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Monday

5

October 2009

We Don't Need Government To Spark Innovation

Written by , Posted in Economics & the Economy, Energy and the Environment, Free Markets

The administration is spending big bucks subsidizing favored business models.  In particular, they are pushing a “green auto industry:”

The Obama Administration is eager to establish a green auto industry and is willing to spend money to make it happen. So far the U.S. Energy Dept. has agreed to lend $8.5 billion to help companies large and small retool plants to make more fuel-efficient cars and develop new technologies. On Sept. 22, the Energy Dept. announced the latest such loan: $528 million for a Silicon Valley startup called Fisker Automotive that vows to produce 130,000 plug-in hybrids by 2013.

The U.S. government believes in funding companies outside the established industry because it’s important to nurture new ideas. “We’re trying to create competition among technologies in the marketplace,” says Matt Rogers, an Energy Dept. adviser. Fisker and Tesla Motors, another startup that has received $465 million in federal money, both say their cars are high-tech and have spurred plenty of consumer interest.

Why do we need government to “create competition?”  Markets do that best when the government footprint is as small as possible.  Bigger government stifles competition because policy makers cannot possibly predict what innovations will eventually take off.  Relying on politicians to fund the next big technology is a fools game.  When politicians funnel money to favored groups it is an inherently political process, and it also takes away funds otherwise available for private investment.

It is also impossible to foresee what innovations will eventually lead to technological revolutions. What if there’s some completely new model on the horizon, the discovery of which could be significantly delayed because government distorted the market with heavy subsidizes to interest group approved industries? We don’t need bureaucrats in Washington pretending that their special interest handouts will “create competition,” we need them getting out of the way so private investors can create real competition and innovations.