Most entrepreneurs know a little secret. The government can’t run the economy. However, some people think the role of government is to be responsible for making sure the economy rumbles along at an even speed, going neither too fast or too slow. The problem is the economy is made up of many individuals, and not even the government can control what they choose to do.
Actually, what the government should be doing is influencing the economic environment as little as possible through limited regulation, decreasing taxes, improving monetary policy and reducing government spending.
As a general rule, the less government intervention, the better. The government has succeeded in the past in disrupting the marketplace during the Great Depression of the 1930s, to a lesser extent in the ‘70s, as well as during the panic of 08’-09’.
The Trump administration has rightly perceived the problems of compounded tax increases and antigrowth regulations from Dodd-Frank, ObamaCare and other Washington regulatory agencies such as the FCC, the EPA and the NLRB.
Again, the entrepreneur knows instinctively, that the less government intervention there is, the better off everyone is. For example, it was the government’s growth retarding intervention which brought about the housing bubble of the mid 2000s. It should be noted that not all bubbles are bad. The good kind of bubbles develop when large number of people realize a good opportunity. During the 1980s there was a boom in personal computer sales, which was in turn followed by a severe shakeout which saw companies such as Atari and Commodore fail.
Google fractionalized Microsoft and others in the late ‘90s as the importance of search engines was recognized. We saw something similar with mobile phones with a dozen different brands competing for market share. The Apple iPhone now dominates where Nokia used to be preeminent.
The point is that good bubbles, such as the two mentioned above, are a sign of a vibrant economy The excesses are ultimately squeezed out, and capital migrates to a more positive environment. Whereas,bubbles that are artificially produced by the government and its fiscal policies, such as the housing bubble are catastrophic.
The housing crisis, for example, occurred because, as per government policy, banks granted mortgages to people who couldn’t afford them. Then those borrowers stopped making their payments. As a result the market crashed and everyone got hurt by unnecessary government meddling.
Likewise, some people think that the government should be responsible for smoothing out business cycles. How can the government possibly do this when economists have puzzled over business cycles and the ups and downs in the economy for well over two hundred years? The entrepreneur knows that the ups and downs of the economy are simply the natural ebb and flow of the free marketplace. The free market speaks to what people want and destroys what people don’t want. Trying to moderate and/or arrest this free market process of creative destruction leads inevitably to stagnation. Europe and Japan are examples of this.
Entrepreneurs know that the more government tightens its grip, the less the economy is going to grow. The reason for this is because the economy can not be manipulated or controlled like a machine. The path to prosperity has always been reduced government intervention and a free market.
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