President Trump’s decision to take a 10% share stake in Intel (Nasdaq:INTC) as part of the deal for the Biden administration’s excessive handouts to a failing company was arguably a good one. However, the original CHIPS Act was economically damaging while suggestions by NEC Chairman Kevin Hassett and Commerce Secretary Howard Lutnick that there might be more such purchases were economically dangerous. Since the beginning of the Industrial Revolution, government has proved a lousy investor, a poor industrial decisionmaker and a menace to innovation as regulator. The barriers against such activity in free-market economic theory should generally be bolstered, not ignored.

Continental European countries in the 19th century sometimes used state investment as a tool to further industrialization. Railroads were at least partly state owned in France, Germany, Austria and Russia, with the extent of state ownership tending to increase over time. Germany, Austria and Russia used the state to impel industrialization; this worked well under the exceptional Otto von Bismarck where a highly competitive private sector developed, but was far less successful in Russia until the late 1890s or in Austria, where political considerations tied up new projects. Even free-market Britain in 1868 nationalized its principal tech company, Electric and International Telegraph (which was then used to prevent private sector telephony) and in 1882 imposed the extraordinary Electric Lighting Act, providing for electric lighting to be developed by municipalities, generally the most corrupt and obscurantist of public bodies.

In the United States, apart from Progressive-era regulations and temporary wartime measures, the first extensive state involvement in business came with Herbert Hoover’s Reconstruction Finance Corporation, established in January 1932 with $500 million from the Treasury and power to borrow an additional $1.5 billion; it was considerably enlarged under Franklin Roosevelt. The RFC’s inception coincided with Hoover’s increase in the top rate of income tax from 25% to 63%; together these actions resulted in the diversion of substantial resources from private individuals to government-favored banks and corporations. The RFC’s flow of money switched from Republican- to Democrat-connected companies in July 1932 when Hoover foolishly replaced the RFC’s head with a Democrat, thus providing that party with a slush-fund helping it win the 1932 election.

The RFC’s money went primarily to banks teetering on the edge of bankruptcy and to railroads heading inexorably into the pit of technological oblivion as they faced trucking and airline competition. It may have saved a few banks, but of course every bank saved led to a competitor going bankrupt in the 1932-33 regime change debacle – the same dynamic appeared in 2008, when the bailout of Bear Stearns in March 2008 may well have led to the bankruptcy of Lehman Brothers in September. But the most important damage done by the RFC was the insanity of funding it by a huge increase in income tax, which deprived those private citizens who might have saved companies or established new ones of their liquidity, destroying “animal spirits” in the Keynesian phrase, precisely at the moment when animal spirits and private wealth holdings were most fragile.

Government does not have to invest to destroy wealth; it can do so simply through the whims of regulation. This week the Trump administration halted construction on the $1.5 billion Revolution Wind project being constructed offshore Rhode Island by the Danish company Ørsted, at a point where the project was 80% complete. The Revolution Wind project was never economically viable without gigantic subsidies in the form of guaranteed long-term electricity offtake contracts at above-market prices from the states of Connecticut and Rhode Island and doubtless subsidies at the Federal level as well. Still, halting a project already so close to completion with hundreds of millions spent on it destroyed massive economic value, damaged Ørsted’s property rights and should damage the reputation of the U.S. as a place to do business.

The cancellation of the Keystone XL Pipeline by the Biden administration on its first day in office, at a point where over 100 miles of pipeline had been laid, was equally damaging to that reputation. The only difference is that Keystone XL was entirely economically beneficial without government subsidy, and the Biden administration did not even bother thinking about it before cancelling it. Still, both examples were bad, and both cancellations as well as the creation of the uneconomic Revolution Wind project demonstrate how much damage government can do by meddling regulation. Maybe if we required all such regulations to get a 60-seat supermajority in the Senate, we could prevent them altogether, undoubtedly a good outcome. Then ordinary legislation, the Budget and treaties could be passed by a simple majority, making such rational government actions easier to implement than the wholly irrational regulatory jungle.

While the direct investment in Intel provoked howls of outrage from free market purists as a new violation of free market principles, in reality the government has been investing in the private sector for decades, notably through the CIA’s wholly-owned private equity fund In-Q-Tel, founded in 1999 under the name of Peleus. In-Q-Tel identifies and funds technologies that are needed for U.S. national security interests. As such, with the growth of information science and more recently AI, In-Q-Tel’s investments can range all over the tech sector, adding a certain spookiness to the most innocent of ventures. As of 2016, the fund held 325 investments, more than 100 of which were secret. Some of these include Inxight, Tyfone, and Wickr thus proving techies can’t spell.

I do not get very worried about the government investing in Intel, a loss-making company in a thoroughly mature sector. It is a little like Czar Alexander III deciding to invest in the Trans-Siberian Railroad; it made logistically possible the disastrous (for Russia) Russo-Japanese War of 1905, but in no sense represented cutting-edge technology. Moreover, with only a 10% holding and no voting rights, the government’s investment does not give it much influence on Intel that it did not already have. Similarly, if Lutnick wants to invest in defense contractors, he is free to do so – they are also not cutting-edge and many of them such as Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA) are barely financially viable. These kinds of investments are a danger to taxpayers, but do not have much effect in diverting the advance of technology, because those companies do not possess much that is new.

However, the activities of In-Q-Tel are a different matter. Here the government is investing in new technological advances. Like Disraeli buying Electric Telegraph International and preventing Hon. Robert Grimston, its Chairman, from developing the electrical industry ten years ahead of German/American competition, it may divert resources into the wrong things and thereby prevent brilliant minds from developing new technology. Admittedly Wall Street, especially with an overvalued market, is quite capable of making its own mistakes, pouring trillions of capital into Artificial Intelligence advances that are worth mere billions at most.

In the medical field, the government money poured into mRNA vaccines during the COVID panic appears to have produced a class of vaccines that are not very effective and have devastating not yet understood side-effects – yet government-funded researchers will not abandon them as long as the money keeps flowing. Government is notoriously incapable of admitting its mistakes – after all, thalidomide is still on the World Health Organization’s List of Essential Medicines.

In the other direction, government can be incapable of taking action, even when the need for such action is blindingly obvious. I along with many other journalists warned of the danger of China’s near-monopoly of rare earths production as early as 2010. That near-monopoly only arose because loathsome environmentalist regulations had caused the closure of Molycorp’s California production facility at Mountain Pass in 2002 – from 1965 to 1995 Mountain Pass had satisfied most of the world’s rare earths demand, but their production is icky, emitting unavoidable radiation.

Having demonstrated the West’s vulnerability in 2010, the environmental lobbies prevented action being taken, with the result that the U.S. defense and AI sectors are dangerously vulnerable to a Chinese shutdown. (An Australian company had identified another rare earths deposit in Western Australia, but being dopey culturally insensitive Australians, instead of processing their rare earths in the vast desert wastes of Western Australia, they set up a processing plant with all its filthy wastes within a few miles of the idyllic Malaysian seaside resort of Kuantan – this delayed full production for another decade. In any case, the West Australian rare earth deposits are inferior, containing little of the most valuable rare earths.)

Government, of whatever political persuasion, is utterly incompetent to make any decision that requires commercial savvy and an entrepreneurial spark. That includes investing in such matters or indeed regulating them. Small government is small for a reason; it limits the field of its ineptitude.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)