Government and the Economy
David Lee
Public Policy Analysis
12 March 2008
Question

What is the proper role of the
Government in the economy?

What policy should it pursue?
Position

The economic interests of a nation are best
served when the government limits itself
to the protection of:


Property
Entrepreneurial integrity and freedom

The focus of this paper
Support – Theoretical

Perfect Competition


Inefficiency of Government Intervention
Crowding Out
Support – Empirical

Entrepreneurship and Growth

Higher entrepreneurship levels lead to
increasing economic growth rates
(Clark, Lee, and Sobel 2007).

Economic freedom

Positively correlated to growth
(Campbell and Rogers 2007)
Support - Empirical


Government Limitation

Countries with less government involvement have greater
productive entrepreneurial activity. (Clark, Lee, and Sobel 2007)

Small governments that: limit income redistribution, protect
property rights and create an open entrepreneurial environment,
do more to promote prosperity than conventional development
models (Campbell and Rogers 2007)
Inefficiency of Special Interests
Arguments for Intervention

Optimal Tariff

Effects on the terms of trade

Promote Domestic Entrepreneurship
Counter Assertions

Resource Combination Limitations

Politicization of the Economy

Strategic Ramifications
Arguments for Intervention

Success of US industrial policy

Special Interest Influence
Counter Arguments

Entrepreneurial Potential


Studies show countries that give into demands of
current new businesses have lower levels of
entrepreneurship (Clark, Lee, and Sobel 2007).
Inefficiency of Politicization of the Economy
Arguments for Intervention

Entrepreneurship is Disruptive

Established business

Socioeconomically
Counter Arguments

Prosperity

Higher Consumption

Higher Growth
Arguments for Intervention

Economic Freedom is Not Beneficial

Negative relationship between new business formation and
commercial lending (Campbell and Rogers 2007).
Counter Arguments

Related Outside Studies

Size of the effect

Economic Freedom Findings
Policy Suggestions

Protection of property

Protection of Entrepreneurial Freedom


Limit Special interests influence
Business Failure
Works Cited

Campbell, Noel D. and Tammy M. Rogers. “Economic Freedom
and Net Business Formation.” Cato Journal 27, No. 1 (2007): 2336. EBSCOHost. Oregon State University Lib., Corvallis OR
<http://www.cato.org/pubs/journal/index.html>.

Clark, J. R., Dwight R. Lee and Russell S. Sobel. “Freedom,
barriers to entry, entrepreneurship, and economic progress.” Review
of Austrian Economics 20 (2007): 221-36. EconLit. Oregon State
University Lib., Corvallis OR. 25 August 2007.
<http://www.springer.com>.

Ketels, Christian H. M. “Industrial Policy in the United States.”
Journal of Industry, Competition and Trade.7 (2007): 147-167.
EconLit. Oregon State University Lib., Corvallis OR. 20 January
2007. <http://www.springer.com>.