As part of his campaign to expand the size and scope of the federal government (and to justify his advocacy of class-warfare taxation), President Obama has been asserting that all of us benefit from government spending.
It’s why he now echoes Elizabeth Warren’s claim that entrepreneurs owe their success to government programs and activities.
It’s also why he cites the Internet as an example of wise, prudent, and far-seeing government intervention.
Sounds like a powerful example. The kind of anecdote that leaves libertarians momentarily speechless.
But there’s just one small, tiny, itsy-bitsy, teeny-weeny problem with Obama’s example. It ain’t true.
Here are some excerpts from a first-rate column by Gordon Crovitz in the Wall Street Journal.
It’s an urban legend that the government launched the Internet. …The truth is a more interesting story about how innovation happens—and about how hard it is to build successful technology companies even once the government gets out of the way. …If the government didn’t invent the Internet, who did? Vinton Cerf developed the TCP/IP protocol, the Internet’s backbone, and Tim Berners-Lee gets credit for hyperlinks. …But full credit goes to the company where Mr. Taylor worked after leaving ARPA: Xerox. It was at the Xerox PARC labs in Silicon Valley in the 1970s that the Ethernet was developed to link different computer networks. Researchers there also developed the first personal computer (the Xerox Alto) and the graphical user interface that still drives computer usage today. …So having created the Internet, why didn’t Xerox become the biggest company in the world? The answer explains the disconnect between a government-led view of business and how innovation actually happens. Executives at Xerox headquarters in Rochester, N.Y., were focused on selling copiers. From their standpoint, the Ethernet was important only so that people in an office could link computers to share a copier. …As for the government’s role, the Internet was fully privatized in 1995, when a remaining piece of the network run by the National Science Foundation was closed—just as the commercial Web began to boom. Economist Tyler Cowen wrote in 2005: “The Internet, in fact, reaffirms the basic free market critique of large government. Here for 30 years the government had an immensely useful protocol for transferring information, TCP/IP, but it languished. . . . In less than a decade, private concerns have taken that protocol and created one of the most important technological revolutions of the millennia.”
It’s nice to see this urban legend of effective government punctured, but let’s close out this post with a thought experiment. Let’s assume that the federal government deserves the lion’s share of the credit for the Internet.
Or we’re sometimes told that NASA generated big benefits, such as Tang and microwave ovens, and maybe those claims are true.
Would any of this justify Obama’s proposals to expand the size and cost of the federal government?
Since I’ve actually explained in one of my videos that there are some forms of government spending – such as capital spending – that can generate positive rates of return, this is an empirical question.
But here’s where Obama’s argument breaks down. If you look at federal outlays for “major public physical capital investment” and “conduct of research and development,” they add up to less than 10 percent of the federal budget.
So the parts of the budget that theoretically might generate some positive spin-offs are trivial. The vast majority of spending, by contrast, is consumed by inefficient tax-and-transfer entitlement programs.
And what are Obama’s two biggest “accomplishments” since taking office? The so-called stimulus and Obamacare, two pieces of legislation that expand the unambiguously unproductive portions of the federal budget.
In other words, like most other politicians, Obama is like an unethical used car salesman. He lures the unsuspecting onto the lot with glib talk of good roads and the Internet, but they wind up driving away with a lemon known as the welfare state.