Something strange is happening in Washington. A generation of investors and entrepreneurs who built careers championing private capital and intuitively understood the power of market discipline and limited government have joined the Trump administration, taking charge of hundreds of billions of dollars of other people’s money. They assure us that they are deploying it strategically, with accountability and a businessperson’s rigor.
From Commerce Secretary Howard Lutnick (who is apparently convinced he can rearrange the American economy through tariffs and industrial policy as if it were a trading desk) to former Commerce official Michael Grimes (who led the IPOs of Meta, Uber, and Airbnb and reportedly spearheaded a federal “venture arm” last year) to President Donald Trump and his proposed U.S. sovereign wealth fund, the rejection of markets is real. And as with all such schemes, these too will damage the economy.
Their presumption is that a government can expertly run the economy if only staffed with expert businesspeople. In a recent episode of his podcast, tech investor and venture capitalist Joe Lonsdale talked with former private equity investor Ben Black, the new CEO of the U.S. International Development Finance Corporation (DFC), about the $205 billion budget he oversees “to invest in U.S. strategic interests, build new markets, and deliver real returns for taxpayers.”
While I appreciate the optimism, it reflects a fundamental misunderstanding of what makes private markets work. The government is not some company unluckily plagued by incompetent executives. It is a different institution entirely from those beholden to the market. In the private sector, competitively determined prices, profits, and losses reveal what works and what doesn’t. These signals are ruthless and, thankfully, clear. Good investments get rewarded. Bad ones get punished. The feedback is quick and the accountability personal.
A government operates on different—and worse—incentives, constraints, and feedback mechanisms. Injecting it with private-sector knowledge and ambition does little to change the dysfunctional features of political decision making. It has no prices set by supply and demand to guide its political decisions. It has no profit signals for strategic investments and no loss mechanism to punish faulty judgment. When a government agency backs the wrong project, nobody can be expected to lose a job or salary. When a sovereign wealth fund makes a bad bet, the bill is covered by taxpayers who had no say in the matter.
Lutnick, Black, and other entrepreneurs now staffing departments like Commerce and DFC built careers in an environment where they could lose their shirts if they made bad decisions. They’re now operating in a system that insulates them from consequences. Whether they realize it or not, the market incentives that made them effective have been switched off.
What makes this situation particularly frustrating is that these are not people ignorant of the government’s limitations. The administration’s team of former tech investors and entrepreneurs came to Washington precisely because they understand how government destroys value, misallocates resources, and discourages private innovation. They cheered deregulation. They backed the Department of Government Efficiency (DOGE) because they believed, correctly, that Washington is riddled with programs that serve bureaucracies at the public’s expense.
They got all that right and then decided that the solution was not to shrink the government’s role in the private sector but, instead, to treat the government as some investment firm.
If a massive federal government cannot efficiently regulate industries, it cannot efficiently invest in them. If its many bureaucrats cannot successfully pick economic winners, neither can presidential appointees. Markets, not people, do that. Somewhere between Wall Street and Washington, this insight got lost.
The DOGE experience should have been a clue. Elon Musk, our generation’s most incredible innovator, arrived with genuine urgency and a mandate to cut $2 trillion in waste. He failed because this government isn’t like one of his private companies. He alone couldn’t decide who and what stays and goes. Unlike the head of a company who invests his money and has decision rights, Musk faced a motivated government apparatus ready to resist with armies of lawyers, lobbyists, contractors, and congressional allies whose livelihoods depend on the status quo.
This dynamic gets considerably worse when you shift the operation from cutting waste to handing out hundreds of billions in “investments.” As everyone lobbies for a piece, decision makers are not held accountable by market signals. Those doling out the money are driven by lofty and ill-defined goals such as making the U.S. economy more resilient or competing with China.
What should we expect when some of these guys are themselves taking cues from Chinese planners? The DFC’s project was created to counter China’s Belt and Road Initiative. That approach has a name, and it’s not free-market capitalism. It’s state cronyism, and it describes a system that misallocates resources, corrupts institutions, and subordinates economic decisions to political ones. Building an American version replicates the problem rather than solving it.
Markets run on competition and objective market signals. Government is steered by politics and ideological fads paid for with other people’s money. This reality remains the same regardless of who runs the government.
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