial park and to assist start up businesses. Many businesses came to us requesting operating funds and there was community pressure to agree particularly from politicians and business people who had money in that particular project. We always said "no". We didn't guarantee loans, either. Some came with subtle bribes. We said "no" to that, too.

  What we did do was develop infrastructure - roads, water lines, rail, electricity, etc. We shared the cost of utility lines in return for a part of the proceeds of the billing, interceded with government to get quicker approvals, worked with industrial unions, and created a friendly environment for all businesses. It didn't always work, but when failure came neither taxpayers nor our donors lost their money.  The infrastructure remained.

  Bluntly put government shouldn't be guaranteeing loans for some businesses, they shouldn't be investing in some businesses, they shouldn't be subsidizing some businesses. Government can create incentives for all businesses through more effective and appropriate regulations, good physical infrastructure, tax rates, tax climate, but shouldn't do it for specific businesses or causes. Our convoluted and unfair tax code is a result of that. 

  The more money floating around, not directed specifically to public needs, the more taxpayers will lose. Money is amoral. It flows toward rewards. It encourages politicians to seek support from businesses and interests that aren't in the taxpayers' interest. Conversely, it encourages payoffs, directly and indirectly, to politicians.

  There always will be conflict about government spending. However, deciding that government can be the provider of capital, directly or indirectly, for business is bad to the bone.

 
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