Elon Musk Needs to Teach Our Government How to Lose More Money

Opinion|Elon Musk Needs to Teach Our Government How to Lose More Money

A newcomer to the byzantine world of congressional appropriations and federal budgeting, Elon Musk has attracted no shortage of skepticism as to whether he can credibly pursue his mandate to improve government efficiency. But there is one kind of federal spending for which Mr. Musk, with his Silicon Valley roots, could offer exactly the perspective we need: the government’s overly conservative yet increasingly critical investment programs.

To get a sense of the scope of the problem, let’s start with the fact that it is challenging, if not impossible, to pinpoint how much the U.S. invests — beyond the fact it includes a portion of the roughly $2 trillion our government spends annually on lending programs to support various constituencies. And this figure excludes other types of spending that often serve investment-like objectives, such as grants and research and development. (That’s partly because the U.S. government does not even have a unified public investment definition or strategy.) As for the importance of such spending: It funded the agency that was responsible for the early internet, helped make global positioning systems a reality and even supported artificial intelligence research that produced the precursor to Apple’s Siri.

Getting the United States’ public investment strategy right is urgent business. China’s industrial policy, which includes huge government subsidies across industries, cannot be countered by relying on private markets alone. And we urgently need new solutions and technologies to address challenges such as supply chain crises and climate change. The Biden administration took a step in the right direction when it aggressively expanded investment programs with legislation like the Inflation Reduction Act and the CHIPS and Science Act, which fund the development of green technologies and domestic semiconductor manufacturing. Both the Biden administration and Donald Trump have considered or endorsed the creation of government investment vehicles to pursue strategic aims.

Unfortunately, instead of employing a unified strategic approach, the government pursues these efforts through a Balkanized set of agencies and programs with myopic mandates and disparate tools. And their success remains hampered by petty budgetary politics. If there is an overarching public investment strategy, it is a highly counterproductive one: a deep-seated aversion to loss.

Instead of taking risks on nascent technologies and emerging industries — the kind needed to drive innovation and leapfrog foreign rivals — American public investments tend to go to safe projects and mature technologies that often would have been financed anyway, though at a higher cost of capital. These investments, though less likely to go belly up, hold little promise of generating enduring competitive advantages.

For example, only a small portion of the roughly $350 billion in new lending authority for the Department of Energy’s Loan Programs Office under the Inflation Reduction Act is earmarked for truly innovative investments. In the past two years, over 90 percent of the department’s funding for batteries has gone to the current generation of lithium-ion batteries (often used in electric vehicles or grid-scale energy storage), a field in which China has already built a nearly insurmountable lead. A paltry 1 percent has gone to next-generation, solid-state technologies in which the United States has a better path to competitive advantage.