How Capitalism Will Save Us (69 page)

What about Social Security and Medicare? Government can administer these programs. But they must be overhauled to make them sustainable. Younger people should directly own their Social Security and Medicare accounts. That way, the government won’t be spending—and wasting—other people’s money.

No one denies the need for safety nets for those who truly can’t help themselves or for those who are victims of natural disasters. They’re part of a humane democratic capitalist society. But they need to be economically sustainable in the Real World.

G
overnment funding of science constitutes a fraction of total spending and is not a burden on the economy. Add up all government research and development from defense to space to health to the sciences and it all wouldn’t come to 5 percent of the budget. What makes up the bulk—40 percent—of domestic nondefense spending is actually entitlements—Social Security, Medicare, and Medicaid.

It’s all about proportion. Throughout our history, government has financed or engaged in many important endeavors. The Lewis and Clark expedition was initiated by Thomas Jefferson to explore vast new territories the United States had acquired from France in the Louisiana Purchase. In the 1920s, the Department of Commerce helped set standard measurements. Government engages in map making and has helped set uniform time zones.

The United States has also encouraged ventures such as the building of railroads with land grants. After World War II, Uncle Sam accorded pipeline companies powers of eminent domain so that national gas networks could be built across state lines. Government has also supported basic research in health and medicine that might not have been undertaken by the private sector. Even Adam Smith believed that the government had a duty to maintain

The economy and society have benefited from many of these efforts. Without government funding, we would probably never have had the space program. No private company could have developed satellites. The costs were prohibitive. Even today, what company could spend the equivalent of tens of billions of dollars to send a man to the moon when there is no economic return?

However, this does not mean that the government should run technology or biotech companies or be in the business of dictating the direction
of all science and health research via a cabinet-level “Department of Innovation,” as some have recently suggested. Such a bureaucracy in the Real World would inhibit innovation.

Why? Because while government—most often, the military—can occasionally develop new technologies, innovation is not its core capability. At its heart, government is a bureaucracy. Its business is enforcing rules, managing and preserving what has been already been established. Risk taking, unless specifically sanctioned, is usually avoided. Why do anything that could get you criticized? Better to keep your head down.

In contrast, innovation is all about risk—experimentation, trial and error. Hayek recognized that open markets are more innovative by their very nature because they encompass a diversity of people and know-how. People in all kinds of unexpected places are developing and testing new ideas. Hayek wrote in
The Constitution of Liberty
that the disorder and freedom of capitalism are precisely what enables this. You never know where the next big thing will come from. In contrast, “the majority action” usually taken by government focuses on what has been tested and proven.

Author Sheldon Richman also makes the point that the private sector’s market discipline promotes better decisions about where to focus research efforts and resources. “Entrepreneurs … earn profits only by anticipating what people will find beneficial and be willing to pay for. They must take costs into account and have no taxpayers at their disposal.”
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Thus, the National Institutes of Health has spent hundreds of billions of dollars on research over the last twenty years, yet it has developed only eighty-four new drugs. Most of the advances that have produced medicines for the broad population have come from pharmaceutical companies. And as we’ve already noted, the military created the mainframe computer and what became the Internet. But it was the private
sector that developed these technologies into the revolutionary innovations they ultimately became.

NASA did indeed put a man on the moon in the 1960s and shuttles into space. But in recent years it has been criticized for bureaucratic afflictions, including poor cost control, inefficiency, and operational decline. The agency’s research helped give birth to the computer-chip industry in the 1960s. But forty years later, by the early 2000s, the
New York Times
reported that the agency relied on “outdated computer chips, circuit boards and eight-inch floppy-disk drives” and had to search for replacement parts on eBay.
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One need look no further than the White House for examples of the backwardness of bureaucracy. The
Washington Post
reported that when the tech-savvy Obama administration took over its new digs at the White House in 2009, it “ran smack into the constraints of the federal bureaucracy… encountering a jumble of disconnected phone lines, old computer software, and security regulations forbidding outside e-mail accounts.” The paper quoted an Obama spokesman who complained, “It is kind of like going from an Xbox to an Atari.”
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