Not Everyone is a Winner

In an address Saturday at Carnegie Mellon University in Pittsburgh PA, President Obama replayed one of his favorite exhortations about economic growth. He described the virtue of more taxpayer and deficit spending on investments "from clean energy to advanced manufacturing".



Saturday's speech was more specific than normal about what the characteristics of desirable taxpayer investments look like however. The President singled out a local Pittsburgh Robotics Company called RedZone. "the folks at RedZone aren’t just solving problems; they’re working with unions to create new jobs operating the robots". RedZone also has some fairly compelling "Green" credentials. RedZone appears to be hitting the Presidential trifecta of advanced manufacturing, union friendliness and green-ness.


In no way do I mean to slight RedZone. They appear to have both first rate engineering and business development talent. What is concerning is that the list of organizations that are worthy of federal investment seems to be getting very narrow.


Picking winners and playing favorites can be a dangerous activity in a market economy, although the President has always been very comfortable doing so. When firms' investment decisions are influenced by government incentives, investments will not flow to where returns are naturally highest. Without ongoing government support, such suboptimal investments will lead to lower returns, growth, investment and hiring. Picking winners based on political or ideological factors will nearly always have such negative results. Union affiliation and clean energy credentials could hardly be any more political or ideological.


Singapore has had success with selective federal investment in industries such as Biotechnology, but such investment has been highly pragmatic and neither political nor ideological. Singapore has sought to grow their almost completely service based economy by creating incentives for investment in high growth industries. An American analog would be to offer preferential tax rates to foreigners that want to open or relocate biotechnology businesses to the United States. Not during this administration.


Although President Obama seems to believe that he and his advisers can allocate resources and plan the economy more effectively than millions of individuals, who are experts in their respective trades and professions, economic growth during the Obama era of heavy government intervention in the economy has been poor. The realities of the American political system and the size of the American population prevent such policies from being effective. America is architected to be a free economy and we must operate within this architecture in order to restore growth and prosperity.