Why government intervention won't fix the economy

Last week Inc magazine came out with their 16 point plan to jump start job creation through start-up firms. It has been creating a lot of discussion about proper economic policy, which is a good thing these days.

Some of their ideas make sense to me -- at least to some degree. For example Step 1 is to take entrepreneurship out of the business school. At many universities this may be a good idea. Universities, especially large ones, tend to build really tall silos around various disciplines. Since over 50% of college students want to be entrepreneurs, this can limit access to the majority of these students who are not in those business schools. And many larger business schools add other barriers, such as separate admissions processes to get in to their program once you are admitted to the university.

But let's not assume that this is necessary at all schools. It is not an issue here at Belmont. I work with students from across campus. I have done workshops on taking entrepreneurship across campus for many other colleges and universities. They generally do not suffer from the barrier problems that some major schools have.

Several other steps in the Inc plan also have merit Creating more ways to help support bootstrappers would help, such as more incubators, shared workspace, and hatcheries for new ventures, could also help break down barriers. But, please, oh please, keep this out of government hands! And their recommendation to reform immigration laws to encourage entrepreneurs to come here, or in many cases, stay here is something I have argued for a long time.

But, much of the list gets too far into a neo-Keynesian mode. It is as if the authors trust government more than markets.

"Step 6: Cut College Graduates Some Slack." Hey, I make a living these days by teaching entrepreneurial college students, but their idea of modifying the college loan program to have a business start-up category will be a disaster. Remember that the government just did a massive power grab and took over the college loan program. If we do this, we can expect the American Medical Association and any number of other groups lobby for their special breaks. Before you know it, the college loan program could begin to look like the federal tax code or the small business loan programs of the SBA.

"Step 7: Give Angel Investors a Tax Break." There is no evidence that such tax breaks increase investment. Sure, angels will take the tax break if offered. But, there is no evidence that these tax breaks lead to any increase in investments. If taxes are too high, cut them for everyone!

"Step 10: Pass an Energy Bill, Already." Say what??!!??!! The authors argue that uncertainty of this issue is the only problem, so let's just pass it and get it over with. That may work on Wall Street, but not on Main Street. What worries entrepreneurs about this bill is not the uncertainty of it passing or not passing -- it is the impending mountain of new taxes and regulation that they know will choke their businesses.

"Step 11: Revamp the SBIR." Nope. Just scrap it entirely. Investment capital will make its way back into the R&D phase if we just give it time. Right now we have gotten the government so involved in R&D that investors sit back and wait for better returns from later staged deals. (And while you are at it, forget about their Step 14: Fund Big Science" for the same reasons).

I have a simple two step plan that would make all of this more simple and more enduring.

Step One: Stop trying to see what government can do to steer the economy. It can't. Have government less involved, in fact much less involved, and things will start to take care of themselves. It will take time, but sustainable growth can and will return. Cut taxes across the board. Don't cut them selectively. Leave money in the pockets of small business owner, investors and consumers. We don't need government to be the market middle man. Cut regulation and stop trying to use it to fine tune economic growth. And for goodness sake, repair the damage from the Kelo decision and get the heavy hand of eminent domain out off the table when it comes to local economic planning.

Step Two: Repeat Step One....Forever, and ever.

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