Now I’m not an economist, so it is quite possible I’m missing something here but you seem to be assuming a rate of growth ‘X’ which is the same no matter who is investing—whether the government or private investors. In other words you are assuming that for $1,000 of investments you get growth X if it is $500 from the government and $500 from the private sphere and you also get X if it is $900 from the government and $100 from the private sphere. But if we believe that the government is not as good at properly investing in the overall economy as the private sector (which many economists certainly do believe) it seems to me that dramatically increasing the government investment in equities would not only narrow the difference in returns by increasing the governmental return, it would also decrease the overall level of growth—leading to a mixed and weaker economy. Depending on other factors that might be worth it, but it takes a lot of good factors to make even a small decrease in growth worthwhile.

The test is whether a bond-financed government enterprise can operate profitably either in market competition or under regulatory prices that would yield normal returns to capital for private competitors.

Hmm. I’m not sure I’m understanding this sentence properly. The test for what? Government investment? Let’s say under your model the perfect amount of government investment is 30%. I think you are trying to describe a method by which the investment amount gets to 30% and no more. What stops it from going to 50% and being a drag on the economy? (Actual percentages, clearly should be interpreted as pulled out of my ass). The government businesses won’t be as profitable at first, but surely the government will then create rules to favor its own investments. This will allow the government entities to remain competitive but will seriously deform the market in ways that aren’t good for overall growth. I think you are saying there is a mechanism of incentives for stopping that from happening, but I can’t figure out what it is.

1. If you are doing an external economic assessment you net out any benefits obtained when governments rig the rules in favour of their own enterprises.

2. If you’re a government, you try to precommit by establishing independent regulators

No, that isn’t what I’m suggesting at all. The Federal Reserve does not exist to make money. Or rather in a more literal sense it does, but not for profit. Once you start setting up a system where government is in business, it is going to deform the rules to favor itself. In a distantly related topic, see US communities with stoplight enforcement cameras. They tend to be placed at intersections with short yellows, and sometimes the intersections shorten the yellows, to make more money on the automatic tickets. The community safety answer to the problem of dangerous intersections would almost certainly be a combination of longer yellows and enforcement cameras. But since the city doesn’t make as much money that way, the longer yellow part of the equation doesn’t play through the system.