Wednesday, December 16, 2009
He told me about Medtronic's founder, Earl Bakken. His is a classic story, �What is the problem? Here is a solution." The first battery powered pacemaker was developed by Bakken as a huge improvement to the then existing devices that required a wire connection to an electrical source. Today there are over 1, 000,000 pacemakers implanted per year, and additional millions in use. This is the good news. The sad news is that today, it quite possible the device never would have been invented. Why? Government regulations. Now it can take up to five years to get approval to test a new medical device, and more to get a device to humans who can use them. Because of far too much bureaucratic intervention, many life-saving device ideas never see the light of day.
Connection with Apple Valley: The attitude that government can solve everything was alive and well with the legislators attending the AV summit who were DFLers and one lone Republican, Representative Tara Mack (who does not have a government can do all belief). Their talks were short but also worrisome. While MN does face problems including these:
1� Banks leery of lending money for two reasons: First, some government agency will come and second guess them; second, if you can get money at 0% from the federal government and earn a safe 2-3% in an investment, why take the risk on someone for a possible 6% return? Solution � the government needs to let the markets determine the interest rates, that is the value of money.
2 � Employers cutting back on hours worked in order to save jobs. Actually, this is commendable because it gives people an income versus letting them go.
3 � An erroneous attitude that in two years, the economy would rebound and all would be fine. In fact, that is one of the reasons the DFL wants to push through a $1,000,000,000 bonding bill this year. It looks nice but this is just more debt MN will have to retire. But oh, it goes for roads, zoos, etc.
Does the government have to intervene to solve everything including jobs?
As I listened to the politicians, I learned that MN has established a lot of government agencies trying to �help� business through programs, training, etc. While all this may sound good, it costs the taxpayers money to fund "middle man" government bureaucracy. I would think a business enterprise could provide the same service. What also was bothersome, some DFLers mentioned they wanted to "work with our partners at the federal level" to solve the job problem.
I distributed a chart with data that shows the 5+x rate of spending in MN versus population since 1960. Immediately, I was challenged on specific blips on the chart, etc. My response, �Even if the chart is off 100%, the approximate 45 degree trajectory is simply unsustainable. The easiest solution is to get government out of the way of business. Then the creativity, the risk takers, the Earl Bakkens, etc. can get moving on the job creation.�
My ultimate suggestion was this: �In the upcoming legislative session, make a commitment to cut business taxes and regulations by 20%. If you want jobs to come and stay in MN, this is the fastest way to get them. If government believes companies that left will come back, wake up, they won�t. They are gone. Now we need to protect the jobs still here.
Some regulation is necessary but the mindset to "protect everyone from everything" and
"government must interject itself to solve all problems" will not work. We need to remove the lousy middle man in job creation, the government.
Addition: Today's Star Tribune tells the story of a former Olympic swimmer who has a pacemaker. Would she even be alive without this invention? Who else will be denied a life-saving device because of "middle man" government's eagerness to "help" (aka get in the way)?
Monday, April 06, 2009
We show that capitalism is not common around the world. Outside the US and a small group of rich countries, regulations, leftist rhetoric and interventionist beliefs flourish. We argue that the lack of capitalism is connected to the presence of corruption. For example, we find that within a country, people who perceive more corruption are more likely to favour regulations, government ownership of business and to self-place on the left of the ideological spectrum. As the level of regulation is held constant within a country, this finding is inconsistent with a theory that assumes the only channel connecting these two variables is one where regulation causes corruption. We present a model where corruption reduces the demand for capitalism. This occurs because corrupt capitalists are disliked and voting for left wing policies is a form of punishment that is available to voters (even when the judicial system is weak). Evidence on emotions supports this explanation: the frequency with which people report experiencing anger is positively correlated with the perceived amount of corruption, but this correlation is significantly weakened when business is heavily regulated.From a new paper being presented at the spring Brookings Papers on Economic Activity conference. It's a challenging read. Many successor countries in the former Soviet Union went through an early period of 'market romanticism' in which Russia, for one, ran fast towards freer markets and paid little attention to the graft going on behind it. The result was a lost election and a stop to reforms in the country, from which it seems never to recover. (See Michael McFaul, for instance.) To imagine that there is a "demand for capitalism" and think about what shifts the demand curve (and to wonder what's on the vertical axis?) is intriguing. This paper goes in the summer reading pile for further thought.