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): EBSCOHost. Oregon State University Lib., Corvallis OR. Clark, J. R., Dwight R. Lee and Russell S. Sobel. “Freedom, barriers to entry, entrepreneurship, and economic progress.” Review of Austrian Economics 20 (2007): EconLit. Oregon State University Lib., Corvallis OR. 25 August Ketels, Christian H. M. “Industrial Policy in the United States.” Journal of Industry, Competition and Trade.7 (2007): EconLit. Oregon State University Lib., Corvallis OR. 20 January