A View of the US Economy From the College Campus
by Jeremy Pomerantz | May 21, 2010
I recently finished my first year at Case Western Reserve University. It feels like yesterday that I was graduating from high school. With time flying by, I have been, along with my peers at other institutions of higher education, thinking about my professional and personal future. I am an economics major, so I have a helpful framework for analyzing circumstances around me.
Government is growing and changing the way business is done. However, government is not the only force shaping America’s economic future. Libertarian Professor of Economics at George Mason University, Peter Boettke came up with a basic framework that I find helpful. He calls it the “Three S’s.” You have Smithian gains from trade and specialization and Schumpeterian creative destruction and innovation leading to economic progress. Creative destruction is the counter-intuitive economic process that explains why it is important for struggling businesses to fail. In order for a more efficient business model to emerge, it is important that other less efficient businesses be allowed to fail to free up capital and resources. The third “S” is the Stupidity of government holding economic progress back. Even government military spending which leads to innovation and employment causes this crowding out of private investment. Sure, war and defense spending create employment, but even these uses draw resources away from other potentially more efficient uses. As long as the first two forces outweigh the third force, we will have economic growth and progress and opportunity. As a college student attempting to work his way into the economic marketplace, the magnitude of these three forces is of great importance to me.
Government spending and regulation is a powerful force in today’s world that seems to be growing at an alarming pace. President Obama’s stimulus package from last year epitomizes an ideology that believes that government command-and-control of resources is fair and efficient. This ideology is infected with poor economic thinking. College students are generally technologically savvy and aware of things that could be. A major problem with stimulus spending—and government spending in general—is that it shifts resources from private, efficient, and viable uses to politically connected uses. In the process of “stimulating” aggregate demand, government is essentially subsidizing established inefficient businesses at the expense of new, potentially innovative businesses.
Also, the money has to come from somewhere, and since the United States government is using debt to finance this misguided policy, potential taxpayers like myself and my peers are on the hook. In order to save some of today’s most inefficient and politically connected businesses, like General Motors and AIG, the federal government is hampering tomorrow’s potential businesses and job opportunities. An important part of economic progress is allowing inefficient companies and enterprises to fail. When this happens, economic resources are invested in other, promising companies. As a college student, I want to see economic progress. The opportunity to work for new, innovative companies or to start one myself is exciting. The prospect of working at a company that is around because of a “stimulus” package is much less thrilling.
While the stimulus package was sold as an economic boost that would cause incomes to rise for everyone, the reality is far different. Only politically connected and favored companies receive the true benefits of economic “stimulus.” In this sense, economic “stimulus” is no different than the Wall Street Bailouts or the Bailouts of the Auto Industry. Future generations, of course, will be forced to foot the bill.
Sounds like a raw deal for today’s college students.
