"Not with our money, you don't"

More unintended yet totally anticipated consequences of porkulus:

NEW YORK (AP) — U.S. venture capital investments sank 61 percent in the first quarter, dropping to the lowest level in 12 years as financiers became even warier about sinking funds into startups during a deepening recession.

In yet-another indicator that a pullback that began last summer is not abating, venture capital investments totaled $3 billion during the first three months of 2009, according to a report released Saturday by PriceWaterhouseCoopers, the National Venture Capital Association and Thomson Reuters. In the year-ago quarter, investments totaled $7.74 billion.

This is the lowest quarterly level of venture investments since the first quarter of 1997, when they totaled $2.96 billion.
The report said 549 companies received investments in the first quarter, down from 997 in the same period last year. This is the smallest number of companies to receive investments since the first quarter of 1995.

Here’s the paragraph we zeroed in on.

Alternative energy, pollution and recycling, power supplies and conservation — or "clean technology" — had been among the only bright spots during the last three months of 2008, when $971 million was invested in 67 companies. But in the first quarter, $154 million was invested in 33 companies in this sector. Compared with the year-ago quarter, the drop was almost 87 percent in investments and 50 percent in the number of companies that received funds.

It wasn’t supposed to be like this.

Why is this happening? Why isn’t private money flowing after the public money into “green” technology?

One could make the argument that public investment is simply displacing private investment – the technologies, thanks to porkulus are fully-funded.

We see something else altogether, though and which gets to the heart of our opposition to porkulus and Bailout Nation in general: misallocation of resources.

The principle of John Locke’s invisible hand of economics is that resources - human, capital and technological - would flow, naturally, to those areas of the market that demonstrated the most promise and which would yield the best return on investment.

When the state starts picking winners and losers by directing its funding to areas of the economy or technologies it deems worthy, this natural process is radically altered. The private money has anticipated that the government has already made up its mind with respect to these “winners and losers” regardless of its particular long-term viability in an open market. There are less available resources to be devoted to the real potential winners and therefore, less of a chance for those more viable technologies to be brought to market.

Also, private money may be anticipating the easing of regulatory burdens on the government designated “winner” at the expense of a more market-viable “loser” which which will further disincentivize private investments in any of the “losers”.

All in all, for predictable reasons, it looks like private money is sitting out the green revolution, for now.