Role of Government in investing in Business

[Lord MJ]

Had an argument regarding the investments in green energy. He said that ALL government investment in business should be eliminated (that includes SBA, SBIR and other programs).

I responded that the need to develop green energy is beyond the environmental issues an civilization exestential necessity given that oil will run out eventually. To which he responded that government shouldn't be doing that, the private sector should.

I believe in public private collaboration, however it is irresponsible to say "The private sector will take care of it"

I go one step further to say, if an angel came down on high and said definitively that oil will be gone in 30 years, that $16 trillion debt we have? It becomes zero almost immediately after. Because the need to develop an alaternative energy source will be so intense, that our fiscal issues in comparison will be so insignificant that it will be as if they don't even exist.

Now the investments we make today may not be creating viable enterprises, but say 30 years from now we have thriving alternative energy, and a thriving set of private sector businesses managing it, could those future people trace that back to the investments our government made today to start the development of alternative energy?

[K. A. Pital]

He's right. The government should not touch capitalism. That would be more honest (and less stable) and bring about swift change. The current stabilisatory efforts look like trying to cure gangrene with band-aids.

[NettiWelho]

When 'green energy' becomes a truly viable I'd imagine it will take off on its own without anyone propping it up just because there will be an actual profit incentive to do it then.

...Then again on the other hand, isnt oil industry in the US currently massively subsidized aswell? There needs to be oppoturnity parity between the competitors.

IMHO governments shouldnt be propping up businesses that cant survive on their own but they should fund important research in areas neglected by businesses because they dont see immediate profits in it.

[Irbis]

Had an argument regarding the investments in green energy. He said that ALL government investment in business should be eliminated (that includes SBA, SBIR and other programs).

I responded that the need to develop green energy is beyond the environmental issues an civilization exestential necessity given that oil will run out eventually. To which he responded that government shouldn't be doing that, the private sector should.

I'd like to point to your friend a few examples where government investment created businesses worth billions down the road but really, it would be wasting breath on yet another idiot dogmatist buying right wing propaganda

Just point out to him that without governments we would for example still have leaded gas, every fucking car would be Ford Pinto, every meal except ones for rich would be made from MRM/MSM... Because it's all cheaper, more efficient and doesn't require any big investment at all. Green technology 2% more expensive? Why would anyone use it, then? It will simply be outcompeted and bankrupt.

Unlike what people saying bullshit about "private efficiency" say, people aren't mechanical robots with 100% knowledge what their choices will cause down the road making no mistakes, and besides, full deregulation these people push only makes everyone but rich poorer creating vicious feedback leading to only cheapest solutions being used, environment or simple decency be damned.

When 'green energy' becomes a truly viable I'd imagine it will take off on its own without anyone propping it up just because there will be an actual profit incentive to do it then.

A) This assumes there is no initial investment barrier, and B) that won't lead to delays until last possible moment or even past it causing extra damage to both environment and economy as obsolete businesses struggle to stay at market at all costs. Sometimes, you need to kick hand of the market to ethical position even if it is less profitable one.

[Guardsman Bass]

Now the investments we make today may not be creating viable enterprises, but say 30 years from now we have thriving alternative energy, and a thriving set of private sector businesses managing it, could those future people trace that back to the investments our government made today to start the development of alternative energy?

I'm not sure they'll be from investments our government is making. Solar panels are really cheap right now because the Chinese government and state banking system have been pouring tons of money into the production of them, driving the prices down while creating an over-sized sector that can't survive without subsidy.

The hope is that after that eventually "balances" (i.e. the Chinese government cuts off the tap and most of the sector goes bankrupt), we'll be left with widespread demand for solar panels from people who installed them in the cheap period, as well as production methods and technologies for making them very cheaply. I don't know if that will happen or not, but stuff like that has happened before - back in the 1870s and 1880s, tons of US railroads went bankrupt after nearly two decades of expansion with federal money, but they left behind a sophisticated system of cheap rail transportation.

[PainRack]

Alternatively, green industries might very well become viable enterprises, but they need venture capital and some form of protected subsidies to build in place the infrastructure and markets that MAKE it a viable enterprise.


If the Singapore government hasn't invested in ST engineering, Singapore would never have a domestic weapons industry or aerospace industry. Its also difficult to forsee how the telecomns industry in Singapore could have thrived as well as it did, or our heavy shipyards/finanicial services, although unlike the above example, there was certainly possibilities.

[madd0ct0r]

or, to look at it from the gov's point of view - there might be an industry they'd like to have inside the country (eg domestic weapons industry, or shipbuilding capacity ect) that simply can't compete initially.
(You could even be cheaper, but be losing out on comparative advantage) - in this case, the gov might choose to nurture the nascent industry until it IS strong enough to compete (or dominate) globally.

[Feil]

The role of government in the economy is to manage the generation of externality benefits and costs. Sometimes this means propping up businesses that generate positive externalties, or penalizing businesses that generate negative externalities.

Consider roads and hitmen. Roads generate huge positive externalities in the form of fostering trade, tourism, and travel, but realize minimal direct dividends. Hitmen get large direct dividends, but generate huge negative externalities in the form of dead folks, civic disorder, etc. Therefore government invests in roads and penalizes hitmen, expecting to recoup its losses through long-term increases in GDP.

In the case of green energy, the externality being produced is a cleaner environment, which carries such indirect benefits as lowered health care costs, increased tourism and immigration, higher crop yields, a healthier workforce, etc. None of these benefits are realized by the energy company: the energy company only gets money for the energy it makes, not for the externalities it creates. Government should estimate the monetary value of the externalities being produced, compare with other possible projects which could generate similar externality benefits (for instance, environmentally friendly agriculture, environmentally friendly transportation, climate manipulation techniques and technologies, etc), select the portfolio of projects which generate the maximum value at minimum cost, and invest accordingly.

Errors begin to pile up when cold economic calculus turns into pseudo-religious dogma. A large part of the environmentalism movement takes on the appearance of a religion: humans are hurting Mother Earth by meddling in things beyond their understanding. The correct approach is to minimize our environmental impact and return to a harmonious form of existence with the natural world. Kumbaya. Perforce, options which involve using our ability to impact the environment in positive ways (for instance, artificially promoting the manageable formation of (white, reflective) clouds over the (dark blue, absorbent) oceans to reduce global warming) are looked upon as sacrilege, unless they can be phrased as restoring nature to its original state: you can't return to harmony with nature by deliberately altering it more! Blasphemy! If government is making decisions based on dogma, rather than calculus, then they are prone to making bad decisions.

On the other hand, here is the core of the (sensible version) of the right-wing argument regarding climate change. "The government is spending too much for too little benefit," they claim; "we are better off spending a lot less now on prevention and spending a little more later on palliation." The (sensible version) of the left-wing argument disagrees: "You have underestimated the costs of palliation," they argue, "the costs of prevention are in fact lower."

The argument over which specific means of prevention and palliation are better tends to fall into two groups: arguments based on pseudoreligious dogma ("Humans should live in holy harmony with nature!" vs. "The government should not touch sacred Capitalism!"), which are bunk, and rational arguments over which means of solving the problem are more efficient, which are valid and important. Unfortunately, because politics is the realm of politicians, not economists, and memorable dogma sells better with the masses than ever-changing and intellectually challenging analysis, we end up with a lot of the former and precious little of the latter.

[Guardsman Bass]

Government should estimate the monetary value of the externalities being produced, compare with other possible projects which could generate similar externality benefits (for instance, environmentally friendly agriculture, environmentally friendly transportation, climate manipulation techniques and technologies, etc), select the portfolio of projects which generate the maximum value at minimum cost, and invest accordingly.

If you just aiming for the positive externalities associated with green power, then it's more efficient to heavily tax environmentally-unfriendly forms of power. That way, instead of having to pick specific projects and kinds of energy to favor, you get an overall economy-wide incentive to move towards sources of power that don't have those negative charges, with the optimal power-mix varying by region.

Investing in specific projects only makes sense if you want to guarantee that your own industries will be the source of the physical capital necessary to produce power (i.e. you want to manufacture the solar panels, wind turbines, etc). I'm not really convinced that it's important for the US to be the country manufacturing solar panels, for example.

[Feil]

Punitive taxation and strict regulation are indeed options. However, raising taxes on primary goods (such as energy) generates cost-push inflation in addition to any economic pressures on the industry in question. This is a cost which must be factored into any estimate of costs and benefits.

Furthermore, your envisioning of the options for investment is insufficiently broad. There is no reason why the American government could not, for example, provide tax credits or subsidies to nuclear plants using Australian uranium, built out of Japanese steel, constructed based on designs licensed from Canada, and run by experts from France. In fact, if the goal is to promote environmentally friendly power generation within the nation, promoting domestic production of the means of producing such power might not help at all. Consider, for example, that Kazakhstan produces almost a third of the world's uranium, but has no nuclear power plants whatsoever.

[Guardsman Bass]

I'm not dismissing the possibilities for tax credits, which I think are a more efficient plan than loan guarantees and specific firm subsidies (although less efficient than Pigovian Taxes). I just think their main problem is that they usually target a specific kind of renewable energy (such as solar or wind), which can lead to greater inefficiency than the aforementioned taxes. They ideally need to be as broad as possible, preferably tied to the renewable energy source meeting particular rules for emissions and waste.

As for cost-push inflation, that's probably not going to be a huge issue with the tax as long as you don't implement a huge tax increase over a very short period of time. Implementing it gradually will help to avoid a major supply shock.