"consumers love free items especially items that are very user friendly, which is almost all open source I've ever experienced"

It's not clear, but I assume you're being sarcastic here and pointing out that open source software has historically not been user friendly. If that's what you're trying to say, then I agree with you. But why is open source software less user friendly? Because it's developed by people working in their spare time, completely without pay. That's the reason I'm suggesting government funding. When open source developers can afford to devote as much time to their work as closed source developers, open source programs will become far superior to closed source alternatives by any metric -- I guarantee it.

"The whole idea of open source is anti capitalism"

Absolutely not true. If closed source software really provides a greater value, than customers will still be willing to pay for it.

Under permissive open source licenses such as BSD or MIT, companies can take open source code and use it for their own closed-source projects. Under the system I'm proposing, companies could effectively outsource their research and development for free. This would lower their costs and allow them to focus on tailoring products for specific consumers.

A pilot program would not take very much funding at all. Let's say we pay 1000 programmers $50,000 a year to work on open source projects. That's $50 million, peanuts, less then .01% of the total budget.

Lack of regulation is not the "vital element" of open source software. The critical factor is that word, "open" -- the fact that code can be improved upon and reused by anyone is where open source draws its power.

Of course the government would regulate the projects it funds, as it should.

Obviously we should expect utility in return. If there's no utitlity than why in the world would we be funding these projects?

Open source software would allow companies and individuals to become much more efficient. This would be a boost to the economy.

What is money really? It's a measure of value. Alone, a dollar bill is just a sheet of cotton -- it gets it's power by representing a share of the available resources. Open source software creates much value, which is really what is fundamental to the economy.

If we made a better version of Windows that was open source, Microsoft would indeed be making less money, but there would be no loss of utility for society as a whole, indeed it would be a net gain. And if the government does in fact lose money by not receiving income tax from Microsoft, than where is that money? It's in the hands of consumers. So the government could simply raise taxes on the consumers to recoup an equivalent amount if that turned out to be necessary.

I have worked on open source software in the past and consider it to be by far the best development method. The most important factor is that you can freely exchange ideas with anyone without worrying about them "stealing" your code. This can result in far better software being created.

To quote the Open Source Initiative:

"Open source is a development method for software that harnesses the power of distributed peer review and transparency of process. The promise of open source is better quality, higher reliability, more flexibility, lower cost, and an end to predatory vendor lock-in."

The catch when it comes to open source is that because the code is free to redistribute, there's really no practical way to make money at it. This keeps most people from being able to work on it full time. I propose that the government should create some kind of taxpayer funded program to give grants to programmers to work on various open source software projects.

The benefits to society would far outweigh the costs of funding this organization.