The Business Model

The late Sen. Robert Byrd was the master of an ingenious strategy to “bring home the bacon” to his home state of West Virginia, bolster its flagging economy, and, coincidentally, be elected and re-elected to nine consecutive terms in the Senate, more than any other senator. The strategy consisted of directing every conceivable federal spending project that could be directed to West Virginia to West Virginia. He didn’t invent the strategy but I think it’s fair to say that he was its unexcelled master.

To get some idea of how successful he was at the strategy, consider the list of places that bear his name. Many if not most of those were built or are funded with taxpayer dollars.

I see no evidence that Sen. Byrd employed his strategy to bootstrap the flailing West Virginia economy. I think it was a simple, opportunistic grab.

In his recent post at RealClearMarkets John Tamny makes a point that should be obvious but I fear is not. We can’t boost the national economy by employing the strategy that Sen. Byrd did in West Virginia:

Just as the Federal Reserve can’t increase credit in locales where economic activity doesn’t rate it, neither can Congress. Clinton’s proposal for greater growth will fail simply because money doesn’t stay long where there’s no return to be had on it. That’s why money is plentiful in high-growth areas like Beverly Hills, Silicon Valley and New York’s Manhattan, and it’s similarly why it’s scarce in Mississippi, West Virginia, and Baltimore, Maryland. Government spending can’t alter this reality. When Clinton says she can, she’s fibbing.

What at least has the potential to change what’s true is more investment in search of risk, or once again, surprise. At present, parts of the U.S. that struggle economically are risky places to commit capital, but because they’re risky they offer high potential reward to the intrepid investor willing to try what hasn’t previously been thought of. Such investing promises lots of failure, and that’s why the rich are so crucial to economic advancement in places where there’s very little. They alone have the funds that they can put at risk precisely because they’re wealthy. When politicians promise to tax away this wealth, they’re promising to reduce the amount of money chasing the ideas of the future that, if successful, will generate enormous amounts of economic growth. Congress can’t do this given the oft-repeated truth in this piece that Congress can only direct money toward what is known, and that for being known doesn’t promise the high returns necessary for booming growth.

So if readers are curious to see what Hillary Clinton will achieve economically assuming she gets her way, they should again take a look at West Virginia. It’s not a pretty sight. The good news, however, is that whether Trump or Clinton, neither will be able to do a fraction of what they promise. This redounds to us all simply because their proposed economic plans, like the Christmas wish lists of most children, thankfully have little to do with reality.

Private investment chases return; historically, public investment has not. We shouldn’t expect spending decisions that were not made based on return to yield return.