Friday, December 18, 2009

Not for profit capital allocation

The standard argument for increasing the size and scope of government goes something like this: You see the great problem is that we have private, for profit businesses, allocating capital on the basis of what makes money for them without regard to the public good. Now, if we had disinterested (as in not standing to gain on a personal level) bureaucrats allocate the money, then investment would be based on need, rather than greed. That is the general theory for those who think we should have more government, yes?

Now we can test that theory with the stimulus package, can't we?

We can look and see that the stimulus money went to places that needed it most, yes? Whoops! Turns out that districts with democratic Congressmen got almost twice as much stimulus money on average than those represented by Republicans and that there is not statistically significant relationship between common measures of economic need and stimulus money. Go figure.

Looks like there is more than one kind of profit that can drive capital allocation. When investing in a friendly Congressman pays better than investing in a productive business--that is when societies stagnate. Or, as the poet says, "He who is not busy being born, is busy dying."

No comments: