Why Private Investment Works & Govt. Investment Doesn’t

In 2011, a solar power company called Solyndra
declared bankruptcy. A company going bankrupt is not news. But Solyndra was not just any
company. Its biggest “investor” was the federal government which had given it $500
million dollars. That was news. But, really, it shouldn’t have been. If
history is any guide, it was quite predictable. The government is a very poor investor. And
always has been. There are countless examples, but two should serve our purpose here. After the Civil War, American leaders were
anxious to bind the country’s North, South, East, and West regions together with transcontinental
railroads. Congress therefore gave massive federal aid to build the Union Pacific, the
Central Pacific, and later the Northern Pacific Railroads. But all three of these roads had
huge financial problems. The Union Pacific, for example, was mired in financial scandal
from its inception, went bankrupt several times, and had to rebuild large sections of
track thanks to shoddy construction practices. At that same time, James J. Hill, with no
federal aid whatsoever, built a railroad from St. Paul to Seattle — the Great Northern.
How was Hill able to do with private funds what the Union Pacific failed to do with a
gift of tens of millions of federal dollars? The starting point is incentives. The Union
Pacific was paid by the government for each mile of road it built. It was in the railroad’s
interest not to build the road straight. The more miles it took the UP to cross Nebraska,
for example, the more money it made. Hill, by contrast, used his own capital. To
make a profit, he had to build his Great Northern Railroad sturdy and straight. Hill’s company
remained in business for almost a hundred years until 1970 when it merged with other
railroads. The original Union Pacific, riddled with corruption and numerous other financial
misdeeds, including the wholesale bribery of public officials, went broke within ten
years. The story of the airplane is even more stark.
By the opening of the twentieth century, the major nations of Europe and America were frantically at work trying to invent a flying machine. The first nation to do so would have a huge
military and commercial advantage. In fact, leading American politicians of the
day, such as Teddy Roosevelt, President William McKinley, and others argued that building
an airplane was a national emergency. There was no time, they argued, to wait for private
industry to get the job done. The government needed to pick the best aeronautics expert
and give him the money he needed. That expert was Samuel Langley, the president
of the prestigious Smithsonian Institution and holder of honorary degrees from Harvard,
Yale, Oxford, and Cambridge. Langley was already an accomplished inventor and he had written
a highly praised book Experiments in Aerodynamics. Federal officials gave Langley funds for two
trial flights. He immediately set to work. His theory was that his plane needed to be
thrust into the air from a houseboat on the Potomac River. The big engine on the plane
would then propel it through air for several minutes. When his first attempt failed, and the plane
splashed into the river, Langley was not deterred. But when his second flight did no better,
Langley and the politicians gave up. If Langley, with the full backing of the government,
could not solve the problem, people simply assumed that it could not be solved. Indeed,
The New York Times wrote that human flight might take a million years to accomplish. But to everyone’s surprise, nine days after
Langley’s failure, the Wright brothers, Orville and Wilbur, two bicycle mechanics
from Dayton, Ohio, with $2,000 of their own money, conquered the air. On a beach at Kitty
Hawk, North Carolina, they flew the first plane. Within five years they had constructed
an aircraft suitable to sell to the government for military defense. Langley’s subsidized failure was similar
to that of the Union Pacific. And the Wright brothers’ success resembled that of James
J. Hill and the Great Northern Railroad. Langley and the Union Pacific were using other people’s
money. They did not spend it as carefully as Hill and the Wright brothers spent their
own money. As the San Francisco Chronicle concluded at the time: “The destruction
of Langley’s machine should put an end to Congressional appropriations of any kind in
every field of experiments which properly belongs to private enterprise.” That remains good advice. Economic growth comes from entrepreneurs risking
their own money, not from politicians risking your money. I’m Burton Folsom, Professor of History
at Hillsdale College, for Prager University.

100 Replies to “Why Private Investment Works & Govt. Investment Doesn’t

  1. You can add the F35 & The big dig to the list – massively over budget, huge delays with spurious result. Given the government is inept, incompetent, and absolutely corrupt, it’s no surprise. It’s just not the federal government, when the socialist ran the economy in the USSR, it was a disaster. The only exception is where they directly competed with the West – space race and militarily.

  2. Not long ago a thriving business that had been around for over 140+ years got taken over by the IRS because they claimed this company owed a lot of back taxes. So the IRS decided they were going to collect those back taxes by running the company themselves! Well, within 6 months, this thriving company was laid to rest! The real sad thing here is that the company the IRS took over was marketing one of the oldest product that carried the oldest profession known to man! Prostitution! And the company was the Mustang Ranch!! If the Government can't even keep the oldest no brainer profession going, why would we trust them to run anything else?

    Our "Republic" was created to be a "minimal" government that enforced our law which is the Constitution! Sadly over time, the globalist left and traitorous Rinos have pushed more and more Government on to us and we finally see the end result of what they want! Socialism! Full dependence on Government! Yet in history, it's clear that when you spend other peoples money, it never works out! So far, 1 thousand 100 hundred people who watched this video must like or want Socialism! They just never learn!!!

  3. Then why has the Republican Party done NOTHING about REDUCING THE SIZE AND SCOPE OF GOVERNMENT for the past 60 YEARS???!!!
    Answer: Because they DO NOT give a rats f*cking ass about it. And it wouldn’t surprise me in the least that they rely on Prager U to continue peddling this kind of bullsh*t to suggest that they do!

    A TRUE small government conservative

  4. When I was in the Navy, I got laughed out of the wardroom for suggesting that captains be rewarded for operating their ships efficiently. The others thought our job was to show the flag, and cost was not a factor whatsoever.

  5. A normal conversation

  6. I kinda disagree with this video. It's not like Langley, and subsequently every other agency who receives government handouts, spent that money in foreign markets. They invested it in american engineers, technicians, supplies and equipment to complete R&D. Sure they spent our money, but the people who received it ultimately cycled it back into the economy through taxation and private purchases. Also the Wright brothers used Langley's failures as a jump point for their experiments. I think its a gross over-simplification to say that economic growth is spurred from private money over the government's. Another point. Sure the wright brothers invented the first flying aircraft, but the real innovation came from the war machine of WWI and II and the postal system. That's when large combustion engines took our aircraft to new ranges with more cargo. The same goes for space. There was no Elon Musk when the government put man on the moon. As a matter-of-fact, there would be no private space or aviation corporations if it wasn't for the government footing the R&D/innovations bills. You also state that Langley, with the full support of the government couldn't achieve flight. In that same section you just said how both Langley AND the government gave up. Doesn't sound like full government backing to me. Your example of railroads is an example of corruption, not failed government acquisition. Don't get me wrong I'm anti- big government and the government does misstep, quite often. But, your blanket statements are far too chili for my needs.

  7. I understand how bad incentives caused the railroad problems; but how did having more money at his disposal cause Langley's failure? Isn't it just a case of the Wright brothers being smarter?

  8. Please research 😩😑 the stupid case that the Korean government is doing right now. About income-led growth??? 😩

  9. Slight inaccuracy. The Wright brothers didn't want planes to become part of the war machine. They thought that planes would put an end to war because everyone would see the invading army.

  10. A great smelly piece of shit from PragurU . According to this logic only people who have " their own money can do something for society " . PragurU is a disastrous Channel

  11. Entrepeneur who's funded by the government: "Who cares if our plan fails or we need to fix our mistakes, the government will bail us out"
    Entrepeneur who's funded by it's own money: "We've got one chance at this, make it the best we can do"

  12. The United States first aircraft carrier was named after Mr Langley . And yes it was a piece of crap to .

  13. Santos-Dumont used his own money to create his inventions, and in Frances there was lots of prizes for achievements in aviation. He didn't received money from government to build his balloons and airplanes.

  14. 30 years after the Wright Brothers the democrats issued by law "Social Security" because YOU and I are too stupid to handle our own money! Social Security, basically, is legal theft whereby the feds steal our money weekly, and waste it on other failed projects. Naturally, SS has been bankrupt forever, but it steals money from other "systems" to perpetuate its misery. Then then the democrats (Obama, HRC, etc.) want to run health care! BAHAHAHAHAHHAHAHAHAHA! Really? LMAO! Hey, bang up job running Social Security and the post office! — they lose BILLIONS every year! And will not hire anyone with an IQ above your average chimp.

  15. It isn’t private investment that is the problem. It is the perseverance that someone has to vision a goal and get it done

  16. except when the government has to bail out private industry… time and time again. For billions and billions of dollars.

  17. Manhattan Project. NASA. Interstate highways. Three examples of government subsidized technology and infrastructure initiatives that did just fine. Beyond question, the private sector has bested the public sector many times, but to suggest that the public sector is incapable of successfully supporting innovation or of building infrastructure is an offence to scholarship. Prager U seems bent on creating video content that provides viewers with a very one-sided view of things. You, the viewer, should take offence to that. It’s snake oil salesmanship. Prager U should be ashamed of their shoddy and ideologically driven work. If this video was submitted as an essay in any reputable university, it would receive a failing grade. Shameful work, Prager U.

  18. you chose the only example of a trans continental railroad that worked and didn't need government money. I repeat, the ONLY one to not use money. also what about stuff like the interstate highway, that was publicly funded and anyone with a car uses it.

  19. I experienced first hand at Solyndra. I didn’t work for them but we were sub contractor. I got several friends working at Solyndra and we called them Obama’s employees. The employees were basically doing nothing there. Show up late, take off early. It usually took a week to 10 days to respond to our emails. Nobody in the industry was surprised when it was bankrupted. They weren’t there for profit, but they were there for grant instead

  20. NASA, although inefficient, mismanaged and blanketed in red tape, is one of the few success stories of government investment. Unfortunately, the investment could be, or have been, a lot less if it were semi, or fully run by a private organization (with even some government oversight). The Moon landing, space station, satellites, scientific discoveries and technological advancements are all big returns on investment. The incentives were there for the scientists who were, and are, passionate about space exploration. National defense hawks are also in the mix. Either way, NASA is one of only a handful of successful government investments. I also consider the National Park system and the Military at large, as good investments. The return on investment is what’s important.

  21. Hmm….remember when private companies took over electricity and gas public companies? Half of the population could not afford the bill. And yes. It happened in States and keepi happening.

  22. When private investment goes bad the investor that has skin in the game loses. When government investment goes bad the politicians blame someone else and they raise our taxes. This is why communism/socialism will never work. But we are dumb enough to try it here in the name of political correctness and diversity. The parasites outnumber the producers now. We are f'd.

  23. Private investments are aimed at profits. Government investments are aimed at gaining more power over the citizens. Which do you prefer?

  24. Government is a poor investor. They had failed and failed many times and could not figure out why.
    I guess the corruption and mismanagement of the money .
    Economic growth come from entrepreneur not from politician risking your money

  25. Fantastic speech please make a lesson to Greek politicians who still believe in public property and public companies

  26. And President Trump is just the entrepreneur for the job of removing all the politicians messes at the moment. If the people let him.

  27. yes, I concede that big government can be inefficient, but I believe that we haven’t even tapped the potential for government to make people, especially those who have been unfairly disadvantaged by society, more prosperous and free. I too believe that a free economy can work well to foster innovation, but every economy needs rules and regulations to avoid market failures and to ensure that there are equal opportunities for every person to succeed. Yes, laws can be limiting, but we believe that big problems require big solutions, and, as history has shown, writing a law could be the first step towards great social change.

  28. I love this university it is straightforward thinking no lies no deceit putting it in a practical and common sense way for even the most intellectually impaired person to understand and unfortunately politicians fit into this category says we're all aware of these days the most politicians took out the back of their ass and know nothing about business if you want something done get the business community to do it and not the taxpayer all you have to do as a politician is make it possible take the obstacles out of their way and create the conditions for the entrepreneurs to make the money and create the jobs for the people

  29. It was similar with ,,Amber Gold" bank and ,,OLT Express" airline – they were both financed by government, and it turned into two of 8 affairs Polish Left made in it's 8 years cadence.




  32. For those who are using NASA as an example of government success, you should remember the Saturn V was built by private industry contracted by the government. The government didn't interfere with the project, it just supplied the capital. The government of the USSR DID interfere with their moon project. "With the Soviet moon mission collapsing into a political quagmire, development of the NK-15-powered N1 began. The failure of the N1 was primarily blamed on the wild complexity of its 30-engine first stage. To put it simply, a feud between two people derailed and ultimately killed the Soviet Union’s moon programme." https://rocketrundown.com/the-failure-of-the-soviet-n1-moon-rocket/

  33. One of few government enterprises that worked was the construction of the atomic bomb. Guess they got the bang for their buck there.

  34. Langley example is a bad one, it's experimental science, you can't know anything whether it's private or government. Nuclear weapons, space exploration, how about those? Private?

  35. Makes sense that people fail with other's money because they can, it won't effect them in the same way as failing with their own money

  36. The Union Pacific was Lincoln's client. A significant reason for the War of Northern Aggression was to get money for Lincoln to funnel into his crony's coffers.

  37. Yeah, the U.S. government's investment in going to the moon was a huge money loser and resulted in nothing of value for this nation (not true). Not every endeavor will be successful. But in every business failure there are lessons to be learned that can be of lasting value. Fundamentally, solar PV cells will eventually be proven to be a fool's errand. Only Gen 4, low pressure, low proliferation, low waste nuclear technology will provide humanity with the true and safe path to full decarbonization and energy abundance. Sure go ahead and flame me and then we'll just wait and see….

  38. That's silly because government investment isn't supposed to "work" in the same calculable measures. You can't do an ROI on the enjoyment of a state park or local park, nor can you do an ROI on capital gained through the agency of government roads, landlines, infrastructure. Government exists to provide services that are needed by the public, but aren't profitable. That's why citizens need to do a better job of determining what their respective cities, municipalities, states, and country need.

  39. I saw an animated film, not sure how accurate, that claimed the French got a hold of the write brothers ideas and tried to claim they were the first.

  40. I both Agree & Disagree; we’re not looking at the entirety of this. Though I completely agree with his points in how the Apollo One failed & how Apollo Thirteen almost became another disaster, especially when compared to the Soviets, I disagree that the government should be completely out of the picture. I’d rather Reward private investors with contracts AND choose which ones win based on Key Criteria.
    But bear in mind, if we over privatize everything, then we’ll never be able to compete because using what was once Public Road may be seen as trespassing & goods will never be successfully distributed & such.

  41. The government created the internet allowing you to post this propaganda PragerEWE. NASA is responsible for numerous products from Tang to the laser for the CD. The World isn't black and white.

  42. Most of that "private investment" comes in the form of grants from the government.

    Its why companies that make billions in profit pay next to nothing in taxes.

    Government investment in research has contributed to MOST of our nations greatest advancements.

  43. The stench of obama, cash for clunkers was money for unions, otherwise it was a total failure
    It did nothing they proclaimed it did.

  44. Ha, ha! You call two over simplified antidotes an explanation. I had hope you would at least attack the military industrial complex, or corporate welfare to the fossil fuel industry, big pharma, or Amazon. You could have acknowledged that it was the Republican party that was behind the transcontinental railroad, and human flight investments. No you only want to attack solar power. What predictably bad job done by a fake University propaganda channel started by a billionaire and masquerading as a charity. How much money are poor suckers donating to your billionaire causes?

  45. Who authorized the US Government to make such investment to Solyndra? Why is the Governemnt competing with investments? It's a conflict of interest? Who did it should be jailed. No one has the authority ti invest people's money unless the people expresses it to be so.

  46. Most things that we think of should be accomplished by the market alone, but there genuinely are some things that require investment before it is viable for the market to intervene. An example of this is fusion energy. From what I understand, the nature of fusion energy is that the science that we have currently would only allow for it to be viable if it was create on a massive scale. No private capitalist would voluntarily pay what was necessary to advance fusion tech to the point it is at right now over the last 100 years. It's a level of funding that required the cooperation of many rich countries to properly fund. It is only now, when the tech seems to be proving its functionality at a larger scale, that private enterprise has deemed it a worthy investment. With the market at play, the state could theoretically just cancel all future projects and allow private enterprise to solve the problem, but we can't deny that it likely would have been impossible without state investment.

  47. Politicians are not afraid of spending wrong the other people´s money, so it becomes very difficult to make the right choices when it comes to efficiency but hey.. That doesn´t mean they are not capable of building something that really works. Maybe if they sign a contract where thay can go to jail , or lose their houses, cars , etc if the project fails, maybe then they will do things right. What do you think?

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