The president's Internet blunder
The Net began as a national-security project.


U.S. President Barack Obama reacts after tweeting at his first ever Twitter Town Hall in the East Room at the White House in Washington, July 6, 2011.

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  • Does government deserve a bigger slice of the wealth created in the private sector? @NickSchulz

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  • The real history of the creation of the Internet is far more complicated than President #Obama seems to appreciate.

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  • There is a good argument to make in favor in government investment in basic research. @NickSchulz

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Advocates of increasing taxes and government spending frequently point to the existence of the Internet to make their case. “The Internet didn’t get invented on its own,” President Obama said in a recent speech arguing that entrepreneurs aren’t entitled to all the riches they generate. After all, “government research created the Internet so that all the companies could make money off the Internet.” The implication is that government deserves a bigger slice of the wealth created in the private sector because that wealth was impossible without the initial taxing and spending — and because future taxing and spending will facilitate even more wealth.

This argument is not just wrong but revealing in several interesting ways.

The real history of the creation of the Internet is far more complicated than the president seems to appreciate — and, as Andrew Morriss points out, that history suggests “today’s Net occurred as much despite government funding as because of it.” Nonetheless, let’s stipulate that it’s true that “government research created the Internet.” It’s not true that it created the Internet “so that all the companies could make money off the Internet.”

Here it’s worth remembering what motivated the creation of ARPANET, a packet-switching network that formed the foundation of the early Internet. There’s no way to sugarcoat it: It was the desire to be able to annihilate America’s enemies in a nuclear holocaust.

The Pentagon of the 1960s needed a communications network that could survive a nuclear first strike by the Soviets and enable the Pentagon to send signals to its distributed installations in order to launch nuclear weapons in retaliation.

In other words, the creation of ARPANET was part of the nation’s critical investment in national security and defense systems. Indeed, the modern commercial Net as we know it was an accidental spillover from this national-security project. The notion that it was done “so that all the companies could make money off the Internet” is bizarre.

The irony here is deep. President Obama has shown little interest in robust investment in national security and defense, be it technology or human capital. Quite the opposite, as my colleagues Tom Donnelly, Gary Schmitt, Danielle Pletka and others frequently point out.

Of course, the primary argument for investment in defense is not that it might lead to beneficial commercial spillovers, although investment in defense often does so and this is worth keeping in mind. (For example, as the Breakthrough Institute has pointed out, “interchangeable parts were developed at public armories, originally for rifles.” The microchip, radar, satellites, and other technologies with significant commercial benefits were also advanced in large measure by military-development spending.) The argument is instead that doing so — securing the blessings of liberty and providing for a common defense — is the primary purpose of government.

It’s also important to note that whatever its rhetoric, the Obama administration hasn’t been all that interested in the kind of government investment that would lead to new, general-purpose wealth-creating technologies like the commercial Internet.

Take the case of the stimulus. If ever there was a case to be made for more investment as a way to increase growth (and subsequent federal revenues), it was with the Obama stimulus package.

But as economist and frequent Republican-party critic Bruce Bartlett recently pointed out, “As of March 31, $452.6 billion of net stimulus funds had been disbursed in ways that show up in the national income accounts. Of this, the vast bulk, $399.7 billion, went for transfer payments. Another $9.6 billion went for subsidies and $68.1 billion for capital transfers to state and local governments. Only $37.8 billion went for consumption and $11.8 billion for investment — the only two categories of outlays that we know add to growth.”

To the extent the Obama administration has been in favor of government investment, it has mostly been interested in explicitly political investments, such as in green-energy technologies; these expenditures satisfy elements of the president’s political base and have often been used to subsidize prominent supporters.

The shame is that there is a good argument to make in favor of government investment in basic research. It’s an argument that advocates of limited government should be comfortable making, along with their more spendthrift friends in government.

But this is not the argument the president is making. And given the spending priorities of the current administration, pointing to past government investment in national-security systems in making its case would be comic were it not so sad.

— Nick Schulz is DeWitt Wallace Fellow at the American Enterprise Institute and editor of

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About the Author



  • Nick Schulz was the DeWitt Wallace Fellow at AEI and editor-in-chief of, AEI's online magazine focusing on business, economics, and public affairs. He writes the “Economics 2.0” column for where he analyzes technology, innovation, entrepreneurship, and economic growth. He is the co-author with Arnold Kling of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity. He has been published widely in newspapers and magazines around the country, including The Washington Post, The Wall Street Journal, the Los Angeles Times, USA Today, and Slate.

  • Phone: 202-862-5911

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