The Price of Politics
Debt and deficits impoverish us in ways we can only begin to measure.


Kevin D. Williamson

The Left has of late been atwitter about a new and energetic expression of that banal idea in a book called “The Entrepreneurial State,” written by Professor Mariana Mazzucato, a scholar in the field of technology policy at the University of Sussex. Professor Mazzucato’s argument is not really a matter of technology policy at all but a moral argument, and a poor one. Because government has made economic interventions in various ways in the past (e.g., through military research that has supported advances in things like smart phones and pharmaceuticals), it is immoral for businesses to look to minimize their tax payments or otherwise resist political control of their capital, and it is immoral — not merely mistaken, but immoral — to look to entrepreneurs, venture capitalists, and the like as the main drivers of economic innovation. Professor Mazzacuto writes:

In this era of obsession with reducing public debt — and the size of the state more generally — it is vital to dispel the myth that the public sector will be less innovative than the private sector. Otherwise, the state’s ability to continue to play its enterprising role will be weakened. Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the U.S. venture capital industry in negotiating lower capital gains and corporate income taxes — hurting the ability of the state to refill its innovation fund.

In support of her claim that the state is an effective entrepreneur, Professor Mazzucato cites the government’s role in developing what we now know as the Internet, its $500,000 investment in Apple through a small-business program, the CIA’s financial sponsorship of GPS technology, etc. This is a classic example of single-entry bookkeeping: Every government intervention that has some connection, however tenuous, with a profitable product in current use is listed on the credit side of the entrepreneur-state’s ledger. Nothing is listed on the debit side. How many Solyndras do we have for every $500,000 handout to Apple? How many Fannie Maes and housing bubbles for every GPS or nascent Internet? Do not look for Professor Mazzucato and those of her kidney to answer that question, or even to acknowledge it in any serious way. But past successes in state entrepreneurship can justify future adventures only to the extent that past efforts have been on balance successful. That is a difficult case to make.

And the debit side has to include much more than such obvious disasters as Solyndra. The government does support pharmaceutical and medical research in many ways — but how many potentially useful pharmaceuticals and medical products have been kept off the market by the federal regulatory apparatus and the enormous costs it imposes on effective and defective products alike? (And how much damage has been done by the FDA’s incompetent policing of defective products that do reach the market?) How many businesses have not been started, and how much innovation forgone, because of the state’s rapacious appetite for capital? For a sense of scale, consider that, as of October 2011, the world’s largest hedge-fund company was Bridgewater Associates of Westport, Conn., with $77.6 billion under management. That total is well less than Medicare loses to fraud year in and year out. You’d have to combine the assets of the three largest private-equity firms to match what Medicare loses to fraud in a typical year, whereas the holdings of venture-capital titans such as Andreessen Horowitz are hardly even rounding errors on that amount.

Would you invest with a firm with that record?

Government is what government does, and what government does is what government spends. Our government is a corrupt HMO with an underfunded pension plan attached, and a few aircraft carriers in tow. Contra Professor Mazzucato, the confiscatory taxes the federal government wishes to impose upon Apple et al. are not being used to replenish any such “innovation fund” as may exist in her imagination, but to prop up the corrupt, wasteful, and destructive programs that make up the great majority of its spending. Federal support for basic science research is pretty low on the list of things that small-government conservatives are worried about, and George Will is not entirely misguided in his admiration for the National Institutes of Health. But the neo-Nehruvian dream of the state as main entrepreneur cannot intellectually survive even the most modest attempt to balance benefits against costs.

As the CBO sees it, the economic weight of the deficits we’re expected to add just in the next 25 years is enough to bring the national debt from 100 percent of GDP to 200 or 250 percent of GDP, i.e., from paralyzing to catastrophic. The deficits we’ve run for the last 25 years have imposed costs of their own. That the costs mainly manifest themselves negatively — in the form of businesses that don’t exist, profits that aren’t collected, and help that is not wanted — does not make them any less real, or less tragic. In the long run, the deficit is as much about whether you have a decent job or die from diabetes complications as it is about figures in CBO estimates. The price may not always be obvious, but you pay it every day.

— Kevin D. Williamson is roving correspondent for National Review.