Jay P. Greene's Blog

The Wall Street Journal had an excellent piece by Charles Dameron chronicling the “crony capitalism problem” of newly announced Republican presidential candidate, Gov. Rick Perry of Texas.  The piece describes a $200 million slush fund that the governor along with the leaders of the state house and senate have to “invest” taxpayer money in high tech start-ups in Texas:

The Emerging Technology Fund was created at Mr. Perry’s behest in 2005 to act as a kind of public-sector venture capital firm, largely to provide funding for tech start-ups in Texas. Since then, the fund has committed nearly $200 million of taxpayer money to fund 133 companies. Mr. Perry told a group of CEOs in May that the fund’s “strategic investments are what’s helping us keep groundbreaking innovations in the state.” The governor, together with the lieutenant governor and the speaker of the Texas House, enjoys ultimate decision-making power over the fund’s investments.

The piece goes on to document the extremely cozy relationship between the recipients of these funds (who have a proclivity for declaring bankruptcy) and Rick Perry’s campaign coffers.  But the real problem of having the government fund businesses is not the actuality or appearance of conflicts of interest, as the WSJ article seems to suggest.  The real problem is the hubris of thinking that a handful of government leaders can identify the “right” businesses to which capital should be allocated.  Why should they think that they are smarter with public dollars than the market investing private dollars?  In short, crony capitalism is an example of the errors of central planning.

The WSJ piece on Rick Perry is quite damaging, but ultimately we may have to sift through a set of candidates (from both parties) to see who has the least extensive and dangerous central planning fantasies.

I’ve often wondered why people are seduced by the thought that they know best which firms should receive investments or which standards should be used in all schools or which teaching methods are most effective for all children.  The obvious answers are that people desire power or money, both of which can be grabbed by the successful central planner.

But there is another explanation for the tendency toward central planning that deserves our attention — youth.  Young, smart people have an amazing abundance of confidence in their own abilities to identify the right way for others to act combined with an amazing shortage of disappointing experiences where that central planning has utterly failed.   And, for better or worse, young people tend to play a very large role in policy-making.

I notice the youthful dangers of central planning every time I visit Washington, DC.  Just sitting in a restaurant I often overhear some twenty-something describe (in some detail) how to restructure energy policy, deliver health care, promote virtue through the tax code, or reshape the nation’s schools.  These twenty-somethings are usually congressional staffers or think-tank wonks.  And I am just as likely to hear this central planning hubris from someone working for a Republican member of Congress or a conservative think tank.

I’ve never believed that teachers should determine education policy,that soldiers should determine military strategy, or that doctors should determine health policy, but there is something to be said for the wisdom of experience in policy-making.

Look at the folks who populate the DC education punditocracy.  Very few of them have actually ever done anything — except dream up what others should do and persuasively write about it.  They’ve worked in administrations, written policy briefs, and attended a whole lot of catered lunches, but they know remarkably little about the world.  Most have never had a regular (non-policy) job.  They don’t even know the world through scholarly inquiry, since almost none of them have ever conducted their own original empirical analyses of policies.  They read studies that others conduct, talk with each other, and write about what they think should be done.  The know about as much about policy as Entertainment Tonight hosts know about great acting.  They’ve seen other people do it and then talk about it all the time.

In short, I have no idea why we ever listen to many of these DC edu-punditcrats.  They may write very well (and often) and read a lot, but they don’t actually have any expertise.  And, given their youth and inexperience, they are very often tempted to engage in dangerous central planning fantasies.

Plenty of good-old-boys out in the hinterland engage in central planning like Rick Perry’s crony capitalism.  But their motivation to do so tends to be more cynical and obvious.  The straightforward desire for money and power is easier to detect and check.  The youthful central planning of the DC edu-punditcrats, on the other hand, is harder to contain because its practitioners enthusiastically believe in what they are doing.  They are ET Hosts who think their performances are Oscar-worthy.