Some Government Skin in the Game: How to Encourage New Technology

There has been a lot of debate recently about whether government should be encouraging new technologies. Most of that debate has taken it as given that if the government is to encourage new technology, it does so with loan guarantees and subsidized loans. That is a prescription for failure. Encouraging new technologies with loans and loan guarantees gives the downside risk to the government and the upside benefit to private investors; it directs most of the benefits to the few. That is a prescription for political pressure and crony capitalism. The reality is that new technology is far too risky to be financed by loans - whether they be private or government. Currently, the demand for the government to encourage new technologies is leading to programs of loans and loan guarantees, which are definitely the wrong conduit for government encouragement. Those loans do far more damage than good, and they cost the government large amounts of money. If government encouragement of new technology is to take place, it has to be done in a way that doesn't almost guarantee failure and undermine the market's method for discipline in making investments in new technology.