Dear Friends,
It seems to me that anything that quenches the natural dynamism in the market system, results in lower economic growth, to the point of recession if the anti stimulus is sufficient. I contend that is exactly what is holding back the US economy now.
As Schumpeter said, everyone hates the entrepreneur. His innovations result in the destruction of whole industries and ways of living. But that dynamism, the “creative destruction” is what continually builds up the economic standard of living of society. Nations unwittingly quench the dynamism that drives economic growth. With regulation aimed at stifling the negative externalities that result in free entrepreneurial enterprise.
Much must be controlled else the markets would seize up. There must be accountability when dealing with people’s money. Especially money someone has saved over many years to have for retirement. Such funds are the most precious that a banker, broker, etc…. will ever handle. Someone went without, to put those funds in the hands of a person, so the capital can be invested effectively. That capital should be invested in the means of production resulting in a short and long term capital gain for the saver. Anything that misappropriates the money of investors must not, under any circumstances, be tolerated.
But regulation too often benefit’s the people regulated at cost to potential competitors. Existing companies get deferrals to upgrade to the new regulation. New businesses don’t. This keeps entrepreneurs from competing with established firms. The established firms then grow larger, taking up more market share and monopolizing their business sector.
Japan is an example of this type of corporatist regulation and banking. We see that when The Japanese corporations were growing entrepreneurially the Japanese economy grew at a fast pace. But for the past few decades the corporatist economy has shown it’s weakness. Once the corporation grows too large it becomes inefficient. In part due to the ever burgeoning bureaucracy. In this way the lack of entrepreneurial competition slows economic growth.
Japan’s embrace of Keynesian economic theory… Japan’s corporatist economic system is the most effectively stimulated by Keynesian economics. Large corporations have the in house legal ability to navigate government bureaucracy. Entrepreneurial companies do not. Even though the Japanese model is best suited for Keynesian intrusion Japan has stagnated, despite huge amounts of government spending, for decades. To the point of turning Japan’s huge government surplus into huge government deficits. I have heard that Japan pours more concrete than the US. That is a lot of government spending… Having produced economic stagnation.
The US economic system is far less responsive to Keynesian style stimulus for exactly the reason Japan is better suited for it. The US model is more entrepreneurial based. Except for some highly regulated sectors the US economy in which corporations are encouraged to grow too big to fail the US model is more free wheeling. Entrepreneurs are heroes in America. (To most people except romantic anti capitalists). But entrepreneurs are far less able to tap into government stimulus.
Entrepreneurs have some specialty. They obsess over something the rest of us overlook. In doing so they come up with a new way of organizing business, manufacturing a product or process for the delivery of goods. They are not good at changing their focus on governmental minutia. Rules to keep fraudsters from bilking the system.
So that is why the Keynesian economic stimulus that the Obama administration has been implementing has not worked. The US economic model is far too entrepreneurial in it’s nature. That nature will have to be changed for Keynesian stimulus to have any effect. But as we see with the Japanese model even under nearly ideal conditions Keynesian economics are no panacea. They still lead to stagnation. So why keep ignoring the obvious.
Take the brakes off the entrepreneurs.
