Sunday, December 12, 2010

Government Hinders Growth, Corporations Do Not

Many people point to Corporations as the culprit of all malpractice in a society that is witnessing an economic downturn. Although this can be true to a certain extent, it is for the most part false and the blame should be more centered on the affinity of centralized coddling. This of course means that the blame should be placed upon human choice. The choices that have been made are those which depreciate liberty and freedom, and watch it slowly slip away to nothing as government powers expand. Conferring as individuals the choice to keep yearning for the mandated direction of the state, could certainly decide the fate of our living standards and the amount of choice available to us in the future, which of course would be negative and not positive.

In the past companies had to receive charters from a state in order to be awarded government contracts to build bridges, roads, turnpikes, etc. Because of the subsidies being handed out, there was a mad rush to organize "corporations" and secure a charter from the state, causing many people today to think that the corporate form itself was a state creation. Granted Limited liability and special privileges are government granted, and differ from state to state, the pooling of resources in peaceful activities are free-market oriented. Corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such men would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. Hence, the problem lies with the state, not the corporation.

Today’s predicament paints a very grim picture when it comes to job creation and job opportunities. Government is largely to blame. Globalization has introduced a vast array of new opportunities when it comes to the realm of employment, and this is due to the competition that serves as a catalyst of innovation. Granted America is a place that is quite resilient and above all persistently ambitious, the affects of globalization will not keep creating jobs for us if we continue to hinder the powers of the Free-Market. As the graph shows, we see that start-up companies in the US create the largest amount of jobs, and certainly this is more so the case during a recession such as the one we face.

When we piece together the reasons why start-ups create so many more jobs than older firms, of which the amount of jobs they create has a negative correlation compared to the amount they destroy, we can attribute this phenomenon, to above all else, the burden of government costs. Granted some of the reasons for this occurrence are of course the business cycle, technological advancement, and lack of innovative capacity, the most prevalent reason is that of government encroachment. Businesses aim to provide incentives to attract and keep the best workers at their business, so indeed older firms will lag in job creation; notwithstanding, government costs create greater gaps of job destruction vs job creation. Of course as an economist, I am aware that Creative Destruction is a necessary part of bringing about new and better jobs, yet even this process is hindered by the role of government in society.

Facts suggest that Government employment has increased since the start of the Great Recession. Since the passage of the Recovery Act the private sector has lost an additional 2.7 million jobs, or 2.5% of total private employment, while state and federal governments have continued to grow, adding an additional 400,000 jobs. One less knowledgeable on the subject of economics might be inclined to suggest job growth is good, but once one studies the wave of empirical evidence and the very negative ramifications this has on the private sector and taxpayers in general, one sees that freedom is in steep decline. As was previously discussed above, the private sector jobs are those which will boost the economy to a much greater degree, allowing the freedoms of the individual to roam free and allow the individual the opportunity to make the best choice for their future.

It is important to point out that any form of government program, job, or entity funded by them, will always be paid for by the citizens, in the form of taxes. And once one increases the amount of programs, one must increment the amount of taxes; thus increasing the power of the government, and decreasing the freedom of the individual. In more direct terms, the government will steal from people to fund its inefficient endeavors. Empirically, government has been very wasteful and inefficient in allocating the monies to the programs and institutions it creates. As evidence shows, government purchases such as military spending only yield 70 cents for every dollar implemented in the program. This is the case for many of its other disastrous institutions as well.

Overall, if we keep blaming corporations (like Wall Street Bankers) for the difficulties we endure, we will only decide to solve this problem with further government regulation, which of course is more government, which yields more problems like less private sector jobs. Regulations and bailouts create perverse incentives for management of which to profit off of at the expense of others, and all thanks to the government. Booms, busts, and bailouts correspond to inefficient production plans. To the extent that Corporations lobby for intervention that distorts markets, they help produce defective production plans. We must keep in mind the situation at hand, do we want to keep having government pay for our lives, or do we want to experience a libertarian utopia of sorts filled with economic progress and a plethora of jobs? The former will be paid for at the expense of the latter. The best stimulus for any economy will always be a downsizing of government.

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