Video: Why does private investment work when government investment flops?

Burt Folsom, historian and professor at Hillsdale College, takes a look at why private investment works and why government investment usually flops.

There is no astronomical amount of government funding that could ever match the entrepreneurial spirit. We’ve seen this time and again; as the video notes, railroads and airplanes. When the government intervenes, taxpayers’ money is wasted in a project, which usually gets delayed, goes overbudget and eventually fails. Many companies backed with government funds go bankrupt and becomes engrossed in scandal.

When private investment is inserted into a project, the investors have an incentive to be successful, and it’s ensured that the project is completed on time and on budget. Whether it’s an invention or the construction of a road, the private sector has a higher success rate over the government.

This is a reminder of Milton Friedman’s wise words:

“There are four ways in which you can spend money.  You can spend your own money on yourself.  When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.  Then you can spend your own money on somebody else.  For example, I buy a birthday present for someone.  Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.  Then, I can spend somebody else’s money on myself.  And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!  Finally, I can spend somebody else’s money on somebody else.  And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get.  And that’s government.  And that’s close to 40% of our national income.”

Here is the latest video from Prager University: