In defense of politicians, especially honest politicians, there is a tendency to use the power of government to pursue "public good" projects in direct contravention to capitalistic principles, particularly the built-in checks and balances which swiftly and sometimes brutally end ill-advised economic activities.
Market Minder in Capitalism:Shifted Balance offers this example:
Note, politicians are human, too.
A fun example is Fresno, a little agricultural-based city wanting to make it big in the great state of California. Over the years—in good times and bad—the city government used taxpayer dollars to fund its own brand of stimulus. They’ve either fronted all or part of the money, or engineered deals for various pet projects throughout the years: a ballpark for a triple-A baseball team, a Jack Nicklaus-designed golf course and housing project, and a rock bar sponsored by the Red Rocker himself, Sammy Hagar. And so on. Set aside for a moment the dubious wisdom of using taxpayer dollars for what appear to be superficial glamour projects, and consider why all three projects either floundered or outright failed—most in a short time. There are many factors, but in broad terms, in each case there was little counterparty risk: The developers had great upside potential, but no real downside risk since the worst that would happen is they default on their loans to the city—which in retrospect, bore relatively lesser risk than defaulting on a private loan.
Fresno promised in each case to “drive a hard bargain,” but it never really did. Why? A government in any form can probably never be as vigilant or judge risk as well as a private party. Politicians—always and everywhere—are playing with house money and not their own. Governments don’t use “their” money, it’s taxpayers’ money. If the whole undertaking goes bad and millions are lost, the worst that can happen is the mayor isn’t reelected. That completely alters the incentive system. Our guess is Fresno would never have undertaken such lampoon-able projects had a real counterparty, with a visceral and vested interest, supplied the funding. This is the lesson of capitalism in a nutshell: A matching of risk and return, incentive and responsibility.
Politicians serve only with the consent of the voters, so free government largess to soothe the masses continually pushes us toward socialism. Downsizing government, as opposed to increasing government influence, plus reliance on free market capitalism, is the best economic path for the honest politicians, but feelings get in the way.
Here in Fort Wayne, various failed/failing projects financed through tax-backed bonds include:
- The Grand Wayne Convention Center expansion which did not attract a needed downtown hotel or interested conventions.
- The Police and Fire Academy which was designed to attract regional participation but did not.
- The ill-advised Harrison Square project complete with private financing from Hardball, Inc. and White Hotels to build a new Class A baseball park, world-class hotel, parking garage, condominiums and a commercial strip. Taxpayers are on the hook for at least $39 Million, but performance from the private partners has been all but nonexistent.
Paraphrasing Pete Seegar:
Where have all the politicians gone? Gone to Socialism every one.
When will they ever learn? When will they ever learn?