Job Creation By Government

Here is a prime example of government attempting to create jobs.  This model typically does not work.  Furthermore, the capital the government uses to invest in these risky ventures is either taken from citizens through taxation or borrowed.  Venture capital and private equity funds are far more efficient in investing in risky ventures like alternative energy.  In this situation, the government is investing tax payer money using the model: heads the company wins (the loan guarantee is not utilized because the company pays back the loan, while the tax payer does not benefit); tails the tax payer loses (the government repays the loan when the company fails and goes into default).  There is no direct upside for the tax payer.  On the other hand, private venture investors typically earn positive returns because 1 winner pays for the losers and more.  In other words, the upside more than compensates for the downside.  If the money invested is borrowed by the government, there are additional costs in terms of interest on the debt and opportunity costs of the crowding-out effect.  Given the additional costs and the results evidenced in the aforementioned Washington Post article, there is a good chance that the government is destroying value instead of creating it.  One can argue that there are indirect benefits of government investment in a case like this and that new jobs are created by companies that succeed through this program.  But again, this can be done privately with far more efficiency.

-BRV

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