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Forbes

 

Uncle Sam, Tech Investor

March 29, 2009

By Peter W. Huber

PRINTER FRIENDLY

The high-tech industry should tell Washington to keep its money where the sun doesn't shine.

If you think the country is in a hole now, wait until the folks in Washington finish their digging. They are prepared to do to the rest of the economy what Fannie and Freddie did to the housing market. They can use the government's power to inject economically toxic capital assets into the rest of the economy.

Every taxpayer will sign a new 30-year mortgage on these investments--if you can't show up in person, the Treasury will sign for you. The government will focus particularly on the high-tech sectors of the economy that would otherwise have the greatest capacity to generate new wealth quickly and propel a broader recovery when confidence begins creeping back into the market.

Here are some of the fancy appliances that the feds will be installing when they renovate your house. Arrays of towers, radios and routers, used to give you free, wireless broadband service from somewhere down the street. (You'll pay for this on your 1040 and by way of surcharges added to the telecom services you buy from private vendors.) Skyscraper-size windmills and Texas-ranch-size solar farms. (Mortgage payments will be tucked into your monthly electric bill.) A sprawling infrastructure of farms, refineries and distribution systems built to turn corn and switchgrass into ethanol. (Pay off the mortgage weekly, at the pump.) You're also going to own part of a room at a new clinic, built to advance your universal health care. (Principal and interest payments to be collected somewhere in the blizzard of taxes and premiums you already send to public and private insurers.) You're going to become a proud (but mortgaged) owner of a vast, new network of computers and high-speed links used to digitize your medical file.

As countless people who bought homes in the last few years have painfully discovered, keeping money under the mattress sometimes really is the best investment strategy. Or as Jonathan Ingersoll and Stephen Ross put it in "Waiting to Invest," a now classic paper, every proposed investment competes with itself postponed. Even when a project's net present value looks solidly positive today, it may make much better sense to wait a year, or a decade. Having the wisdom and courage to do nothing is doubly important when technologies are changing fast.

Sinking money into fluorescent bulbs that cost $10 and save $50 in electricity over a projected ten-year lifetime is a dreadful investment if equally bright bulbs built with light-emitting diodes will soon cost $1, save $100 and last a lifetime. Any technology deployed to promote universal broadband service today will certainly be overtaken by something cheaper and faster soon after the federal dollars are committed and long before they provide any useful stimulus or service. Mobilizing and billeting new armies of white-coated health care workers will only anchor us even more firmly in medicine's expensive and largely ineffectual past. Drugs are cheaper than surgery. But the current plan is to punish drug companies.

One doesn't know whether to laugh or cry at plans to have Washington lead the way in making all medical records digital. The Treasury Department has made a complete hash of its attempts to move its own tax collector into the digital age. The computers and software used by the feds to run the nation's air traffic control system lag hopelessly behind the guidance and collision-avoidance systems built into modern cockpits. Making things digital begins with choosing technical standards, protocols and interfaces--the difficult Windows-or-Mac calls that we all make with each new private step we take into the digital cosmos. When the government drives these choices, Washington's gnomes make the calls for everyone. Their calls lock in not just features but also entire architectures. The calls are always made slowly, and never well, and they're all but irreversible.

The private sector recognizes and reacts badly to such prospects long before the government money starts to roll. Wall Street will suck many more dollars out of the affected high-tech markets than Washington will pump into them. The arrival of give-it-away competition in any market immediately lowers the value of private investments already made and chills new investment--the private money knows it can't compete with federal tooth fairies over the long term. The vendors of equipment and services will of course scramble to sell their wares to the tooth fairy instead. But the winners of these contests will end up selling Washington the rope that will be used to hang them on the same gallows as their competitors.

Antitrust laws notwithstanding, private companies have the right to coordinate their political efforts. As a handful of the wiser and more courageous state governors have already done, the titans of high-tech industry should unite in telling Washington to keep its money where the sun doesn't shine. They have to choose how they want their long-term future to be capitalized--by Washington or by Wall Street. It won't be both.

Original Source: http://www.forbes.com/forbes/2009/0413/071-tech-industry-invest-insights.html

 

 
 
 

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