This summer Congress and President Clinton reached an agreement to bring the federal budget into balance, hopefully by the year 2002. However, despite the budget agreement, our government is still spending billions of dollars each year on wasteful subsidy programs to private companies and other special interests. Despite claims made by Advanced Technology Program bureaucrats and the program's beneficiaries, the argument for government meddling in the flow of capital between corporations and investors is fundamentally flawed.
Governments have a disappointing record of picking industrial winners and losers.
The function of private capital markets is to direct billions of dollars of capital to industries and firms that offer the highest potential rate of return. The capital markets, in effect, are in the business of selecting corporate winners and losers. The underlying principle of federal business subsidies is that the government can direct the limited pool of capital funds more effectively than can venture capitalists and private money managers. If centralized economic planning worked, the Soviet Union's economy would now be the envy of the world, closely followed by the booming businesses of Cuba, and North Korea, with the U.S. limping along in last place. Obviously, this is not the real world.