Misallocation of Capital

The WSJ had a fabulous editorial yesterday that is a must read.

Here are some key points..

Less laudable is Mr. Immelt's habit of inviting government to be his business partner and promoter. In his 2008 letter to shareholders, the CEO declared that the financial crisis and election of Mr. Obama meant that the U.S. economy had been fundamentally "reset."

His key line: "The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner."

This is an invitation to the same kind of capital misallocation that led to the housing bubble. Mr. Immelt's particular goal is to promote policies and subsidies that aid green energy, in which GE is deeply invested. But if wind turbines are a good business, they will find a market on their own. If wind power turns out to be an uncompetitive bust, then the government will have misallocated hundreds of billions more dollars that could have found more productive uses.

and this...

Yet Tuesday night can't erase the fact that in his first two years Mr. Obama has overseen an historic expansion of government. He has increased federal spending to as much as 25% of the economy from a modern average between 20% and 21%. In terms of allocating resources, this means that 4% of annual economic output was suddenly taken out of private hands and put under government control.

and finally...

Government "investments"—Mr. Obama's favorite word last night—are by definition made for political purposes, rather than for their highest potential return. They are allocated by politics rather than by prices. In our view, that 4% of GDP a year could have contributed far more to economic recovery had it stayed in private hands.

Capital is a scarce resource. I put my bet on the private sector allocating it to the highest value rather by B Hussein and his cronies.