Governments Can NEVER Invest

They Only Spend

Government people love to take the words from other business sectors and apply them to their own. For the record, “government” is NOT a business sector. It’s a system we use to administer a civil society.

The Government's “contribution” to gross domestic product (GDP) is 0. Zero. Nada. It might even be negative if you believe Nobel Prize-winning economist Gary Becker. Classical economist after classical economist can show you the math. The question Keynesians can never answer is the one posed by

John H. Cochrane

: “Where do you get that dollar to invest?”

Obviously, the money comes from taxpayers. When the Federal Reserve auctions debt, it creates “money” but that money is a tax on the future earnings of Americans. Since corporations/businesses do not pay taxes, they pass them along to consumers, it is individual taxpayers who shoulder 100% of the burden.

Some things gall me like a burr under a saddle. It’s things like “private public partnership”. Or, when a government subsidizes a sports stadium. Or, when government starts to invest in startup companies. The word “invest” should never come out of a government official’s mouth as it pertains to the government spending taxpayer dollars on something.

Governments all over the country tell you they want to cut budgets and be efficient for taxpayers. Except, they never do. It’s not just Democrats, but Republicans too. It’s not as if the Republican governments across the country are some green visored misers with general ledgers in front of their faces reminding us that it doesn’t balance.

Turns out governments of all stripes aren’t kosher. They all love pork.

Every government has a black hole of money when you total up the real economic costs in the kinds of spending I am highlighting. None of this makes your energy more efficient, your water cleaner, and your fire and police department better.

But, it costs you more in tax than you should pay.

One problem is this. In the PPM documents filed with the SEC to outline how municipal bond ETFs and funds invest, one caveat is usually that they will be XXX% to XX% invested and NOT in cash. That means there will always be a ready buyer for bonds, no matter how crappy or risky the issuer is. Detroit will always be able to sell its bonds.

Maybe we give relief to those ETFs and funds and allow them to be 100% in cash if they want to be? That would readjust the market. I’d love to see the muni market become considerably more transparent and competitive. It’s not as currently regulated and structured today. It’s also impossible for a startup to come in and break the iron grip the current market has. The gatekeepers make far too much money to let that happen. In the words of microeconomics, there is a lot of “producer surplus” in the muni market!

In addition, the ratings agencies are soft when it comes to really analyzing the full faith and credit of governments. Otherwise, how can a city like Chicago not be full junk bond status? Want evidence? Go back and look at the ratings of the bonds that blew up in 2008. Moody’s, S+P, and others issue reports but if you are an active buyer of credit, you pay to do your own research.

An aside. That’s another reason the ruling in NY was so dumb on Trump. The banks that lent him money sharpened their own pencils to analyze the transaction. They didn’t rely on third parties. Only stupid investors rely on third parties. I guess political Jacobian mobs rely on third parties too.

One thing the governments do which is buried in all the documentation is explicitly put taxpayers on the hook for the issue. In Chicago, if the city is destitute and cannot pay teacher’s pensions, they do not need to go to the taxpayers and ask for a tax increase. They can arbitrarily increase property taxes across the board to cover any shortfall.

Here are a couple of recent developments in the annals of “government investment”.

The very Republican and supposedly fiscally conservative Utah government is going to give $900MM to some baseball owner so they can enjoy the lovely baseball weather in Salt Lake City. What’s in the water in Utah? They gave us Evan McMullin and Mitt Romney. The Republican governor of the state dabbles in transgender bullcrap.

Another truly great Utahan, Economist Allan Sanderson, showed years ago why using public dollars to spend on sports stadiums is a very bad idea. For what it is worth, he is a BYU undergrad and a fly-fishing fanatic as well. I am being serious when I call Professor Sanderson great.

Nevada ignored Mr. Sanderson and gave millions to the Oakland A’s. They consistently misrepresent the money they gave to the Oakland Raiders for their Allegiant Stadium and the positive economic effects it has. The city of Las Vegas gave millions to F1. The hype and economic illiteracy of the local media overcome any rational discussion.

In 0% tax Tennessee, they gave $1.26 billion to build the Tennessee Titans a new stadium. In Buffalo, the state of New York gave $850 million for a new stadium.

If a state or city gives money to a team for a stadium, shouldn’t the state get all the money from the naming rights? Or, at least name the stadium after the government entity? The Taxpayers of (fill in the blank) Stadium.

Illinois governor JB Pritzker, who will lie to your face and say he is fiscally conservative and socially liberal, gives money away to anything that the press can turn into making him look good. His predecessor, supposed fiscal conservative Bruce Rauner, gave $78MM to EV manufacturing and they are bleeding money. Pritzker gave $500MM to invest in quantum computing. Meanwhile, plenty of private money is going to quantum computing. The government doesn’t need to figure that out. Pritzker gave $536 to Chinese battery maker Gotion. He spends like a drunken sailor and meanwhile, the state is broke. Why are we giving money to China again?

Buck highlights even more largesse from both parties. The Democratic Governor of Tennessee Bill Lee. He and the Republican legislature have come together to spend a billion dollars on a new Ford EV facility. Brian Kemp, that hard-nosed fiscal conservative in Georgia, gave money to Rivian too. He and left-wing governor JB Pritzker must have locked arms over that. In North Carolina, Democrat Governor Cooper pumped $1.2 billion into EVs.

Republican Senator Rand Paul annually tweets out the stupid things the US government spends taxpayer dollars on. When I looked at a company I invested in, Streamlink Software, I was shocked to see the billions of dollars going into government grants to study the dumbest stuff.

Government spending crowds out private investment. With the billions that Rivian received from Georgia and Illinois, why should I invest in a competitor? They already picked the winners and losers. The same goes for research. If some government organization wants to spin a narrative, they fund research that will help them spin that narrative. Then, the agency cites the research as some sort of academic stamp of approval for what they are doing.

Governments are not immune to the same economic incentives companies or individuals are. They are not some objective angel. They are greedy, and unfortunately, they don’t have much to fear.

Maybe the first way we can agree to cut budgets all across the country is for governments to stop spending on private industry. No more spending and no more tax cuts. Let private industry navigate the free market and let government concentrate on what it is supposed to concentrate on.