Government and the Economy

1
Government and the Economy

• David Lee
• Public Policy Analysis
• 12 March 2008

2
Question

• What is the proper role of the Government in the
  economy?
• What policy should it pursue?

3
Position

• The economic interests of a nation are best
  served when the government limits itself to the
  protection of
• Property
• Entrepreneurial integrity and freedom
• The focus of this paper

4
Support Theoretical

• Perfect Competition
• Inefficiency of Government Intervention
• Crowding Out

5
Support Empirical

• Entrepreneurship and Growth
• Higher entrepreneurship levels lead to increasing
  economic growth rates
• (Clark, Lee, and Sobel 2007).
• Economic freedom
• Positively correlated to growth
• (Campbell and Rogers 2007)

6
Support - Empirical

• Government Limitation
• Countries with less government involvement have
  greater productive entrepreneurial activity.
  (Clark, Lee, and Sobel 2007)
• Small governments that limit income
  redistribution, protect property rights and
  create an open entrepreneurial environment, do
  more to promote prosperity than conventional
  development models (Campbell and Rogers 2007)
• Inefficiency of Special Interests

7
Arguments for Intervention

• Optimal Tariff
• Effects on the terms of trade
• Promote Domestic Entrepreneurship

8
Counter Assertions

• Resource Combination Limitations
• Politicization of the Economy
• Strategic Ramifications

9
Arguments for Intervention

• Success of US industrial policy
• Special Interest Influence

10
Counter Arguments

• Entrepreneurial Potential
• Studies show countries that give into demands of
  current new businesses have lower levels of
  entrepreneurship (Clark, Lee, and Sobel 2007).
• Inefficiency of Politicization of the Economy

11
Arguments for Intervention

• Entrepreneurship is Disruptive
• Established business
• Socioeconomically

12
Counter Arguments

• Prosperity
• Higher Consumption
• Higher Growth

13
Arguments for Intervention

• Economic Freedom is Not Beneficial
• Negative relationship between new business
  formation and commercial lending (Campbell and
  Rogers 2007).

14
Counter Arguments

• Related Outside Studies
• Size of the effect
• Economic Freedom Findings

15
Policy Suggestions

• Protection of property
• Protection of Entrepreneurial Freedom
• Limit Special interests influence
• Business Failure

16
Works Cited

• Campbell, Noel D. and Tammy M. Rogers. Economic
  Freedom and Net Business Formation. Cato
  Journal 27, No. 1 (2007) 23-36. EBSCOHost.
  Oregon State University Lib., Corvallis OR
  lthttp//www.cato.org/pubs/journal/index.htmlgt.
• Clark, J. R., Dwight R. Lee and Russell S. Sobel.
  Freedom, barriers to entry, entrepreneurship,
  and economic progress. Review of Austrian
  Economics 20 (2007) 221-36. EconLit. Oregon
  State University Lib., Corvallis OR. 25 August
  2007. lthttp//www.springer.comgt.
• Ketels, Christian H. M. Industrial Policy in the
  United States. Journal of Industry, Competition
  and Trade.7 (2007) 147-167. EconLit. Oregon
  State University Lib., Corvallis OR. 20 January
  2007. lthttp//www.springer.comgt.