Thomas Friedman, the New York Times columnist, is a perfect example of the liberal who doesn't get it. In a recent column, Friedman argues that Obama needs to make private sector creation of jobs the first priority of his second year on the job--the post-Massachusetts election of Scott Brown year on the job. (Thomas Friedman, "How Obama Can Spur Jobs Revival", The Press-Enterprise, Riverside, California, Wednesday, January 27, 2010, A13.) Obama should, Friedman recommends, seek to encourage entrepreneuralism among the young. The President should convene a meeting of "the country's leading innovators and ask them, 'what legislation, what tax incentives, do we need right now to replicate you all a million times over?' "
What doesn't Friedman not get? Indeed, more dangerously for America, what does Obama also not get? Neither understand that it isn't what government does that would stimulate entrepreneurship and the creation of a million new businesses. It's what government does not do that would stimulate new business formation.
For government's effect in the economy is primarily to dampen enthusiasm for risk taking. This effect can be seen in several ways. When one looks at startup opportunities and costs for a new business, government regulation and taxation stand as enormous barriers. And I mean, government at all levels--municipal, county, state, and federal. Here's a frightening example. An entrepreneur wanted to purchase and convert a Los Angeles city downtown fire station, taken out of service and then unoccupied, into a restaurant. Eventually, she and her partners succeeded in creating a chic, thriving eaterie that has endured for several decades. But to do it, she had to obtain over 100 separate permits, over three years, for the new business, before the doors opened. That was three years of carrying loans, renegotiating loans, begging investors for patience, accumulating capital for the state labor costs had to be paid before a laborer was hired, accumulating reserves to carry the restaurant through the first year, when most new restaurants fail.
A second example points to every family's personal experience. Having children. What is the greatest obstacle to having children? Their cost. It is not the cost sending children to college that dissuades prospective parents from having children or having more children. It is the lack of income the parents have to raise a child after taxes are taken from their paychecks. The cumulative tax load, all levels of government, for a middle class family approaches 35% to 40% (*); then, on the net income, parents must pay the rent, food, clothes, medical expenses, and all the other expenses, for each child. In Europe, the tax burden is the main reason for the low fertility rate. So it is in America. It's difficult to imagine that anything could dampen the sexual urge to reproduce; but government manages to do so.
The dead hand of government on the entrepreneurial economy, as on the household domestic economy, cannot be lightened by a minor tax mechanisms, such as an employee tax credit or increasing the dependent deduction on federal income taxes. Such proposals, as Obama will probably recommend to Congress, are laughable. They are, tragically, symptoms of his and his economic advisors' failure to understand what is wrong with the economy. The proposals will, and properly should, offend and alienate the majority of the nation's taxpayers.
You don't need some rhetorical crusade by the President to stimulate the entrepreneurial spirit in America. What you need is to de-regulate the economy, dramatically lower taxes, and reform labor and environmental laws to enable any business owner to make a sizable profit on the money she or he risks in investment in a new business. That's all you have to do. The very second that governments draw back their claws, reducing startup costs and then letting owners make reasonable profit by keeping a good portion of the money and wealth they create, entrepreneuralism will spring up spontaneously. That's the glory of freedom. That's the glory of the capitalist, free market economy. With opportunity not restricted by government or government-controlled cartels and without governments confiscating most of the business revenue, a free market capitalist economy generates entrepreneurialism all by itself. And that is precisely what Thomas Friedman and Obama and Obama's economic advisors don't get.
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(*) Think of all the taxes--sales tax, property tax, gasoline tax, income taxes at two or three governmental levels, medicare and social security taxes, regulatory fees for highways, telephone, and so on.
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