Why does government spending impede progress? Many people will argue incorrectly that it doesn’t. Here’s why big government is a problem in one easy lesson. What entrepreneurs and dreamers envision often faces wide ridicule. Family, friends and investors often do not share the vision or the insight.
Think about this. Coming out of WWII the government, close on went into Korea. We are back in the 1950’s. That California resembled today’s California in few ways. What today is dense with roads, buildings, houses and people was largely empty then.
If we look back to the 1940’s. Developer Mark Taper was visiting banks. They were turning him down for loans to build houses in southern California. The view from lenders after World War II was anticipating a decline in government spending. The reasoning was, this will drive an exodus from the Golden State.
But the bankers were wrong. They did not have faith or vision. If they had had faith and vision they would not have been bankers. Bankers are managers of other people’s money. They exist on preservation of principle. They don’t build or create anything. That is not in their soul. They share shortsightedness with politicians.
Risk and Reward
This is why entrepreneurs are so crucial. They see what others don’t see. The best definition of an entrepreneur is someone who believes deeply. So deeply in fact they defend something that faces almost uniform ridicule by others. Entrepreneurs with their intrepid financiers make their speculation possible. They will the future into the present with the help of blood, sweat and tears.
So in the California example people like Disney were proven right about customer demand for amusement parks. Taper’s optimism about California saw similarly vindication. That both were able to succeed speaks to the problem of government spending. It’s intensely conservative in the non-ideological sense. It tend to focus on the current period to the exclusion of a vision for the future.
Governments aren’t just hamstrung by a lack of market signals. When they allocate precious resources they do so in a politicized environment. They’re held back by the known. They must direct the wealth of others to the known. Everything must have a short term perspective. Political lives are short? It is always what have you done for me lately?
Governments only deal with current period expenses… not investment
They generally can’t fund the unknown. This is a certainty because most attempts at delivering the unknown lead to failure. There is too much risk and not enough reward for government capital to be used for funding. When big risk is avoided; so too is big reward.
Today’s Silicon Valley is instructive here. It speaks to why government can’t be an investor. Nearly every business tried out there fails. This is the point. Entrepreneurs by their very name are taking us in an entirely new direction. They are rejecting the conventional wisdom.
Why does government spending impede progress? Governments can’t back innovators. The simple truth is that in the rear view mirror, bad ideas look especially bad. Voters don’t tolerate investment losses. They want to get what they pay for not gamble on the big gain.