Dan

Calabrese

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February 5, 2009

If They Must Spend $900 Billion (Which They Shouldn’t), Here’s a Better Way

You didn’t really think they would stop at $825 billion, did you? President Obama now says the price tag of his so-called economic stimulus bill has topped $900 billion. That’s because the Senate wants to use tax credits to bribe people into buying homes and cars.

Add that to medical research, aid to state and local governments and every other imaginable kind of Democratic dream concoction – and we’re encouraging a nation that spends too much and has too much government to spend more and govern more.

Now, the best use of this $900 billion is to never spend it, as it will only paper over any number of serious problems – not least of which are irresponsible state and local budgeting practices – that have helped to create the mess in which we find ourselves. The best thing the federal government could do right now is tell the financial markets, the Federal Reserve and state and local governments to adopt responsible policies, then get out of the way and let it happen.

But let’s say, just for argument’s sake, that Congress is going to allocate a $900 billion stimulus come hell or high water, and there’s nothing anyone can do to stop it. Fine. If you want to seriously kick-start economic growth without exploding the size of government at every level, there’s a simple way to do it – and it’s about as far from the Obama approach as a thing can be.

Take your $900 billion and allocate every penny of it to be used as venture capital. Announce that you will consider business proposals from entrepreneurs who demonstrate a solid plan to serve a market profitably and generate wealth. Offer venture capital of anywhere between $1 million and $5 million per company, depending on the size, need and nature of each business.

You’re talking about enough money to seed well over 100,000 new companies.

Make each investment an equity financing proposition, rather than debt financing. Why is simple: The last thing we need is 100,000 fledgling entrepreneurs trying to manage $1 million or more in debt. Put the government in a position to collect dividends or even have its shares redeemed from the profitable companies. As for the companies who fail, the government simply loses its investment.

Most likely the taxpayers would make back more than they invest from this deal, whereas the Obama stimulus is not only gone forever, it explodes existing budgeting baselines and we have to print and borrow more money to finance it – which means our own debt is rising at an alarming rate.

One major caution about this approach is that you don’t want the sort of rules Democrats would impose on company owners, because Democrats don’t know the slightest thing about how businesses operate. So the first question you have to deal with is who judges the most worthy business plans.

Not the White House and not Congress! Recruit active or retired business leaders – successful ones, as opposed to, say, the people who run the auto industry – and let them choose the successful applicants. Also, some important rules, not for the entrepreneurs but for the federal government:

• Do not require any job creation as a condition for receiving the funds. The entrepreneurs will decide for themselves whether hiring people helps their businesses succeed. The only criterion should be the creation of wealth and shareholder value.

• Do not require any “buy American” nonsense of the companies who are being seeded. Encourage the entrepreneurs to source goods and services wherever it makes sense for their own interests.

• Do not require any reporting on operational or financial matters beyond what would be customary for any other business. Let the entrepreneurs focus on making a profit. That’s the only thing that benefits the economy and gives the taxpayer a shot at a return on investment.

Is this a good idea? Of course not. The federal government should not be in the business of investing in companies. It should focus on conducting the crucial functions of government, and leave the creation of wealth and jobs to the private sector. And under no circumstances should it be blowing up the national debt to the tune of $900 billion when excessive debt is much of the problem to begin with.

Besides, the government would never operate the program in the rational manner I’ve described here.

I am simply pointing out that the price tag of the stimulus is only the beginning of the problem. Obama and his congressional allies want to spend an obscene amount of money we don’t have in ways that don’t create wealth and value. At least my way strengthens the ability of the private sector to generate growth that could get us out of this mess.

But the best approach of all is for the federal government to get out of the way – mainly by cutting taxes and relaxing regulation – and let the private sector do what I’ve described on its own.

© 2009 North Star Writers Group. May not be republished without permission.

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