Democratic Stimulus = Bad. GOP Stimulus = Great!

Federal Reserve Chairman, Ben  Bernanke, spoke yesterday about the decreasing financial support that the federal government is providing in the area of research and development.  He spoke of federal funding representing about 26 percent of total spending on R&D in the United States in 2008, when it had been about 50 percent over the previous three decades.  He also spoke of the difficulty in knowing the best ways to use government funds effectively to support economically valuable innovation:

“We know less than we would like about which policies work best,” Mr. Bernanke said in remarks to a conference on innovation at Georgetown University.

The private sector has the ability to pick up some of the slack in innovation funding through angel investors and venture capital firms.  Apparently the Republicans in the state legislature aren't completely willing to trust private capital markets to make the right decisions on which new idea or product deserves to thrive and which ones need to wither on the vine.  So they have decided to step into this marketplace by providing incentives to private capital markets to "buy Wisconsin."

Recently the governor, Senator Fitzgerald and others issued press releases touting the imaginative approach that Senator Randy Hopper was proposing in a new bill he co-authored called the Wisconsin Venture Capital Authority Act.  A recent Journal Sentinel article on the proposed law is here.

The bill as introduced would administer two separate funds with the following features:

The Jobs Now Fund would use a strategy of investing in state businesses quickly. It would issue $200 million in tax credits over time for insurance companies that invested in certified capital funds. The tax credits would be for 80% of the value of the investments made, so $200 million in tax credits could attract $250 million in investments.

Qualified businesses would have to be headquartered in Wisconsin, have 100 or fewer employees, with at least 80% of them in the state, and be primarily engaged in industries other than real estate, banking, professional services or retail sales. The fund would create a source of revenue for the state's general fund over time, said Tom Still, president of the Wisconsin Technology Council.

The authority also would administer a $200 million Badger Jobs Fund, which would focus on longer-term investments. It would solicit as much as $200 million from the sale of bonds, then invest the money in qualified venture capital funds, with no more than 15% going to any single fund. For every one dollar a venture fund received, it would have to raise $3 from other sources.

Venture funds would have to invest all the money from the fund in companies based in Wisconsin.

The bill undoubtedly has some Democratic support as well (the Democrats actually jumped the gun in this session with an earlier bill similar to the one just introduced by the Republicans), but the fact that it is being so heavily touted by the governor and Republican leadership is deliciously ironic. 

For the governor and his Tea Party support group, there was no good to be found in the huge federal stimulus packages of the Obama administration undertaken (very successfully so far, can you say "Volt" and "600,000 new jobs in three months?") to keep the country from swirling around and disappearing into the economic toilet bowl otherwise known as the Bush recession.

The governor and his legislative buds are the same folks that turned their back on the transportation innovations and job creation that would have flowed from the state being a major part of a high speed rail network in the upper midwest, and receiving $800,000,000 in almost immediate federal stimulus money, because they didn't want to run a risk that the state might have to invest as little as $750,000 a year to support operating expenses of the Milwaukee-Madison rail line in future years to come.  Now we are planning to give away $400,000,000 to Wisconsin insurance companies and GOP selected venture capital funds for their agreement to invest in innovation in Wisconsin that may or may not create viable companies or significant numbers of jobs. (If venture capital wasn't such an inherently risky business, the bill's huge financial incentives wouldn't be necessary.)  This will shift the burden of creating general tax revenues away from the insurance companies and onto John Q citizen. 

Worst yet will be if the program for the Jobs Now Fund is set up as it was described in an earlier Journal Sentinel article, where the insurance companies trade their $250,000,000 in money for $200,000,000 in tax credits and hand the $250,000,000 over to a state agency that picks and chooses the venture capital funds to which it gives the money to invest. The bill (as described by the Journal Sentinel) provides for the governor to select a majority of the board members of the new Authority, and thus the winners and lossers for the $400,000,000 in state aid will be politically beholding to the GOP.  What are the odds that while labor union financial support for political candidates dries up under the new union-busting measures of the GOP, the GOP won't be the object of substantial largesse from the companies that benefit from this new stimulus package?

So what Ben Bernanke says is a very difficult task, making the right decisions on how to fund innovation with public dollars, will now be handled by a new Wisconsin bureaucracy that will apparently know better than the competitive marketplace which companies should be supported with capital.

Ayn Rand must be rolling over in her grave, and not just because "Atlas Shrugged" was such a huge box office bust.