Perhaps the most effective stake through the heart of the Big Government juggernaut is a comparison of the economic record, the handling of the economy, by bureaucrats and politicians, versus that of businessmen.
The following was written by JOHN STEELE GORDON, who writes The Long View column for Barrons.
1. When the Solyndra Corporation filed for bankruptcy last summer, it left the taxpayers on the hook for a loan of $535 million that the government had guaranteed. In a half-billion-dollar example of how governments often throw good money after bad, the government had even agreed to subordinate the loan as the companys troubles worsened, putting taxpayers at the back of the line. In retrospect, it is clear that the motive behind the loan guarantee was political: to foster green energy, an obsession of the left. And thats the problem with government investment: Politicians make political decisions, not economic ones.
2. [Theres no end] of government investment disasters. The Clinch River Breeder Reactor, for instance, authorized in 1971, was estimated to cost $400 million to build. The project ran through $8 billion before it was canceled, unbuilt, in 1983. A half century earlier, the Woodrow Wilson administration thought it could produce armor plate for battleships cheaper than the steel companies. The plant the government built, millions over budget when completed, could not produce armor plate for less than twice what the steel companies charged. In the end it produced one batchlater sold for scrapand shut down.
a. The Erie Railway was initially estimated to cost $4,726,260 and to take five years to build. In fact, it would take $23.5 million and 17 years .[in many ways] not unlike the current proposed California high-speed rail project, the first segment of which would run between Fresno and Bakersfield and cost $9 billion.
b. Why was the Erie Canal a huge successit even came in under budget and ahead of schedulethat made huge profits from the very beginning, while the Erie Railway was a monumental failure? One reason was that canal technology was well-established and well-understood by the early 19th century. More important, the route of the Erie Canal was the only place a canal could be built through the Appalachian Mountains. Thus it would have no competition.
3. In 1992, New York State found itself $200 million short of having a balanced budget, which the state constitution requires. The total state budget was about $40 billion, so it could have been balanced by cutting one half of one percentthe equivalent of a family with an after-tax income of $100,000 finding ways to save less than 50 dollars a month.
So did New York cut its budget? Dont be silly. Instead, it had a state agency issue $200 million in bonds and use the money to buy Attica State Prison from the state. The state took the $200 million its own agency had borrowed, called it income, and declared the budget balanced. New York now rents the prison from its own agency at a price sufficient to service the bonds.
Had any private company sold, say, its corporate headquarters to a wholly-owned subsidiary and called the money received income, its management would be in Club Fed.
a. government, unlike corporations, can keep their books as they please. And why must corporations obey accounting rules? In a beautiful example of Adam Smiths invisible hand at work, it was the self-interest of Wall Street bankers and brokers that produced one of the great ideas in American economic history.
3. In the 1880s the great Wall Street banks that were emerging at that time, such as J. P. Morgan & Co. and Kuhn Loeb, as well as the New York Stock Exchange, began demanding two new ways of doing business: First, listed firms, and those hoping to raise capital through the banks, were required to keep their books according to what became known as Generally Accepted Accounting Principles. firms were required to have their books certified as honest and complete by independent accountants. It was at this time that accountancy became an independent, self-governing profession, like law and medicine.
a. But while J. P. Morgan was probably the most powerful banker who has ever lived, not even he had the power to force governments to adhere to Generally Accepted Accounting Principles and submit their books to independent certification. And because it is in the self-interest of politicians to cook the booksjust as corporate managers did until Wall Street forced them to change their waysthey continue to commit accounting fraud on a massive scale. This is no small part of the reason that the federal government and many state governments are in financial crisis today. Hillsdale College - Imprimis Issue
The following was written by JOHN STEELE GORDON, who writes The Long View column for Barrons.
1. When the Solyndra Corporation filed for bankruptcy last summer, it left the taxpayers on the hook for a loan of $535 million that the government had guaranteed. In a half-billion-dollar example of how governments often throw good money after bad, the government had even agreed to subordinate the loan as the companys troubles worsened, putting taxpayers at the back of the line. In retrospect, it is clear that the motive behind the loan guarantee was political: to foster green energy, an obsession of the left. And thats the problem with government investment: Politicians make political decisions, not economic ones.
2. [Theres no end] of government investment disasters. The Clinch River Breeder Reactor, for instance, authorized in 1971, was estimated to cost $400 million to build. The project ran through $8 billion before it was canceled, unbuilt, in 1983. A half century earlier, the Woodrow Wilson administration thought it could produce armor plate for battleships cheaper than the steel companies. The plant the government built, millions over budget when completed, could not produce armor plate for less than twice what the steel companies charged. In the end it produced one batchlater sold for scrapand shut down.
a. The Erie Railway was initially estimated to cost $4,726,260 and to take five years to build. In fact, it would take $23.5 million and 17 years .[in many ways] not unlike the current proposed California high-speed rail project, the first segment of which would run between Fresno and Bakersfield and cost $9 billion.
b. Why was the Erie Canal a huge successit even came in under budget and ahead of schedulethat made huge profits from the very beginning, while the Erie Railway was a monumental failure? One reason was that canal technology was well-established and well-understood by the early 19th century. More important, the route of the Erie Canal was the only place a canal could be built through the Appalachian Mountains. Thus it would have no competition.
3. In 1992, New York State found itself $200 million short of having a balanced budget, which the state constitution requires. The total state budget was about $40 billion, so it could have been balanced by cutting one half of one percentthe equivalent of a family with an after-tax income of $100,000 finding ways to save less than 50 dollars a month.
So did New York cut its budget? Dont be silly. Instead, it had a state agency issue $200 million in bonds and use the money to buy Attica State Prison from the state. The state took the $200 million its own agency had borrowed, called it income, and declared the budget balanced. New York now rents the prison from its own agency at a price sufficient to service the bonds.
Had any private company sold, say, its corporate headquarters to a wholly-owned subsidiary and called the money received income, its management would be in Club Fed.
a. government, unlike corporations, can keep their books as they please. And why must corporations obey accounting rules? In a beautiful example of Adam Smiths invisible hand at work, it was the self-interest of Wall Street bankers and brokers that produced one of the great ideas in American economic history.
3. In the 1880s the great Wall Street banks that were emerging at that time, such as J. P. Morgan & Co. and Kuhn Loeb, as well as the New York Stock Exchange, began demanding two new ways of doing business: First, listed firms, and those hoping to raise capital through the banks, were required to keep their books according to what became known as Generally Accepted Accounting Principles. firms were required to have their books certified as honest and complete by independent accountants. It was at this time that accountancy became an independent, self-governing profession, like law and medicine.
a. But while J. P. Morgan was probably the most powerful banker who has ever lived, not even he had the power to force governments to adhere to Generally Accepted Accounting Principles and submit their books to independent certification. And because it is in the self-interest of politicians to cook the booksjust as corporate managers did until Wall Street forced them to change their waysthey continue to commit accounting fraud on a massive scale. This is no small part of the reason that the federal government and many state governments are in financial crisis today. Hillsdale College - Imprimis Issue
