Very illuminating. Speaks to the need to recalibrate the balance between investment and current expenditure within public spending. And of course to more effectively mobilize private savings into private investment to start with. Cf. Draghi report.
"Early-stage, future-leaning research is riskier and requires large amounts of patient capital. Private industry struggles to justify long-term, mammoth investments in deep science. The most enduring societies have one thing in common: Their governments play the long game. In the 1960s in the U.S., this meant computer and networking technology. At its peak, federal R&D spending approached 2% of GDP. The most cutting-edge work was done by the Defense Advanced Research Projects Agency (DARPA), which developed or funded the development of almost every building block technology of our tech infrastructure, from the internet and the mouse to graphical user interfaces and GPS. More recently, DARPA has been a major funder of AI projects, notably speech recognition — both Dragon and Siri spun out of DARPA. Speech illuminates the difference between government and private R&D: In the 1950s, private Bell Labs (aka the phone company) did pioneering work on speech recognition — but only on phone digits zero through nine."
"Fifty years from now, the field most likely to spawn more value than digital computing is genetics, and similar to digital computing, genetics is an Eagle Cap portfolio industry. The Human Genome Project cost U.S. taxpayers $3.8 billion, was completed under budget and two years ahead of schedule, and has generated $966 billion in economic activity and $59 billion in federal tax revenue. It’s estimated the federal government’s $3.3 billion in annual spending on genetics projects generates $265 billion in economic activity annually. This number doesn’t account for the improved health outcomes and quality of life flowing from genetic breakthroughs — which have an estimated value of $1 trillion per year and growing. One of Eagle Cap’s recent wins in this space: the Moderna Covid vaccine, the result of a $25m DARPA grant to the company for developing RNA vaccine technology."
Our societies appear to have a strong predilection for privatizing gains and socializing losses when it comes to financial sector bailouts. Similarly, there's a systematic effort afoot to vilify public investment and dismantle the government by the very same people who've built massive private fortunes on the back of extremely effective taxpayer-funded government investment:
"Elon Musk says we should “get rid of all” government subsidies, that “the government is the biggest corporation with a monopoly on violence,” and last week mocked Washington for hiring more employees at the IRS. Let’s be clear: Elon didn’t build an EV company in South Africa or start a rocket company in Canada. He built Tesla and SpaceX in the United States. And both continue to be heavily dependent on U.S. government support. There would be no SpaceX without NASA, its largest customer. Tesla built its Fremont factory with a $465 million DoE loan in 2010, and its first 200,000 cars benefited from tax credit subsidies of up to $7,500. For years the company was able to report profits thanks to the “sale” of emissions credits to other carmakers. All told, the company has accepted an estimated $2.5 billion in government support."
"The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn. The Republicans are the party that says government doesn't work and then they get elected and prove it." -- P. J. O'Rourke
The richest man in the world is an unelected bureaucrat, is highly dependent on taxpayer money, yet doesn't pay any taxes, and will probably never pay any taxes. And somehow, to many people, he's still a hero. American exceptionalism, indeed.
Tell me about it. Three desks away from me sits a guy who thinks Donald Trump is brilliant and Elon Musk is the most impressive person in the world. He even thinks Elon is more important than Thomas Edison...
"The rejection of a government that works for all Americans in order to concentrate power in the executive branch appears to serve individuals like Musk, rather than the American people. Isaac Stanley-Becker reported in The Atlantic on March 9 that although the government awarded Verizon a $2.4 billion contract to upgrade the Federal Aviation Administration’s communications network, Musk has instructed his SpaceX company to install its equipment in that network. Those installations seem designed to make the U.S. air traffic control system dependent on SpaceX, whose equipment, Stanley-Becker notes, “has not gone through strict U.S.-government security and risk-management review.” When Evan Feinman, who directed the $42.5 billion rural broadband program, left his position on Friday, he wrote an email to his former colleagues warning that there would be pressure to turn to SpaceX’s Starlink for internet connection in rural areas. “Stranding all or part of rural America with worse internet so that we can make the world’s richest man even richer is yet another in a long line of betrayals by Washington,” he wrote."
Very interesting! Perhaps part of the U.S. problem comes from its high defense investments, which don't have strong second-order effects. You build a road, it increases peoples' productivity on a day-to-day basis; you build missiles, and they just sit there.
In addition, maybe the U.S. has even more lobby capture in its public investments than other countries?
I think both are true. Defence spending has a relatively low fiscal multiplier (unless you use the missiles regularly, which in the past the US was prone to do). And the lobby capture seems anecdotally much stronger in the US than in Europe. But I have no data to support that.
I will make one defence of defence spending, actually two, one is technology development that is used for other stuff like internet and gps, and training. My Dad was trained as a machinist, aircraft tech (his dream job), electrical engineer and computer programmer, one of the earliest, by the CAF. He also taught math to nco’s, one of whom went on to become a lawyer and QC, who credited him with making his career possible. The private sector is full of highly qualified technicians, engineers etc trained by DND
Interesting - "build a road"- if I am not mistaken Eisenhower started building the US highways in part as a military and national defence move after being impressed with the german Autobahns (I am not a historian so I may have this way wrong)
First, because we have stricter debt rules and much lower deficits than the US (in Europe, government deficits are typically 3% on average while Germany has a debt brake that allows only 0.35% deficit, which they now soften) public spending in Europe is much lower than in the US.
Second, private investments are also much lower in Europe than in the US mostly because the labour market in Europe is less flexible than in the US and Europe is more regulated than the US reducing the incentive for businesses to invest there.
Very illuminating. Speaks to the need to recalibrate the balance between investment and current expenditure within public spending. And of course to more effectively mobilize private savings into private investment to start with. Cf. Draghi report.
Spot on. 👍
Hear, hear. Prof. Scott Galloway also recently made some excellent observations on this topic https://www.profgalloway.com/elon-musk-welfare-queen/ :
"Early-stage, future-leaning research is riskier and requires large amounts of patient capital. Private industry struggles to justify long-term, mammoth investments in deep science. The most enduring societies have one thing in common: Their governments play the long game. In the 1960s in the U.S., this meant computer and networking technology. At its peak, federal R&D spending approached 2% of GDP. The most cutting-edge work was done by the Defense Advanced Research Projects Agency (DARPA), which developed or funded the development of almost every building block technology of our tech infrastructure, from the internet and the mouse to graphical user interfaces and GPS. More recently, DARPA has been a major funder of AI projects, notably speech recognition — both Dragon and Siri spun out of DARPA. Speech illuminates the difference between government and private R&D: In the 1950s, private Bell Labs (aka the phone company) did pioneering work on speech recognition — but only on phone digits zero through nine."
"Fifty years from now, the field most likely to spawn more value than digital computing is genetics, and similar to digital computing, genetics is an Eagle Cap portfolio industry. The Human Genome Project cost U.S. taxpayers $3.8 billion, was completed under budget and two years ahead of schedule, and has generated $966 billion in economic activity and $59 billion in federal tax revenue. It’s estimated the federal government’s $3.3 billion in annual spending on genetics projects generates $265 billion in economic activity annually. This number doesn’t account for the improved health outcomes and quality of life flowing from genetic breakthroughs — which have an estimated value of $1 trillion per year and growing. One of Eagle Cap’s recent wins in this space: the Moderna Covid vaccine, the result of a $25m DARPA grant to the company for developing RNA vaccine technology."
Our societies appear to have a strong predilection for privatizing gains and socializing losses when it comes to financial sector bailouts. Similarly, there's a systematic effort afoot to vilify public investment and dismantle the government by the very same people who've built massive private fortunes on the back of extremely effective taxpayer-funded government investment:
"Elon Musk says we should “get rid of all” government subsidies, that “the government is the biggest corporation with a monopoly on violence,” and last week mocked Washington for hiring more employees at the IRS. Let’s be clear: Elon didn’t build an EV company in South Africa or start a rocket company in Canada. He built Tesla and SpaceX in the United States. And both continue to be heavily dependent on U.S. government support. There would be no SpaceX without NASA, its largest customer. Tesla built its Fremont factory with a $465 million DoE loan in 2010, and its first 200,000 cars benefited from tax credit subsidies of up to $7,500. For years the company was able to report profits thanks to the “sale” of emissions credits to other carmakers. All told, the company has accepted an estimated $2.5 billion in government support."
"The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn. The Republicans are the party that says government doesn't work and then they get elected and prove it." -- P. J. O'Rourke
The richest man in the world is an unelected bureaucrat, is highly dependent on taxpayer money, yet doesn't pay any taxes, and will probably never pay any taxes. And somehow, to many people, he's still a hero. American exceptionalism, indeed.
Tell me about it. Three desks away from me sits a guy who thinks Donald Trump is brilliant and Elon Musk is the most impressive person in the world. He even thinks Elon is more important than Thomas Edison...
P.S. This just hit my inbox this morning https://open.substack.com/pub/heathercoxrichardson/p/march-17-2025
"The rejection of a government that works for all Americans in order to concentrate power in the executive branch appears to serve individuals like Musk, rather than the American people. Isaac Stanley-Becker reported in The Atlantic on March 9 that although the government awarded Verizon a $2.4 billion contract to upgrade the Federal Aviation Administration’s communications network, Musk has instructed his SpaceX company to install its equipment in that network. Those installations seem designed to make the U.S. air traffic control system dependent on SpaceX, whose equipment, Stanley-Becker notes, “has not gone through strict U.S.-government security and risk-management review.” When Evan Feinman, who directed the $42.5 billion rural broadband program, left his position on Friday, he wrote an email to his former colleagues warning that there would be pressure to turn to SpaceX’s Starlink for internet connection in rural areas. “Stranding all or part of rural America with worse internet so that we can make the world’s richest man even richer is yet another in a long line of betrayals by Washington,” he wrote."
Jesus...
Absolutely true. Here are some numbers on how government investments are more productive than private investments in some instances (particularly R&D): https://klementoninvesting.substack.com/p/when-private-companies-are-less-productive
Very interesting! Perhaps part of the U.S. problem comes from its high defense investments, which don't have strong second-order effects. You build a road, it increases peoples' productivity on a day-to-day basis; you build missiles, and they just sit there.
In addition, maybe the U.S. has even more lobby capture in its public investments than other countries?
I think both are true. Defence spending has a relatively low fiscal multiplier (unless you use the missiles regularly, which in the past the US was prone to do). And the lobby capture seems anecdotally much stronger in the US than in Europe. But I have no data to support that.
I will make one defence of defence spending, actually two, one is technology development that is used for other stuff like internet and gps, and training. My Dad was trained as a machinist, aircraft tech (his dream job), electrical engineer and computer programmer, one of the earliest, by the CAF. He also taught math to nco’s, one of whom went on to become a lawyer and QC, who credited him with making his career possible. The private sector is full of highly qualified technicians, engineers etc trained by DND
Interesting - "build a road"- if I am not mistaken Eisenhower started building the US highways in part as a military and national defence move after being impressed with the german Autobahns (I am not a historian so I may have this way wrong)
What is remarkable for me is how much the US and Canada are spending on defence. Who on Earth is going to invade them?
Who on earth is going to invade Canada? 🤔😂
It will be Greenland before Canada. :)
So, if public investment outside USA is so much more profitable than USA, why do Europe still grow slower than USA?
Two reasons.
First, because we have stricter debt rules and much lower deficits than the US (in Europe, government deficits are typically 3% on average while Germany has a debt brake that allows only 0.35% deficit, which they now soften) public spending in Europe is much lower than in the US.
Second, private investments are also much lower in Europe than in the US mostly because the labour market in Europe is less flexible than in the US and Europe is more regulated than the US reducing the incentive for businesses to invest there.