Government and Business: Myth vs, Reality

Government and Business: Myth vs. Reality

Like most people since Ronald Reagan, I accepted as truth that government is the biggest obstacle to business, a sound economy and full employment. What got me thinking about this happened during the health care debate. I was at a seminar about health care when a woman got up and said she was afraid of the government running health care because the government can't do anything right. No one could answer her. That bothered me because the charge just didn't make sense. It was way over the top not fair and balanced.
The first thing that came to mind was health care. People on Medicare are more satisfied than people with health insurance. Mortality rates, dollars spent vs. value received, on too many fronts the numbers just don't add up. There are too many areas where insurance hasn't kept up with the demands of the market. Here's an interesting link with data and graphs on healthcare around the world. http://www.gapminder.org/ Now, as for government competence, it's not as if only stupid or incompetent people work for the government. What happens when people move from one to the other? It's not as if government workers become smart and competent just by changing jobs and working for a business. Or the other way around, business people don't become stupid and incompetent by taking a government job. It's a big insult to the millions of government workers to say the government is incompetent because that's saying all government workers are incompetent.
As for government being an obstacle to business, think about all of the tax breaks we give to big corporations. Think about leases on federal land and about government contractors. Let's look at some quick examples:

• We all know oil companies receive tax breaks to search for and drill oil wells. Why is this when the oil companies are making record profit? http://go.ucsusa.org/publications/report.cfm?publicationID=149
• What about farm subsidies that are given to agribusiness while family farms struggle to survive?

From a Congressional Budget Office report

• Corporations even get federal money to take our jobs overseas. http://www.eagleforum.org/column/2007/may07/07-05-02.html
• Then there are the mineral rights on federal lands sold to mining companies. A lot of these prices were  set in the 1800's! Reform efforts have been blocked by both parties. http://en.wikipedia.org/wiki/Mining_law
• And contractors like Xe (formerly Blackwater) wouldn't even exist without federal money? All of their riches, weapons, espionage material, even personnel come courtesy of the U.S. taxpayer. http://en.wikipedia.org/wiki/Blackwater_USA

While this list barely scratches the surface, it represents billions of taxpayer dollars. How would business even exist without government? Government gives them roads, police, fire protection, even a legal structure to operate in; not to mention that government educates most of the people that business hires. While business uses more infrastructure than the average citizen, infrastructure it depends on just to exist, it doesn't want to pay it's fair share of the cost to maintain infrastructure. Talk about free ride! You'd think they might want to give some of those federal dollars back for the services they take for granted. Besides, if government supposedly doesn't support business, why is so much corporate money spent on the shadow government, i.e. lobbyists, for these kinds of breaks? It looks to me that government is more a partner to business than an obstacle. What do you think?

You may want to read David Cay Johnston. His book "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)" discusses both corporations and wealthy Americans. A search of  "government ands business" will provide a list of books and articles. A while back I discovered a series in the Wall Street Journal. For the record, my posts are my own thoughts. The graphs and photos can also be found on Wikipedia. If I discuss other information, I will source it.

Government and Business: Myth vs. Reality II

 Bank runs were common throughout the 1800's and into the Great Depression. The Roosevelt Era reform that created the Federal Deposit Insurance Corporation (FDIC) ended bank runs. Although banks failed during our current recession, they did not create much news because the FDIC functions so well. This is another fallacy disproven, namely that government is incompetent.  (from http://en.wikipedia.org/wiki/The_great_depression)

I get really frustrated listening to the news. I have never heard, seen or read an interviewer challenge anyone to back up statements that only business creates jobs and drives the economy. Yet in living memory, during the Great Depression government created jobs with the WPA, CCC the TVA, etc. These programs filled the vacuum left by private enterprise. Millions of Americans were directly hired by government and indirectly in partnership with private enterprise. There was no regulation outside the Sherman Antitrust Act, most businesses provided no benefits. There were no taxes for the vast majority of Americans!  Yet unemployment was 1/3! That is, one in three Americans actually held a job. Where was business? It was not creating jobs to take us out of the Depression. It was laying off.

Today, businesses say they need lower taxes and no regulation to create jobs. How can they even say this with a straight face? Depression era business had these advantages, and the government still needed to bail them out! The lack of taxation and regulation created anarchy in the economy. Only federal jobs creation prevented the anarchy from spreading to the streets. Only federal jobs creation prevented fascism, which was taking hold in Europe, from spreading to the United States. Business has two criteria for jobs creation. First, there must be a need. Second, there must be an opportunity to make a profit. Government doesn't need to make a profit. In the thirties government funded the jobs that needed doing.

In 1937, the Roosevelt Administration and Congress decided to begin paying down the national debt. As a result, the economy began falling back into anarchy. After eight years, business still couldn't carry the load. What finally pulled us out of the Great Depression was government, again. Massive government spending in WW II finally ended the Great Depression. It was the government that ended the Depression. Business was helpless.

The overall course of the Depression in the United States, as reflected in per-capita GDP (average income per person) shown in constant year 2000 dollars, plus some of the key events of the period.[33]

When you enlarge this chart, you see the effect of trying to pay down the deficit. In 1938, the blue curve falls off as GDP per person drops. This is where the economy began to move back to anarchy. (From http://en.wikipedia.org/wiki/The_great_depression )

 After WW II, we had a stable economy until the eighties. When President Reagan began dismantling Depression Era regulations, the economy sank into recession. It was the worst since the end of WW II. As we derugulated, the economy see-sawed from bigger bubbles to even bigger busts. It was economic hedonism with the rich transferring their tax burden to the middle class and poor. They are wealthy at our expense. We need taxes and regulations for a fair and balanced economy.

Look at our current Great Recession. Other economies are doing better than ours. Canada and Europe tell us it's because they kept their regulations in place. Those economies doing less well mourn their own deregulation. Other nations, China, Russia, Brazil, Argentina, etc. are also examining unregulated capitalism. All of these nations are working with their business communitites provide a dynamic capitalism like ours after WW II and into the eighties. Our model, the Roosevelt model of capitalism, works better than any before or since. We risked everything when we trashed it. Returning home to Depression Era regulations and taxation with restore a fair and balanced economy.

Government and Business: Myth vs. Reality III

After accepting a statement such as, "government hurts business", as fact it can be startling to consider whether it's even a true statement. As I examined the statement, I was totally surprised to realise I lived during the most dynamic period of peacetime government market action in U.S. history. In 1958, the USSR launched the Sputnic satellite. I remember going into the crisp, fall evening with family and neighbers to glimpse a light racing across the dark sky. We were mesmerised! This event forever changed our lives when President Eisenhauer formed NASA in 1958. The President created an entirely new industry, aerospace.

National Aeronautics and Space Administration





NASA seal





NASA insignia


Motto: For the Benefit of All


The inaugaration of a new president, John F. Kennedy, shifted the world into a new gear. President Kennedy challenged the country to send men to the moon and bring them back before the end of the decade. That challenge in the early sixties, in partnership with private enterprise, put a generation of Americans into good paying jobs. Government gave us the challenge and financed it. We enjoy continued benefits from that partnership. Todays computers became more powerful and useful because of federally financed research that accelerated with NASA. Today's technological marvels can all trace their birth to the seed money and needs dictated by NASA. Tax dollars funded the beginnings of the new aerospace industry, just like they funded our roads and bridges infrastructure. The needs of government laid the foundation for todays businesses to thrive. Only after government funded the heavy lifting did private business go into space.

Federal research funded and founded the internet. The number of businesses that rely on the internet is astounding. How would your life be without the internet? It's not just the way you use your computer, it's also your cell phone. And what about your GPS? It relies on satellites put up by the government. I'm sure you can come up with your own list of benefits from government and taxes. These changes would have come about in time. But would we have come so far and fast without government "intervention"? It's a sobering thought.

*********

Let's return to market regulation before we finish. We hear a lot about the "invisible hand" that moves markets. It's like the Hand of God is guiding our commerce. In fact, many people seem to believe just that when talking about markets given the way markets are discussed. In actuality, the better description is one of mob rule. When a business or financial market is profitable a mob forms and there's a riot of buying into that business or market. Once too many people overprice the business or market, the mob runs away. This is a lawless enterprise. It leaves room for lawless action in the markets. Think Bernie Madoff and Key Lay. And these are the tip of the iceberg. How many got away? Regulation brings law and order into markets. We know businesses need management. Doesn't it make sense to manage markets, too?

I've exploded the myth about business. government, regulation and taxes. Please share your insights.