How Washington Can Support Entrepreneurs
washingtonmonthly.com
washingtonmonthly.com
http://www.businessinsider.com/economic-advice-from-an-entre...
I'll note that these were all DoD.
1) Reverting bankruptcy laws to pre-2005
2) Health care availability for individuals (if I knew the perfect solution to US health care I'd be doing that as a startup, but some decoupling of employment and health care is key
However, there is "support" and there is throwing money. You're right about throwing money, but I think you're wrong about intelligent support.
DC can always, _always_ do a better job by:
1) Not subsidizing anyone, ever.
2) Increasing transparency of its laws
3) Taxing negative externalities rather than positive ones (so tax carbon instead of capital gains)
4) Removing market distortions like the immigration issue discussed in the article.
Notice that these measures are largely undoing rather than doing, and therefore don't sell well. DC is also, as you rightly point out, in a unique position to completely screw up any field it turns it eye to, by:
1) Subsidizing some part of the industry which therefore damages the innovation that would out-compete it.
2) Preventing failures and disallowing the knowledge acquired there to be applied to subsequent successful ventures
3) Making complicated, vaguely worded and frequently changing specific to an industry's particulars (like only allowing Cable providers to supply Television over their wires)
Sadly, the second set of policies sells a lot better politically than the first set. Which raises the question - why not? What's wrong with it?
Why does the US always feels the need to be "world-leading" at everything?
Is it really necessary to be world-leading? Is it so fundamental to the national ego that it is unthinkable to assume that like every other major power, our influence will wane and our leadership will become first co-operation and then acquiescence?
It seems silly, sometimes, to strive so vehemently for predominance, yet to have no use for it when obtained.
Problem: Negative externalities are supposed to go away. At which point you have no money. So you have to tax things (like income) that people just aren't going to do away with!
But, you do have a point because 'proper' tax rates for negative externalities only pay for abatement/offset of the externalities' harm. You can't count exclusively on such taxes to pay for other unrelated public goods. (If you did, you'd be overtaxing the externality, causing underproduction of the related goods, which can be just as damaging to overall welfare as the original unabated negative externalities...)
But it does tend to reduce the externality, thus reducing tax base. Which interferes with revenue collection.
The reason I singled out capital gains is that it can often lead to a genuine positive externality: capital accumulated in the hands of those best able to discriminatively lend it out (i.e. not bankers). I liked Rodgers' suggestion of taxing short-term capital gains (taxing negative effects of short-term speculation) but not long-term ones. There are probably even more finely-grained policies that can work here.
1) Not subsidizing anyone, ever.We'd have no tech industry at all in Asia if it weren't for HEAVY industry subsidization in early stages in Japan, Korea, and Taiwan, followed by the wildly successful Chinese special export zones (which are, to some extent, just a loosening of laws, but also included economic stimulus). This same pattern has emerged worldwide in a number of other industries (Taiwanese Orchids and African textiles off the top of my head) that otherwise wouldn't have appeared at all.
If you'd like some better cites on this you could do worse than to start with the work of Dani Rodrik: http://ksghome.harvard.edu/~drodrik/papers.html The government doesn't have to pick winners in terms of single companies or technologies, but subsidizing whole sectors is often quite useful.
2) Increasing transparency of its laws 3) Taxing negative externalities rather than positive ones
(so tax carbon instead of capital gains)
4) Removing market distortions like
the immigration issue discussed in the article. 1) Subsidizing some part of the industry which therefore
damages the innovation that would out-compete it.The 'second kind' of policies arise not necessarily from a desire to be 'world leading', but because lawmakers have a different criteria of what is positive than you do. Many things that are strictly profit increasing are not welfare increasing, whether for the better (Save AIG because they reinsure half of the damn country and insurance rates would soar), or for the worse (Save GM because unions are politically powerful and raise my chances of re-election).
I feel like many HN'ers (although not necessarily you) went out and took econ 101 and 102, decided it was mathematical proof for strict Randian libertarianism, and now deride any government. This simplified view isn't well supported even in economics, particularly since so many problems in real life fall into either collective action or non-rational behavior categories. </rant>
Re-Rant: I took a degree in economics, concluded it was mathematical proof that economics is largely about whimsical playing with unrealistic models, and now deride (most) economists ;)
The point of my post was mainly that beyond protecting basic institutions, much economic law-making does more harm than good, not through ill-intention but because economics does not predict well the effects of the laws, and when it does, the actions it suggests are rarely politically sexy.
Conversely, intelligent law removal often does more good than harm. Reversing drugs policy, much of tax policy, much of foreign policy (why do we have so many bases in Germany again?), and policies that (as you so rightly say) "pick winners." These last are the most infuriating, as they are simultaneously destructive _and_ presumptuous.
My inner nerd just begins to rage whenever I any absolute statements about econ, especially with respect to policy. Gotta love seeing how ideas go from (hopefully) well meaning in theory to the distortionary, favor-ridden crap that gets passed into law sometimes.