Government and the Economy

David Lee

Public Policy Analysis

12 March 2008

Question

What is the proper role of the Government in the economy?

What policy should it pursue?

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

Support – Theoretical

Perfect Competition

Inefficiency of Government Intervention

Crowding Out

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)

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

Arguments for Intervention

Optimal Tariff

Effects on the terms of trade

Promote Domestic Entrepreneurship

Counter Assertions

Resource Combination Limitations

Politicization of the Economy

Strategic Ramifications

Arguments for Intervention

Success of US industrial policy

Special Interest Influence

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

Arguments for Intervention

Entrepreneurship is Disruptive

Established business

Socioeconomically

Counter Arguments

Prosperity

Higher Consumption

Higher Growth

Arguments for Intervention

Economic Freedom is Not Beneficial

Negative relationship between new business formation and commercial lending (Campbell and Rogers 2007).

Counter Arguments

Related Outside Studies

Size of the effect

Economic Freedom Findings

Policy Suggestions

Protection of property

Protection of Entrepreneurial Freedom Limit Special interests influence Business Failure

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 <http://www.cato.org/pubs/journal/index.html>.

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. <http://www.springer.com>.

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. <http://www.springer.com>.