Category — United States

Picture from http://www.jimrlong.us/

On our recent and very pleasurable trip the the United States, some of my more conservative friends who we were visiting insisted on showing us one of their new favorite movies - An American Carol. The movie is a railing if highly inconsistent criticism of any and every idea championed by liberal America anno 2008, in particular its anti-war sentiment. The main character of the movie is Michael Moore (“Malone” in the movie), who takes the role as the scrooge of 4th of july – and is visited by three ghosts, amongst them General George Patton and country singer Trace Atkins (proudly playing himself). On his way to salvation and pro-war attitudes, he is slapped in the face repeatedly by an (as always) morally righteous Bill O’Reilly (also played by himself), who warns Moore that he is abusing his freedom of speech by preaching pacifism. In particular, the film echoes conservative America by claiming that Michael Moore and his followers – by questioning the moral superiority of the United States at war [Read more →]

James Galbraith argues that falling bank stocks are a sign of good things to come with respect to the planned regulatory overhaul of the financial sector. To the extent that such regulation is intended to limit rent-seeking and moral hazard, Mr. Galbraith makes a fair point. Perhaps the Obama administration is on the right track.

However, if the same indicators apply to the health sector, skyrocketing health insurance company stocks can hardly be taken to be a sign of better and more affordable health care around the corner for most Americans.

The authors of Evolution-Revolution are currently visiting New York as part of our January tour of the United States. A proud bastion of capitalism and free markets, Manhattan also has some fine examples of what decent government can accomplish. Try asking a New Yorker whether Central Park ought to be sold off to a real-estate developer because having it government-owned is socialism.

The Chicago Tribune reports that several top donors to the Obama campaign are beginning to grumble about not getting enough face time with the President and top members of the cabinet. Apparently, both Bush and Clinton were much better at keeping in touch with their benefactors, and regularly spent time socializing with them at a.o. the White House and Camp David. Big contributors are also complaining that it is more difficult for them to get appointed to prestigious positions in the administration than they expected.

Obama has come under a lot more scrutiny than presidents in recent years for alleged links to special interest groups and worse. Hopefully, he deserves it far less than his predecessors. Major donors are not so happy though; according to million-dollar contributor Chris Korge, “If they do have any connection … it is very limited as far as the fun stuff is concerned.”

The Wall Street Journal reports today that the United States Federal Government is dwarfing private investors in providing venture capital for new high-tech startups – in particular in “clean technology”. Predictably, many (Americans) are worried that this is another step in the direction of a socialist United States. This is worrying too much.  There are abundant examples of governments successfully investing in industry – especially “infant industry” – in non-socialist countries with weaker constitutional safeguards than the U.S. If anything, it is a much more sensible way to do stimulate the economy during a recession than having people paint lamp-posts or pick leaves.

More importantly, the surge of public investments into high-tech business is probably very good for the private sector, both in the long and short run. Already, private venture capitalists are eager to invest in companies that receive loans or equity investments from the government. This, of course, can simply be attributed to the fact that more access to capital and concessionary interest rates should make lower risks and higher returns more likely. However, the much more significant effect – especially over time – is the establishment of strong intrasectoral networks that are necessary for any advanced industry to flourish. Such networks – prominent examples are Silicon Valley and (until recently) the car manufacturing clusters around Detroit – allow for specialized production knowledge to be developed and disseminated, specialized suppliers and consumers to gain sufficient economies of scale, and for consumers to “learn” new products; all necessary ingredients for dynamic economic growth. Notably, a high degree of geographic concentration is not always necessary, but a fairly large number of firms and a significant industry size is.

The network dynamic also highlights a particular reason why it may be appropriate for taxpayers to be venture capitalists. Because many of the benefits of venture capital investments – such as new innovations or other “network benefits” as outlined above – are external to individual firms and investors, but still benefit the economy as a whole, VC investment incentives are in some ways more symmetrical with those of taxpayers than private VC firms.

Of course, the establishment of strong dynamic intrasectoral networks can and has many a time been achieved without government intervention. However, it has not been achieved without plentiful financing – plentiful financing clearly not available in the wake of a financial crisis, especially for small firms. When the Federal Government is able and willing to make the necessary investments, why not be pragmatic rather than paranoid and let it? If anything, in five or ten years the U.S. might just find that they paid off.