Introduction: The Next Frontier: The Future of America's Economy Is Riding on Its Entrepreneurs. the Future of Its Entrepreneurs Is Riding on Government

By Kedrosky, Paul | The Washington Monthly, May-June 2009 | Go to article overview

Introduction: The Next Frontier: The Future of America's Economy Is Riding on Its Entrepreneurs. the Future of Its Entrepreneurs Is Riding on Government


Kedrosky, Paul, The Washington Monthly


This spring, during the battle over the stimulus package, I stumbled upon a television news program where analysts were debating whether government or entrepreneurs would get us out of the economic crisis. As someone who both invests in and studies the history of business start-ups, I was glad to see the subject of entrepreneurship being discussed. But the way the question was posed was hopelessly wrong: the notion that our economic salvation lies in either government or entrepreneurs is a classic false choice. And yet it corresponds to certain battle lines that many have drawn over economic policy.

On one side is the belief that government stimulus spending will be the primary force in our eventual recovery. This view holds that the key to exiting economic downturns is countercyclical public spending to keep the U.S. economy closer to its optimal level of activity. You should deficit-spend when the economy is operating at less than its full capacity; you should shrink spending and manage debts when the economy is back to normal. It is, in short, the Keynesian view, named for economist John Maynard Keynes and widely held by congressional Democrats. And there's some truth to it. Massive government spending can cushion the blow when an economy shrinks as severely and as quickly as this one has. But imagining that a fiscal stimulus, however outsized, can compensate for indebted consumers hell-bent on saving their way back to (relative) solvency is high-definition dreaming.

The other policy perspective is that greater government spending only leads to higher tax rates, hence to declining incentives for investors to take risks. Better, in this view, to allow the economic crisis run its course, permit large firms to collapse, and let entrepreneurs pick up the pieces and create new companies, jobs, and wealth. This is the "Hayekian" view (a la Austrian economist Friedrich von Hayek), widely held by congressional Republicans, and there's some truth in it, too. Higher tax rates will, at some point, undermine investment incentives (though the evidence suggests that we're not very close to that point yet). Downturns--especially severe ones--do disrupt markets and provide opportunities for innovators. Microsoft, Allstate, Morgan Stanley, and many other companies rose from the wreckage of economic downturns. Small companies have been the primary source of job creation in the United States over the last few decades. Unless you expect that trend to change, start-ups and small companies must, by definition, play a major role in any meaningful recovery.

But the purist Hayekian view is as misguided as the purist Keynesian one. For one thing, downturns are just as hard on entrepreneurs as they are on the rest of us. There is less investment capital available for start-ups, prospective customers are less willing to spend money, and fewer people and companies want to take chances buying from "risky" start-ups and small companies. All of these issues cannot be simply brushed aside with a wave of a laissez-faire wand. More broadly, the followers of Hayek tend to ignore the vital role government has played in opening up new entrepreneurial opportunities, from Thomas Jefferson's Louisiana Purchase, which made land available to generations of frontiersmen, to the Defense Department's creation of the Internet. Indeed, it's often at times of major economic distress that government has the most political latitude to make such bold moves. So while it's true that our best hope for future growth is riding on America's entrepreneurs, the best hope for our entrepreneurs may be riding on government.

This isn't the first time an economic crisis has provided the potential for gutsy public policies that benefit entrepreneurs. The Panic of 1857 was sparked by a U.S. banking crisis that in turn caused a sharp recession. (Sound familiar?) While the banking crisis itself passed relatively speedily, new fears about the banking system and the economy had political consequences that helped to bring to power the newly formed Republican Party. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Introduction: The Next Frontier: The Future of America's Economy Is Riding on Its Entrepreneurs. the Future of Its Entrepreneurs Is Riding on Government
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.