Arnold Kling  

Reverse Stimulus

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Jerry O'Driscoll writes


there is a name for this economic policy: corporatism. Big government favors selected big business and rewards big labor as a junior partner. It's not socialism, but the economic component of a fascist political program. Credit administered on a favorable terms is the narcotic that anesthetizes businessmen to the creeping government control of their firms. To paraphrase Lenin, government seizes control of the commanding heights of the economy.

Meanwhile, Ed Glaeser writes,

a 10 percent increase in the number of firms per worker in 1977 is associated with a 9 percent increase in employment growth between 1977 and 2000. An abundance of small, independent firms is, along with January temperature and share of the population with college degrees, one of the best predictors of urban growth.

Economic stimulus comes from small business, not from big companies bailed out by the government. Too bad more policy makers aren't reading From Poverty to Prosperity.

My co-author Nick Schulz displays a chart that might explain why our economic policy is what it is.



COMMENTS (8 to date)
david writes:

The Obama administration can't win. If it draws a higher percentage of its policymakers from the private sector, Russell Roberts dismisses it as revolving-door regulatory capture. If it draws from the public-sector, Nick Schulz dismisses it as having no private-sector experience.

Likewise with the Small Business Administration. Back in 1996 when it came under a threat, Cato came out swinging to shut it down entirely, arguing that it depended on taxing big business to help small business, and the benefit of big businesses outweighed the boost to small businesses.

They just can't win, really. Of course, libertarians would prefer if the government employed no policymakers at all, but their second-best recommendations appear to be "whatever that is the opposite of what is proposed'.

Arnold Kling writes:

David,
1. Abolish the small business administration.
2. Experience with handling a large organization would really help in a cabinet post. Personally, if I could choose cabinet officials, they would be women with business executive experience. Women because I do not want more super-aggressive, overconfident Henry Paulson types.
3. No policymakers is perhaps an impossible ideal. But overconfident policymakers with no experience in large organizations is the worst of all.

david writes:

@Kling

1. If the Obama administration had indeed suddenly decided to abolish the Small Business Administration, I confess myself suspecting that it would have shown up on this blog. Perhaps with the title "Reverse Stimulus".

If your concern is truly corporatism and favored big businesses, and your first-best preference is to stop government programs that aid big and small businesses, then the second-best is not to stop government aid to small businesses.

Regardless, I wonder how O'Driscoll would interpret this article.

2. The chart shows policymakers with past private-sector experience, not policymakers with experience in large organizations.

Schulz did not cite an ungated source, or even any specific source (just "a JP Morgan research report"). But even just a casual glance at the list of current Cabinet office holders suggests that many have previous government experience over large departments, so it appears to be a poor indicator of past large organization leadership experience.

An more uncharitable interpretation of the chart would be "degree of revolving-door regulatory capture". I seem to recall you recently railing against the infiltration of Goldman Sachs alumni into the decisionmaking process. When did this suddenly become a good thing in your view?

Joe Cushing writes:

There can be a second meaning to your phrase "Economic stimulus comes from small business" If you made that a sentence on it's own, I think you might have found in some way the source of stimulus money. If the federal government hadn't borrowed trillions of dollars to give to big business, where would the money have gone. People would not have continued to by treasuries if there weren't so many for sale. Where would the money have gone? It had to go somewhere. I suspect businesses would have had an easier time getting loans if the government wasn't sucking all the lending capacity out of the economy.

david writes:

@Joe Cushing

The zero-bounded interest rate would like to have a word with you.

Jesse writes:

The "research report" (actually a Forbes column written by a guy who works at JP Morgan) covers 9 Cabinet posts. Currently there are four lawyers with private practice experience in those posts (Clinton, Salazar, Locke, Vilsack) so it's interesting that the graph indicates that fewer than 10% of Obama's appointees have private sector experience.

I also didn't realize that our economic policy was set by the Secretary of Energy (who unfortunately is a mere Nobel Prize-winning scientist and not a saintly ex-CEO) and the Secretary of the Interior. I thought it was set by elected politicians with guidance from "Ph.D. economists" and lobbyists with healthy ties to the private sector.

Ed Darrell writes:

You've been hoaxed.

Actually, 77% of Obama's cabinet have very significant business experience. What else is AEI fibbing about this time?

[Comment edited for crudeness.--Econlib Ed.]

steve writes:

LOL, how many of those people had extensive small business experience?

Steve

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