When Should Government Promote Private Business?

Never.   That is the short answer, and it is a substantial claim considering the plethora of subsidies and financial support given to business by the federal and state governments today.   There are several reasons why government assistance is actually harmful to the economy and they clearly explain the failure of each government assistance policy to achieve the desired goals.   The main policies used to “help” businesses are: tariffs and other protectionist measures, tax breaks and low interest loans, and subsidies to corporations and agriculture.   Unfortunately, while every one of these measures is widely used today, they all end up hurting competition, business, and consumers.


It is no secret that protectionist measures hurt consumers and competition, as any introductory economics class will quickly show, but Congress rarely heeds the free-trade argument.   America’s trade deficit at the end of 2000 was a record $370 billion according to Commerce Department figures, yet it accompanied the largest economic growth cycle in America’s history.   This confirms the idea that trade deficits do not cause poor economic performance; rather, they typically accompany improving economic conditions because they are a sign of increasing foreign and domestic investment.   Despite ideas to the contrary, trade deficits do not cause Americans to lose their jobs, as during the last nine (as of 2000) years of rising deficits, the unemployment rate has fallen by 0.4 to record lows.   As the Cato Institute reports, as the economy experienced the recent recession, the monthly deficit figures fell right along with the stock market.   (The 2000 U.S. Trade Deficit: Select Cato Commentary, http://www.freetrade.org/new/DGTD2000.html. February 21, 2001)   Nevertheless, the Bush administration has been invoking protectionist measures for the steel industry among others, in what is probably a sign of their political influence.   America’s protectionist policy is clearly a solely political one,...