Sunday, July 22, 2012

"You Didn't Build That"

I haven't delved much into the political cycle of the United States, and won't. And let me preface this post by saying I support public investment projects that have a rate of return higher than the interest rate on the bonds needed to fund them. But there's been a lot of discussion in the Presidential race about the role of government vs business, ect. I'll comment on this from time to time, sometimes on one side sometimes the other. So here goes round one.

The fact is that the potency of the public sector depends on that of the private sector, not the other way around. If the government "builds" a bridge it contracts the construction work to a private firm; the quality and cost of the bridge will be a function of the capital, labor, and technology that firm can devote to the project. The government effectively just moved money from taxpayers to the contracting firm.

Moreover, this pattern holds through history; The Federal government, in effect, didn't win the Civil War; Colt and Winchester, the textile mills of New England, and the iron forges of Pennsylvannia did. At times, goverment has directed these private resources to (very) productive ends, such as the Interstate Highway System or the internet.

Today, Microsoft, IBM, Lockheed Martin, Boeing, Arcelor Mittal, et al. allow Uncle Sam to conduct his business, both here and abroad. I guess the message is that it's private productivity that leads to high quality public projects, not the other way around.

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