Uncle Sam Can't Count
A recent book by Burton W. Folsom Jr. and his wife Anita, Uncle Sam Can’t Count, draws on examples from the past and present to show why government subsidies overwhelmingly do not work.
There have been a few that can be considered successful, such as the Erie Canal system, the atomic bomb development, and putting a man on the moon. However, for the most part, the federal government always seems to pick the losers, not the winners, when attempting to interfere with the free market system. The authors show in the book that from the days of George Washington to the present day, government subsidies have failed dismally while draining the Treasury of cash, increasing the national debt, and impeding economic growth. American Thinker had the privilege of discussing this topic with the Folsoms.
They decided to write this book because of their frustration with this overwhelming policy failure. Instead of learning from past mistakes, the government continues its terrible practices. Why? Because, the Folsoms believe, professors and history textbooks don’t explain the mistakes made. “The professors write the textbooks in favor of subsidies yet cannot back up their statements with real data. They get grants and produce nothing in return. This is a case where government money is given with no accountability, especially since they have tenure.” Those receiving subsidies have no incentive and are protected by the guaranteed money, so they are not very productive.
According to the authors there are two types of entrepreneurs: political- and market-based. The authors first developed this dichotomy in 1987. Market entrepreneurs work within the free market system by relying on producing a competitive product at a reasonable price. The political entrepreneur works the political system while relying on the federal government to become successful. The political entrepreneur is similar to the rich child who does not work because his parents fork out the money. The political entrepreneur's sole goal is to keep his subsidy and increase it; he does not care about succeeding. It becomes inevitable that those receiving subsidies will never have good corporate habits or make good decisions, with the ultimate loser being the taxpayer.
Besides not having a good track record in picking the winners and losers, the government can be seen as a “sore loser.” It puts power behind the losers in an attempt to stack the deck against the winners. If the political entrepreneur cannot succeed, government will create regulations or pass legislation to make sure the market entrepreneur fails.
In the book, there is the stark example of the fur traders. In the early 1800s, John Jacob Astor privately owned a fur company that soundly defeated his government-funded rival. The government imposed a higher license fee while at the same time increasing the subsidy for the government-supported company. In addition, a bill was passed in the Senate forcing each private trader to post a $10,000 bond for the right to trade. Folsom emphasized that even with these advantages, the government company went broke, as it became obvious that Astor’s company was much more successful.
Two other interesting examples in the book are the airplane and the steamboat. The government supported Samuel Langley’s attempt to create a flying machine in the 1890s. Folsom told American Thinker, “Langley was given $50,000 to get a plane to work, which was a much larger amount than the Wright Brothers spent of their own money. Both of Langley’s attempts landed in the Potomac River. The government kept handing out more and more money to Langley, hoping he would be successful. The transatlantic steamboat story is basically the same. The government kept subsidizing Edward K. Collins, even though Cornelius Vanderbilt had a better company with better service and lower prices. The Collins Line eventually became extinct, mainly because Collins’s ships were sinking. These stories are funny in a tragic way.”
What underscores these government subsidies is the fact that nothing ever happens to the government for a wrong investment. There are no consequences or ramifications. The Folsoms say that it all seemed to change under the FDR administration with the Reconstruction Finance Corporation, where the bureaucrats, not Congress, were giving out the subsidies. Fast-forward to today, where President Obama, in promoting his green energy agenda, has used all the previous techniques.
The Folsoms consider the owners of Solyndra a classic example. They contributed heavily to the Obama campaigns, received a large subsidy, and then gave some of it back in political contributions. They told American Thinker, “What President Obama wants to do is control the entire energy sector. The real losers are the American taxpayers. He promotes his green energy program while imposing regulations on other energy sources like clean coal and the Keystone Pipeline.”
The authors also issue a word of warning, since other companies might have a defeatist attitude because they do not feel they can compete against the government. Would Steve Jobs be able to create products like the iPhone or iPad today? Jobs warned President Obama that his administration is not business-friendly, with all the rules and regulations that create unnecessary costs, and said of market entrepreneurs, “The ones who are crazy enough to think that they can change the world are the ones who do.”
The Folsoms hope that the readers of Uncle Sam Can’t Count understand that the U.S. became a world economic power when the market entrepreneurs were allowed to dream. It was not government subsidies, but free enterprise that made this country prosperous. Government should step out of the way to allow private industries a fair shot at “life, liberty, and the pursuit of happiness.”
The author writes for American Thinker. She has done book reviews and author interviews and has written a number of national security, political, and foreign policy articles.