Dear Friends,
It seems to me, if a country wants a growing and dynamic economy, the most important thing a government can do is get out of the way of entrepreneurs. What ever government tries to help it actually destroys simply because of the nature of government. That is why government cannot help entrepreneurs it can only hurt them. If government gets out of the way however, the dynamic forces of the marketplace and self interest will encourage entrepreneurs to start business, implement their ideas, and create real economic growth. Unlike the fiction that is economic growth by inflation or government spending. Real economic growth raises all boats, it helps the poor by providing jobs as a way to escape poverty, it helps workers by driving up demand for labor and thus wages, it helps the new class by increasing general wealth they can steal, and it provides for the common defense, both by enriching the nation that has a good economy and real economic growth will heal the rot of crony capitalism.
Economies grow by fits and starts, that is the nature of economic growth. Even Lord Keynes understood that trying to suppress the boom bust cycle would result in stagnation. He thought it a good stagnation, but we all know in our hearts that where growth stops, decay starts. The Federal Reserve was started for just that purpose, to stop the boom bust cycle. To that end the Fed has been a total disaster since it has multiplied the negative effects of the busts while limiting the upside of the booms. To counter the negative feedback, the US government, (and all governments that exist today) have used deficit spending to boost perceived economic growth. I say perceived because the measure of GDP growth is flawed.
The flaw(s) in the way GDP is measured is that it fails to take fully into account inflation which is washed into GDP numbers like it is real growth. The other failure of the present method of measuring GDP is that it includes government spending, which as I have opined many times in these articles, is not real economic growth, only actual private enterprise and individual’s spending is real economic growth. I don’t have time to go back over all those arguments here, so if you are interested, look up sofa salesman in the search parameters of my blog page.
Real economic growth starts when someone has an idea. It could be to make a product more efficiently, for a new way of organizing business, for a new product or service etc… When new ideas are actually implemented, they necessarily draw in workers, capital, real estate and other means of production to realize. This kicks off the boom part of the business cycle. As the idea becomes fully implemented the top is reached, and older less efficient firms or products rendered outdated by the new idea, are eliminated. This kicks off the bust part of the cycle. Each step in the cycle raises the efficiency of the market and therefore wages, standards of living, etc…
When government tries to suppress the bust they keep older less efficient firms operating lowering the total efficiency of the market in that country. This is essentially crony capitalism. Crony capitalism, or oligarchical capitalism, corrodes a nation’s economy from within. Entrepreneurs face a high bar to entry for their ideas because government protects less efficient businesses. Businesses that have political favor due to the fact that government only works on bribes and power. Older firms are by definition larger than new ones, and can afford the costs of regulation that keeps out competition, they have greater largess to hand out as bribes, (campaign contributions) to their political patrons and by these methods, older firms can pull the strings of government to eliminate entrepreneurial competition.
All governments have this propensity. Everyone likes to help their friends get ahead, if it requires holding a new idea back so a friend doesn’t have to face perhaps mortal competition, who cares? The problem is that, as firms with political favor get bigger, less efficient and more entrenched in government, the ability of entrepreneurs to start the boom part of the business cycle is undermined and eventually destroyed. Once that happens the standard of living necessarily drops, eventually creating such anger in the people, that government must point a finger at some boogy man to protect it’s power and privilege, as well as that of their cronies in business. That finger usually points at the market as the culprit ushering in calls for socialism to stop the decline. Once socialism is introduced, the fall in the standard of living accelerates, like in Venezuela.
Each step in the entrepreneurial cycle improves the lot of mankind. When the mechanical loom was invented Marx claimed it would lead to the destruction of the labor economy and mass starvation. What it did do was allow the average worker to buy a wool coat to walk to work in. They no longer had to stuff their shirts with straw to keep warm. The electric light didn’t help the rich, who could afford the price of candles and the laborers to tend them, it allowed the average person to read after dark. There are amazing inventions and products waiting in the wings, like 3D printing, cloth displays, etc… that will improve everyone’s standard of living, if only government would allow it.
Everything government tries to help it actually destroys. So the way for government to improve the economy is not to help politically favored firms escape competition, it is not to pass reams of regulation that aborts start ups before they are born, it is not to tax firms so much that profits are diverted to tax havens instead of CAPEX… it is to get out of the way. Let firms fail and allow entrepreneurs to thrive. Since FDR the US government has tried to support family farms and has outlawed drugs. Today we have no family farms and our streets are awash in drugs. Failure of government is not an option it is a standard feature.
Sincerely,
John Pepin
