"He will put the sheep on his right and the goats on his left."
Matthew 25:33

Tuesday, September 8, 2009

Economic growth and the Federal Government

Economic growth is something that results from productive citizens who save, invest, and work hard to earn a living. Gutsy people called entrepreneurs invest and work hard and hope to reap benefits from their work. Almost everything of value is produced by these people. They are the heroes of our society - not politicians.

Of all the things required for business to thrive, and the economy to grow, one thing seldom mentioned is stability. Entrepreneurs need to to be able to plan. When a businessman buys a truck to haul grain, he needs to know that there will be grain to haul, roads to drive on, someone to buy the grain, and no changes in the legal framework that might make hauling that grain more expensive or illegal. Without some confidence in the business environment, it is foolish to invest in that truck. You're better off buying T-bills.

Every time the government has a "plan" to "improve the economy", it is almost always a change in the laws that favor whatever economic activity happens to be currently in fashion. From Synfuels to Windmills, "cash for clunkers" to "enterprise zones", government delights in changing the rules out from under the business world. To add insult to injury, existing businesses and/or those not receiving government largesse have to compete for resources with those who are the current fashionable favorites.

For each of these expensive government whims, businesses are started and jobs created. However, for every business that starts up, there are several that are stillborn because of the churn and uncertainty caused by the whim.

People who start businesses know that 9 of 10 business startups fail. They are prepared to work hard and accept the risks, but they are not fools. They will avoid investing in areas subject to the churn of government fashion. As government grows, those areas are becoming more rare.

One of the most effective things we could do to encourage growth is to make certain that the laws, regulations, and business environment will stop being subject to the whims of government. Stability would be a powerful economic elixir.

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