boedicca
Uppity Water Nymph from the Land of Funk
- Feb 12, 2007
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Harvard researchers are surprised to discover something which is painfully obvious to anyone who has run or been employed by an actual business:
Increased government spending causes unemployment.
Duh.
Recent research at Harvard Business School began with the premise that as a states congressional delegation grew in stature and power in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.
It turned out quite the opposite. In fact, professors Lauren Cohen, Joshua Coval, and Christopher Malloy discovered to their surprise that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressmans ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper, Do Powerful Politicians Cause Corporate Downsizing?
It was an enormous surprise, at least to us, to learn that the average firm in the chairmans state did not benefit at all from the unanticipated increase in spending, Coval reports.
....
If this seems counterintuitive, it might be from marinating too long in Beltway conventional wisdom. When private entities (citizens or businesses) retain capital, it gets used in a more rational manner, mainly because the entity has competitive incentives to use capital wisely and efficiently. The private entity also has his own interests in mind, and can act quickly to use the capital to its best application. Private entities innovate and look to create and expand markets, creating more growth.
In comparison, government moves much slower with capital. It generally works to its own benefit and not that of private entities. Lacking competition, there is no incentive for efficiency. Most importantly, it rarely creates new markets or growth but instead creates a spoils system that ends up reorganizing the status quo to favor some and disfavor others....
Hot Air Study finds increased gov’t spending results in unemployment
Increased government spending causes unemployment.
Duh.
Recent research at Harvard Business School began with the premise that as a states congressional delegation grew in stature and power in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.
It turned out quite the opposite. In fact, professors Lauren Cohen, Joshua Coval, and Christopher Malloy discovered to their surprise that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressmans ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper, Do Powerful Politicians Cause Corporate Downsizing?
It was an enormous surprise, at least to us, to learn that the average firm in the chairmans state did not benefit at all from the unanticipated increase in spending, Coval reports.
....
If this seems counterintuitive, it might be from marinating too long in Beltway conventional wisdom. When private entities (citizens or businesses) retain capital, it gets used in a more rational manner, mainly because the entity has competitive incentives to use capital wisely and efficiently. The private entity also has his own interests in mind, and can act quickly to use the capital to its best application. Private entities innovate and look to create and expand markets, creating more growth.
In comparison, government moves much slower with capital. It generally works to its own benefit and not that of private entities. Lacking competition, there is no incentive for efficiency. Most importantly, it rarely creates new markets or growth but instead creates a spoils system that ends up reorganizing the status quo to favor some and disfavor others....
Hot Air Study finds increased gov’t spending results in unemployment