March 9, 2009

Why politicized economic development is dangerous

I recently wrote on the danger of politics driving scientific research. The obvious case of this now is all of the government "investments" being proposed in the name of "saving the planet from irreversible damage due to climate change."

But even if man-made climate change was real (sorry tg, is real) and even if "renewable" energy sources were beneficial to counter it, the least effective entity to make them a reality is - wait for it - government.

Consider the following essay on "One Reason Governments Spend So Much" from the 'Uncle Eric' book: Whatever Happened to Penny Candy?

Industries generally develop in three stages. First is scientific feasibility, second is engineering feasibility, and third is economic feasibility.

Using the airline industry as an example, the question in the 1800s was: "Is long-distance air travel possible?"

In the 1800s, balloons were already in use but were not practical. The problem to solve was the heavier-than-air machine.

The Wright Brothers in 1903 proved scientific feasibility. They risked their time, money and lives to show that a heavier-than-air machine could fly.

Lindbergh, in 1927, proved engineering feasibility. He risked time, money and his life to show that long-distance air travel was possible.

This gave investors enough confidence to risk their money in the aircraft industry. In 1935 the Douglas Company came out with the DC-3, which was the beginning of economic feasibility.

The modern airline industry resulted from all this risk-taking. Today, a middle-class American can go anywhere in the world much faster, and in much greater comfort, than a Roman emperor could. Travelers fly because the benefits are greater than the costs. This is economic feasibility.

This three-step model explains why governments are terrible at economic development. The "experts" who comprise the government gamble with other people's money, so they tend to confuse scientific and engineering feasibility with economic feasibility.

Once science and engineering prove something can be done, those who comprise the government will do it - even if the costs are greater than the benefits. [emphasis mine]

This economic development of the economically unfeasible is precisely the modern story of:

Wind power
Solar photovoltaic power
Ethanol (both glucosic AND celluosic)
Biodiesel
Hydrogen fuel cells
Dual-mode hybrid cars
The list goes on...

Deleterious Anthropogenic Warming of the Globe Economics and Markets Obama Administration Oil and Energy Science We're from the government, and here to help. Posted by JohnGalt at March 9, 2009 2:38 PM

Just to add to the entertainment value: "But even if man-made climate change were real..." is the grammatically accurate construction. Heh.

JohnGalt: great post, and the model of three-stage development makes plain, even to a poor, dumb country boy like me, why government-run economic development doesn't work. And to boot, it's much more elegant than me just saying "a government that can't even balance its own checkbook has no business fiddling with the economy."

I'd only propose one small change to the quote rfrom the essay. Where the author wrote "Once science and engineering prove something can be done, those who comprise the government will do it - even if the costs are greater than the benefits" in the last paragraph, it seems to me that the last phrase should omit the word "even" and the hyphen, thusly: "... those who comprise the government will do it if the costs are greater than the benefits." If the benefits are greater than the costs, entrepreneurs and private industry will do it, without the necessity of government meddling. Profit motive being what it is, and all that.

Ergo, government will ONLY do it if its benefits do not justify its costs, and that applies to every item in your list. QED, yes?

Posted by: Keith at March 9, 2009 3:18 PM

Ahh, the punchline from a great old gag can be trotted out:

I congratulate Keith on his use of the subjunctive.
Posted by: jk at March 9, 2009 4:32 PM

Thanks, jk...

Say, on the subject of government and the economy, I've been reading in the news today that Warren Buffett has been quoted as saying the U.S. economy "fell off a cliff." I've read that three times today, and every time, all that comes to mind is...

"It was pushed."

Posted by: Keith at March 9, 2009 5:11 PM

Wellll, I was trying to have some fun with TG, saying "was" as in "past tense" ... before it was largely discredited, then replacing it with "is" as a sop to him since he's not yet comfortable with the "denier" badge of courage.

I admit - sometimes my jokes trip over their shoelaces.

Oh, and yes, I do fully agree with your improvement of the closing paragraph. Well done!

Posted by: johngalt at March 10, 2009 12:25 AM

Tough room, jg, you know that as well as anyone.

Posted by: jk at March 10, 2009 1:34 PM

Eh, I though the post was funny. I also think you have highlighted one of the biggest problems with the Eco-stimulus crowd. What they call progress is in actuality a retardation (word?) of Western civilization.

Posted by: T. Greer at March 11, 2009 12:19 PM | What do you think? [6]