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Opinion

Picking Winners and Losers


  • By Clay Neely
  • |
  • Sep. 13, 2022 - 9:00 PM

Picking Winners and Losers

Lawrence W. Reed, a resident of Newnan, is president emeritus of the Foundation for Economic Education. His most recent book is “Was Jesus a Socialist?” He can be reached at lreed@fee.org.

No mortal being knows tomorrow as well as he knows yesterday, but that doesn’t stop very many from predicting the future anyway — sometimes suggesting a measure of scientific precision by offering excruciating detail.

Nobody knows what 2023’s GDP growth will be, but you can bet that plenty of people will be happy to guess.

Every time government chooses to subsidize one industry or handicap another, it pretends to know more about the future than it really does. Economists call it “picking winners and losers,” and it notoriously flops. Why should we expect otherwise? People who invest their own money, and have every incentive to invest it well, frequently make mistakes. People who gamble with other people’s money and bear few if any consequences for error will surely make even more mistakes. This is not rocket science.

The U.S. government bet on Samuel Langley and gave him a couple million dollars to invent an airplane, but Langley crash landed, and the unsubsidized Wright Brothers did the job for free.

Earlier, the same government doled out land and public money for three transcontinental railroads, all of which wasted the subsidies and went broke. Meanwhile, the most successful transcontinental (built by James J. Hill) never took a dime from Washington.

The Obama administration doled out half a billion dollars to the green energy firm Solyndra, which happily took the money and declared bankruptcy two years later.

The telegraph, one of the great inventions of the 19th century, revolutionized communications. Before the telegraph, messages traveled at the speed of horses. From London to New York, a letter required weeks of travel by ship. But after the transatlantic cable debuted, a telegraphed message from London showed up in New York in a matter of minutes.

When a 28-year-old scientist named Francis Ronalds approached the British Admiralty with his idea of sending messages via wire, he had good reason to expect a positive reception. Quite possibly the world’s first electrical engineer, he had already accomplished the impossible by transmitting a signal across eight miles of wire. It was the world’s first working electric telegraph.

On Aug. 5, 1816, Sir John Barrow delivered the British Admiralty’s stunning verdict. Ronalds’ invention was “wholly unnecessary,” he said. His Majesty’s military would continue to communicate via semaphore (signal flags and the like), as it had for centuries.

That was good news for the telegraph. If the British government had become involved and threw public money at it, it might have jeopardized the future growth and competitiveness of an industry that took off on its own.

In America, the first telegraph line was run by the federal government, from 1844 to 1846, from Baltimore to Washington. After two years, Congress tired of the losses and privatized the line. Private entrepreneurs figured out how to make it profitable.

Francis Ronalds fared quite well despite the Admiralty’s judgment. He became a wealthy man and one of the world’s most respected scientists of the day. Known even in his lifetime as the “father of electric telegraphy,” he made immense contributions to civil and mechanical engineering, meteorology, and early camera technology.

At the age of 82, he was knighted by Queen Victoria in part for the invention the British Admiralty rejected more than a half century before.

Lawrence W. Reed, a resident of Newnan, is president emeritus of the Foundation for Economic Education. His most recent book is “Was Jesus a Socialist?” He can be reached at lreed@fee.org.