Anita and I are in New York City today to promote our new book, Uncle Sam Can’t Count: A History of Failed Government Investments, from Beaver Pelts to Green Energy

In many ways, during these last two years we both would have preferred to relax, travel, do some teaching, and send out occasional tweets. Why did we, instead, write this book? Why is it important? The answer: Because our country will go bankrupt very soon if we don’t learn to say no to government subsidies. We wanted to tell the story of how well-intentioned government aid began, how it became accepted by both political parties, and how it has damaged not only our country but also those who have eagerly accepted government cash under the guise of “stimulating economic development.”

From subsidies to the fur trade, to steamships, to railroads, to inventing the airplane, to ethanol, and to electric cars–we see the argument that a good thing will be made better if it receives federal aid. It doesn’t. We have been amazed at the stories of how subsidies in one industry led to subsidies in other industries and how such aid slowed economic growth and then ruined the people who received them.

It’s easy to imagine that a subsidy might fail, but it’s more startling to learn in example after example that subsidies do actual harm to everyone involved. In fact, federal subsidies help explain why unemployment goes up, not down–from the Great Depression of the 1930s to the oil crisis of the 1970s to the Great Recession of 2008.

Anita and I have described the problem of well intentioned government, but we are both optimists and we regularly include success stories of market entrepreneurs, who have created marvelous inventions and products that have offset the damage from political entrepreneurs–those who rely on government aid.

Throughout American history, we see the clash between market entrepreneurs and political entrepreneurs. Both groups talk about the tradition of freedom in the United States, and how much they want to make the country better. But which group actually improves society? Time after time it is the market entrepreneurs. Why? To use the words of Steve Jobs, “They push the human race forward, and while some may see them as the crazy ones, we see them as genius because the ones who are crazy enough to think they can change the world, are the ones who do.” The United States became a world economic power when its statesmen showed character, and its market entrepreneurs were encouraged to dream.

Uncle Sam Can’t Count: A History of Failed Government Investments, from Beaver Pelts to Green Energy tells that story. For more information click HERE.

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Uncle Sam Can’t Count is the story of failed government subsidies in U.S. history from George Washington to Barack Obama.   No one else has told this story, so we have decided to tell it at last in our newest book!

What’s especially remarkable about the stream of government aid—subsidies to the fur trade, steamships, railroads, airplanes, and even ethanol today—is that private citizens, with no federal funds, almost always outperformed the men whom the government endowed with large chunks of cash.

In the first years of the American Republic, John Jacob Astor owned a fur company that defeated a government-funded rival—supported by George Washington himself.  Astor actively traded with Indians instead of trying to tell them what they wanted and how to live.

With steamships and transcontinental railroads, the government subsidized companies that either went broke or were so politically corrupt that the public demanded reform.  On the other hand, the most successful companies in steamships and transcontinental railroads were both privately owned and made regular profits in spite of the vast amounts of federal aid given to their competitors.

Another example is the Wright Brothers.   Wilbur and Orville Wright used two thousand dollars of their own money to design and build their airplane and successfully flew the first manned flight.  At the same time the government threw money at a government bureaucrat, Samuel Langley, whose two failed attempts at flight both crashed in the Potomac River.

After the Wright brothers succeeded, Wilbur Wright said, “We have not thought of asking financial assistance from the government.  We propose to sell the results of experiments finished at our own expense.”  Reporting on the Langley fiasco, the San Francisco Chronicle, once a source of wisdom, said, “The destruction of Langley’s machine should put an end to Congressional appropriations of any kind in every field of experiments which properly belongs to private enterprise.”

But it didn’t.  In fact, government subsidies for corporations have increased dramatically in the last hundred years.

Currently, one corporate giant in the race for government money is General Electric.  GE’s chairman and CEO, Jeffrey Immelt, has led the charge to secure more federal funds for any project connected to green energy.  “GE is the leading American producer of wind turbines, and Immelt has actively supported President Obama, serving in his administration as the jobs czar.  GE has the biggest lobbying budget of any corporation in America, and the company gave more to Obama in 2008 than any presidential candidate in its history.”   (Uncle Sam Can’t Count, pages 187-188)

From 2000-2012 the U.S. spent $3,000 a second every second of that twelve-year period on government subsidies—most of which, like Solyndra, were a huge waste.

Why does federal aid seem to have a reverse Midas touch?  Simply put, federal officials don’t have the same abilities or incentives as entrepreneurs.  In addition, federal control always produces political control of some kind.  What is best for politicians is not often what works in the marketplace.  Politicians want to win votes, and they can do so by giving targeted CEOs benefits while dispersing costs to others.

The fact that government subsidies have failed right from the start, and that they continue to fail, should alarm us when we consider the astonishing increases in federal aid given to most of the largest corporations in America today.  The Constitution, in Article one section eight, limits the power of government in economic development.   If we want to preserve our nation’s financial integrity for the 21st century, we need to end government subsidies and encourage the private sector to provide the goods and services that will keep our country prosperous.

Uncle Sam Can’t Count: A History of Failed Government Investments, from Beaver Pelts to Green Energy by Burton W. Folsom, Jr. and Anita Folsom (HarperCollins, 2014). To order a copy on Amazon click HERE.

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FDR and the AAA

by Anita on April 8, 2014

Franklin Roosevelt ran for president in 1932 actually promising to cut federal spending….

Roosevelt came into power, though, and he changed his mind. Roosevelt began pouring federal funds into the American economy, the equivalent of the modern-day stimulus package. One of them was called the Triple-A, the Agricultural Adjustment Administration.

The idea here was for farmers to have high prices for the products they were distributing, because people couldn’t afford to buy much, because unemployment was over twenty percent. So Roosevelt came up with an idea so wild it could only have been invented by a college professor. The idea: let’s pay farmers not to produce.

Only a college professor could have thought up this monstrosity. That’s secretly because college professors like to think of themselves as being paid not to produce. Sadly, the world would be a better place if we paid many college professors not to produce.

Nonetheless, paying not to produce became part of the Agricultural Adjustment Act (AAA) under Franklin Roosevelt. Force farmers to set aside as much as a fourth of their land, 25 percent, and then you’ll pay them not to produce on that 25 percent. And that’ll be good, because it’ll get farm income up, because they’ll be getting money, and also because there won’t be a glut of product on the market. It will reduce the overproduction of corn and wheat and cotton and other farm products, because the farmer will only be producing on three-fourths of his land.

But there was a hitch in this brilliant plan. Roosevelt discovered that there were some farmers taking this money not to produce and were sneaking crops onto that land anyway, and then trying to make double money. The solution? The feds sent inspectors out to everybody’s land. They had measuring equipment to measure everybody’s land and make sure if you had a 160-acre farm, you didn’t farm on forty acres.  And if you did farm on them, you would have to dig it all up.

Meanwhile, of course, people were starving. But no matter. The plan was the thing.

President Roosevelt could sit back in his chair and relax, but then he heard something again — most unpleasant news that came into Washington. Some of the farmers were taking the money that they were receiving not to produce and bribing the inspector with some of that money.

This aggression could not stand. So Roosevelt came up with another solution:

Send inspectors to inspect the inspectors! Then it turned out that those inspectors were coming in to look at the land and some of those inspectors were being bribed as well. With inspectors and inspectors inspecting the inspectors being bribed, the next step was to get a fleet of airplanes and to go over everybody’s land and take pictures of it.

Soon, the Department of Agriculture became the second-largest department in the federal government next to the Department of War, because of all these employees who were going around the country inspecting farms and flying airplanes and taking pictures.

But there was another problem. In 1934, we found that some of the farmers had taken the money that they got from being paid not to produce used it to buy fertilizer for the other three-fourths and they had great production on the three-fourths. Some crops were actually up in production in 1934.

Thus, the farm crisis persisted.

This excerpt is taken from a lecture by Burton Folsom, given at The Citadel.  You may read the entire lecture, and those of many other scholars, in Big Tent: The Story of the Conservative Revolution–As Told by the Thinkers and Doers Who Made It Happen (edited by Mallory Factor and Elizabeth Factor, published by Broadside Books).

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Where Does Innovation Come From?

by Burt on March 26, 2014

From railroads to cars to iPhones, innovation mainly comes from entrepreneurs and private investors eager to back a new idea. Mariana Mazzucato, who has recently written The Entrepreneurial State, challenges this view and argues that the U.S. government, at least since World War II, has been the prime source of innovation–or at least of funding for new ideas.

She defends this thesis by citing many advances in science and national defense that were funded, in part or in whole, by the federal government. True, the federal government has increased in power since WWII, and has thrown money at boatloads of scientific projects, some of which have done well. But let’s look at two points that call this whole argument about “entrepreneurial government” into question.

First, once the federal government is allowed to fund scientific research, the funding is immediately politicized. Those scientific experiments that are considered to be politically correct, or politically connected, move to the front of the line, whether they have value or not. For example, global warming became a “hot” topic in the 1990s and many scientists rushed to capture federal dollars. These scientists were happy to produce reports that allegedly showed the earth getting warmer and that the warming problem resulted from man-made carbon emissions. Now, in 2014, in the absence of any significant global warming in the last seventeen years, many are wondering if funding global warming may have been a complete waste of tax dollars.

Second, the role of politics is huge even for research on projects that are scientifically sound and aimed helping other people. AIDS research, for example, is more “fashionable” and therefore is funded by the federal government at a much higher proportion than research on cardiovascular and heart diseases, which are the main causes of death today.

We need to make something clear. Research on curing any disease, especially AIDS, is desirable. But if nine times more people die from cardiovascular/heart disease than die from HIV/AIDS, shouldn’t we put substantially more funds into heart research than AIDS research? Our government does not do that.

Removing federal funding does not mean the absence of any funding for scientific research. Historically, inventors, universities, and private medical companies have funded cures for many diseases, and would continue to do so if federal funding were stopped. Smallpox used to be a crippling disease at best, and deadly at worst. Now it is gone. Diabetes used to be untreatable until the 1920s and the invention of insulin. Now people can, even with diabetes, live long lives. Aspirin was invented around 1900, and eased the pain of headaches. And so on. And private research and development, not federal funding, was largely responsible for these fine results. The March of Dimes was started as a collection of private funds to find a cure for polio–which happened in the 1950s.

Life expectancy in 1900 in the U.S. was only 47. Three decades later the average American lived more than sixty years. Federal funding played virtually no role in slashing the deaths from diseases that kept lives so short in America before 1900. Americans are very generous, and when they see needs they move to meet them. A room full of entrepreneurs and scientists has a better chance of finding a cure for cancer than any room full of bureaucrats and scientists eager to go where the federal dollars take them.

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The answer to that question separates liberals from conservatives. Liberals want to save the world, and perfect it through various government programs. Conservatives believe that no one can save this imperfect world, but that we can, through our efforts, help one person at a time. When millions of conservatives help someone, the entire world is affected.

This point was recently illustrated by President Obama, a liberal, and Dinesh D’Souza, the conservative producer of the film “2016.” President Obama wants to save the world, or at least the U.S., through national healthcare, minimum wage laws, and sharp cuts in carbon dioxide. These programs all require massive government interference in people’s day-to-day lives–and sometimes the lives of people are made much worse by his well intentioned efforts to help them.

Dinesh D’Souza wants to cut out most of this government meddling, and end the damage from failed government programs. He wants people to help others, one person at a time, through charities and personal philanthropy. We can’t save the world, he believes, but we can make it a better place by our one-on-one help for our neighbors.

Dinesh D’Souza, in making his film “2016″, interviewed Barack Obama’s brother George Obama, who is living a meager existence in Kenya. Recently, George Obama made a phone call to D’Souza and asked him for $1,000 for medical treatments for his troubled family. D’Souza, being a conservative, discussed the problem with George Obama, decided it was worthy, and sent him the $1,000. People helping people.

D’Souza, however, found his situation perplexing. He said, “So it ends up I’m funding George Obama’s family medical treatments, and his brother is president. . . . It’s bizarre. ”

Not really. The liberal often neglects the individual to focus on the world. In President Obama’s mind, anything negative that results from his neglect of his brother is way offset by Obamacare, which tries to give healthcare to millions. In his mind, his niche as a compassionate man is secure.

A somewhat similar situation arose in the 2008 presidential primary when Hillary Clinton campaigned vigorously for national healthcare. Suddenly, after one of her speeches, a distraught woman came forward and described her serious medical needs. Hillary Clinton and her husband have tens of millions of dollars, but she did not offer any individual help to the woman before her in need. Instead, Clinton berated a nation that was unwilling to supply national healthcare for everyone. Then, Ms. Clinton left for the next stop on her campaign. Perhaps this woman with her medical needs should call Dinesh D’Souza.

Until recently, American life has been dominated by the D’Souza line of thought, not that of President Obama. Under this conservative approach, interested Americans (and Englishmen) have started hundreds of charities, including the Salvation Army, humane societies, hospitals, orphanages, Teen Challenge, and Alcoholics Anonymous. When people help people, they spend their dollars carefully and work hard to change lives for the better. The biblical parable of the Good Samaritan is our model.

By contrast, when society chooses to pay government bureaucrats to help people, the work is very costly to taxpayers and few lives are ever changed. President Obama’s latest new government program is called “My Brother’s Keeper” and it is designed to help those who are disadvantaged to improve their lives. Perhaps, President Obama should start by helping his own brother before we trust him and his army of bureaucrats to help the rest of us.

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How the California Gold Rush Spawned a Government Subsidy

by Burt March 7, 2014

The gold rush–first to Georgia and then to California in the 1840s and 1850s. That was the subject of our last blog, but the connection between the gold rush and limited government may not be clear, so let’s elaborate. We have never in U.S. history had an economic boom–like the California gold rush–without some politician [...]

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“There’s Gold in Them Thar Hills!”

by Burt March 5, 2014

Posted by Anita Folsom Gold in the hills became a reality for a California couple walking their dog recently in the Sierra Madres. The dog unearthed a rusty paint can stuffed with gold coins, and the couple found a total of more than 1400 gold coins that had been buried on their land for decades. [...]

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What’s Right With America?

by Burt February 26, 2014

The loss of freedom in America in the last ten years has disheartened many who value free markets and liberty. Indeed, we need to cut tax rates and restore a freer economy in the U.S. to speed up our recovery and halt the explosion of debt. But having said that, we need to recognize that [...]

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Happy Birthday, President Reagan!

by Burt February 6, 2014

No president of the 20th century had a more positive and enduring influence than Ronald Reagan, who was born on this date in 1911. Other presidents, from Wilson to FDR, exceeded Reagan in their impact, but much of it was negative. Sure, they won wars, but they almost destroyed the American economy as well. Reagan, [...]

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How to Fight Income Inequality? Save the Billionaires

by Burt January 28, 2014

Steve Jobs became a billionaire by providing millions of Americans with iPods, iPhones, and iPads, which in turn made it easier for those Americans to run their lives and, in many cases, work more effectively, and escape poverty. In other words, Steve Jobs becoming a billionaire was the rising tide that lifted millions of boats. [...]

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