Governments Do Not “Invest”

26 Jul
by John, posted in Government Spending, Policy, Uncategorized   |  2 Comments

I can feel the eye rolls from more liberal readers at the headline, but my message is not conservative or liberal.  An investor buys stock or grants credit to a business in exchange for dividends, other rights, and securities appreciation.  If the business underperforms, the investors vote out the board of directors, force a change in management or strategy, or ultimately sell the security. This market mechanism when it works provides clear accountability.

When the government spends money on a bridge, road, port, airport, or some other capital project politicians in both parties sympathetic to a project call it an “investment”.

Really?

Who owns the right to dividends, investment rights, and an underlying stock or bond?  None of those essential features of an investment exist.  What the government is doing is taxing and spending.  In an “investment” the investors provide the discipline to the enterprise.  With taxing and spending voters provide the discipline at the ballot box.

The reason that distinction is important is to make clear the applicable financial discipline is the ballot not the market.  Without the discipline of the market there is no government “investment”.  Infrastructure banks and other budget gimmicks are just semantics.

We spent stupidly an enormous amount of the 2009 Stimulus Plan on temporary tax cuts that yielded no tangible assets.  If the Stimulus Plan had spent all of its money on roads, bridges, ports, and airports, we would at least have some assets for use over time.  But labeling one act of spending an “investment” and another not “investment” is irrelevant.  What matters is the temporary tax cuts were stupid policy and the infrastructure projects were good policy.

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2 Responses to Governments Do Not “Invest”

  1. Mark

    Hey, keep it down. I need approval from my imperious leader to “invest” in a new time trial bike and carbon wheels! :-)

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