Student Debt and the Decline of New Business Formation

by James A. Bacon

Many are the ways in which burgeoning student debt — $1.2 trillion and rising — cripple the economy. On this blog we’ve discussed how debt delays family formation, housing purchases and consumer spending. Recent research from the Philadelphia Federal Reserve Board also suggests that student debt dampens new business formation, an insight that ties into another line of inquiry on this blog: understanding the slow rate of job creation in the current economic cycle.

The engine of job creation in the U.S. economy is new business formation. The spawning of new businesses has experienced a long-term decline since 1978, but that decline has been particularly pronounced since 2005. In recent years more firms have exited the marketplace than have entered it, as seen in this Brookings Institution graph below, taken from “Declining Business Dynamism in the United States: A Look at States and Metros,” published in 2014. The numbers may have improved in the past two  years, but probably not enough to change the long-term picture.

firm_dynamism

I have argued on this blog that the massive wave of regulation enacted in the past six years has dampened the economic recovery by imposing large new costs on businesses. As the regulatory burden has increased, economies of scale have shifted in favor of larger firms which have the resources to deal with the regulations. Numerous industry sectors are consolidating: banking, hospitals and health insurance most visibly. Industry consolidation may be a factor in explaining the decline in overall net business formation but it only goes so far.

The Brookings data shows that the problem isn’t an accelerating death rate of businesses — the exit rate of firms from the economy has remained fairly stable since 1978 — it’s the dearth of business births. I would suggest that regulation has dampened new business formation by creating barriers to entry in many industries.

While I still hew to that view, I think there’s more to the story. There also is strong evidence that the surge in student debt — $1.2 trillion and rising — has depressed new business creation among young people.

Image source: Federal Reserve Bank of Philadephia

Image source: Federal Reserve Bank of Philadephia. (Click for larger image.)

The authors of the recently published Federal Reserve Bank of Philadelphia paper, “The Impact of Student Loan Debt on Small Business Formation,” has found a “significant and economically meaningful” negative correlation between geographic variation in student loan debt and net business formation for small firms of one to four employees. “Based on our model, an increase of one standard deviation in student debt reduced the number of businesses with one to four employees by 14% on average between 2000 and 2010.” (Please don’t ask me to define “standard deviation.” Here’s an an explanation.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

To launch a business, especially a small business, individuals need access to capital, the authors argue. Small businesses receive approximately 75% of this capital from banks in the form of loans, credit cards and lines of credit, which are contingent upon the borrower’s credit-worthiness. “Given the importance of an entrepreneur’s personal debt capacity in financing a startup business, personal debt that is incurred early in life and that restricts a person’s ability to take on future debt can have profound implications for growth in small businesses,” the study says.

The growth in student debt over the past decade has damaged the credit-worthiness of an entire demographic cohort: 17% of student loans are delinquent, and another 44% are not being repaid due to borrowers either still being in school or having received a repayment deferral or forbearance. Even students who are paying their debt on schedule find their credit worthiness downgraded.

As the Wall Street Journal noted in an editorial today, the Kauffman Foundation has found that new entrepreneurs ages 20 to 34 fell to 23% of self-starters in 2013, down from 35% in 1996.

The U.S. system of higher education may be creating the best educated generation in American history, but it may be the least entrepreneurial in decades.

As Virginians seek ways to reignite a state economy hobbled by the decline in federal spending and an eroding business climate, we need to give more attention to what it takes to stimulate new business formation. And that should entail taking a closer look at the link between higher ed and student debt, and the link between student debt and new business formation. All the state and federal “programs” designed to promote new business formation, I suspect, don’t amount to a hill of beans compared to the rise in student indebtedness. Tackling student indebtedness gets us into a thicket of very complex issues that aren’t easily solved but that’s no excuse for failing to focus on what really matters.

There are currently 2 comments highlighted: 116779, 116803.

27 responses to “Student Debt and the Decline of New Business Formation

  1. here’s my thinking.. tell me where I’m wrong..

    money that gets spent on higher Ed or even money the govt spends – does not disappear into a black hole and get removed from the economy. that money creates a job and economic activity when that professor spends his salary.

    what you buy more college professors with that student debt – you are also creating jobs for whatever those college professors are spending their salaries on. groceries, BMWs, a farm in the country.

    you can argue that we have more college professors than we need but if
    reduce govt loans … you reduce the number or professors – ergo who are not buying groceries, cars and homes.

    yes – that saved tax money gets spent on something else. perhaps someone buying something a new business owner is selling.

    similarly – when govt taxes us and uses it to buy a school teacher or a deputy – the money is not getting subtracted from the economy to disappear forever. That teacher or deputy puts it right back into the economy when they spend it.

    I’m NOT arguing that it’s better spent by the govt or that govt jobs are just as good or needed as private sector jobs.. I’ just pointing out that the money spent on govt wants does not leave the economy.

    the question is – do we need the teacher/college professor/deputy more than we need to new business owner selling widgets that the less taxed want – instead of teachers or deputies?

    Nothing really illustrates this more than the sequester. You cut govt spending.. you cut the military – and you cut jobs for NoVa and Hampton Rds and the economy in NoVA and Hampton feel it. But that less taxed farmer in Kentucky may be able to buy a new tractor.

    so one less Pentagon worker and one additional tractor factory worker.

    not a net new job – a DIFFERENT job. a private sector job vs a govt job. But did you need that Pentagon guy who was in charge of drones to hunt down bad guys?

    again – I’m not arguing that govt spending is better or more needed.

    I’m just pointing out that taxes (and college loans) do not disappear into a black hole and leave the economy.

    so how did I get this wrong?

  2. Who mentioned the sequester? Students are not deep in debt because government is spending less on higher education. Students are deep in debt because 1) that debt is encouraged and subsidized and anything the government subsidizes tends to increase and 2) the colleges and universities believe they are free to spend and charge anything they can bloody well get away with. I doubt very much that what is spent on tuition and fees now, compared to what was spent forty years ago when I was there, is reflected in better pay for faculty or more “education” value. Rather the dollars go into ancillary activities (armies of campus cops and administrators, sports programs, plus some socialistic income transfers, wonderful lifestyle facilities and plush housing). I spent four years in school without a fitness facility, air conditioning, a winning football team or a cafeteria I looked forward to visiting — and it was cheaper. I spent four years on SCHEV searching for proof that the tuition and fee increases we’ve seen were really justified and frankly I never found it. This has got to be the only information-based endeavor in the world that has grown in expense during this information technology revolution.

    They do it because they can and they will do it until somebody stops them. A good education provided by well-compensated faculty could be provided for far less than the students are paying.

    I’m not at all surprised that the result is later marriages, slower family formation, fewer births and later home purchases. And that is among the students who graduate – the untold story is the debt held by people who do not finish and thus do not get any real economic boost for having gone.

  3. the “ancillary” jobs are real though and they do generate economic activity just like any other job. (a job does not have to be “useful” to still generate economic activity – only that the job does earn a salary)!

    cut the college job – less college loan needed – more money for something else – but that something else might well be fancier wheels..not necessarily anything more useful … it’s subjective.

    I’m just pointing out that a cut college job that results in one additional private sector job – is a trade – the newly added private sector job is offset by the loss of the college job – in pure economic terms.

    economically it’s a wash. the higher tuition/fees cost IS “crowding out” other kinds of economical activity (job creation) but it’s not like the tuition/fees are going into a black hole – economically. The college jobs are real jobs that do generate economic activity on a dollar for dollar basis.

  4. Larry G,

    You argue that tax money doesn’t disappear down a dark hole. It’s a straw man argument. The real question is whether WEALTH disappears down a dark hole. Implied in your argument is the correct notion that the college professor is stimulated to spend on the baker and the butcher. But someone else is destimulated from doing the same thing because he has had his money taken away in taxes. The problem lies is who is that person from whom taxes are being taken.

    If that taxee is more productive than the person to whom the taxes are given, there is a net loss of wealth as the result of the government action. At this point, you can have your argument about whether the government made the correct decision. Again it is the wrong question, since no one any longer seriously disputes that governments make poorer decisions in allocating economic resources than the free market. Can you say Soviet Union? Can you say Argentina?

  5. we’re perhaps close.

    the taxes taken are spent on SOMETHING rather than allowing the taxpayer to spend them on what he would have spent them on.

    in EITHER case – the economic activity generated is dollar for dollar the same.

    Instead of the taxpayer getting a TV or a new suit – he gets a government service – like a patrol car for a deputy.

    yes we can argue he didn’t need nor want the patrol car and instead wanted to spend his “wealth” on a new suit.

    but in the former case – the deputy buy groceries with his salary while the store owner buys groceries with the profit from the suit.

    and I’ll further agree that it’s an article of faith among many that the govt will buy a deputy or a tank “wastefully” while the taxpayer will choose more prudently and his choice will generate more productivity.

    but in terms of economic activity – each of the two are dollar for dollar the same.

    it’s more about what is a better use of the money..

    and some folks will say the govt buying a soldier to kill a terrorist is better than the taxpayer keeping the money to buy what he wants.

    but we both seem to agree the money does not disappear into an economic black hole as some will claim.

    and this also extends to regulation. Some will claim – having to pay for seat belts in a car is making the car more costly while the govt will say that all the money paid for seat belts is less that the cost of the lives saved even if for a given taxpayer – there was no payoff.

    but the money that went to pay for the seat belt – went to pay a worker to build that seatbelt – so, again, economically the money for the seat belt – did not go into an economic black hole – it went into the economy – and if it saved costs for lives not lost – then it actually was productive also.

    What I’m trying to rebut is the argument that if a govt tax is spent on something not deemed useful or a regulation not considered productive that both would harm economic activity. I say both paths actually produce – dollar for dollar – economic activity – but folks disagree on what the money is spent on. They prefer that the taxpayer be able to buy a suit – and to buy a less expensive car by not having to pay for safety items he does not want.

    I don’t dispute the premise that taxpayers would buy different from the govt but I do – the premise that when the govt spends it – it goes into an economic black hole.

  6. The Brookings study shows that there is an overall decline in business formation in the American economy. Obviously, it didn’t focus on the variables of education, but given the constancy of the graphs, it would seem that community college as well as high school grad business formation is also on the decline. Neither of those groups would be affected very much by student debt.

    I have a feeling it’s a combination of things (new regulations, greater insurance requirements for small businesses, greater bonding requirements, student debt affecting creditworthiness), but I’ll tell you something that I don’t think is mentioned that probably affects small business formation more than those things: the internet.

    In this day and age, it’s hard not to find a 20 to 40 year old who doesn’t go to AngiesList, Google Reviews, Yelp, or TripAdvisor…..and they go with “the best” as rated on those services. It doesn’t surprise me that scholars are ignoring something like this, but I get a feeling that it’s much bigger than the other factors. If a 30 y.o. needs a plumber or a handyman or a doctor…unless his parents always used the same guy and the kid lives in the same community as his parents (increasingly unlikely)…that 30 y.o. turns to internet reviews and usually goes with the 4/5 star. It’s increasingly difficult for a lot of service businesses (restaurants, plumbers, carpenters, HVAC, etc.) to get off the ground unless they can game these online review services.

    I’m not discounting things like student debt or new regulation….but I see how people act, and it sure seems like people are much more likely to go to an online review service nowadays when they need a service.

    • Cville – Interesting observation. And from what I’ve been told, businesses pay considerable fees to some of the services, Angie’s List for example. How does the new business compete? Lower rates and better service, coupled with luck.

      I tend to agree with Larry at one level – the creation of a job brings broader economic benefits. At the same time, inflation in the price of goods and services sucks wealth from other sectors of the economy and from consumers. The many years of colleges increasing costs faster than inflation has transferred wealth to the higher education sector, largely without corresponding benefit. Our colleges graduates are not better prepared for participation in the marketplace than were college graduates from 20-40 years ago. Nor does better teaching allow students to graduate in 3 or 3 1/2 years. The wealthy can still afford college, probably even more despite high increases. Those members of the lower economic strata that can make it to college are likely largely isolated from the higher costs. The folks in the middle are burdened with huge student debt, which, in turn, sucks money that could be used elsewhere.

      But the big problem for higher education remains our elected officials from both parties are unwilling to force higher ed to cut costs and operate efficiently.

      • the issue of spending money on education – but not getting value is real. You won’t find a stronger critic than myself. we waste money hand over fist for K-12 as well as higher ed by spending on the wrong things…

        that being said – the money spent still goes back into the economy just the same as spending on porn, alcohol, cigarettes, hair coloring, viagra, do.

        it’s not whether or not the spending is for a good thing or not.

        you can use taxes to buy a crapload of weapons in the name of fighting terrorism – and it would be – at the same time:

        1. – a bad use of taxes in the view of some –
        2. – that does go into the economy anyhow no matter the good or bad of it.

        The Conservative argument is that taxes take money out of the economy – a deadweight loss .. and that’s WHY in their view – tax cuts are GOOD – because they power the economy.

        I contend that either way – they both go into the economy.

        and I think it should be obvious to anyone who lives in NoVa or Hampton or points in between – in Henrico – that when taxes are cut – and spending on Defense is cut – there are real economic consequences.. in NoVa and Hampton – as well as to Virginia itself as lower economic activity – as those tax dollars go elsewhere in the private sector.

      • I think it would do everyone on this blog some good to think about the following question: Is it higher ed or is it employers that is the problem?

        It’s no secret that in the past 5 years, school name has become more important in the best-paying industries in the country (law, medicine, finance, consultancies). Go take a look at the rosters of Goldman Sachs or McKinsey or Skadden and look at the schools of employees. They’re even more tilted to those schools today than 5 years ago.

        Go look at large engineering firms and how many of their employees are from the top engineering schools. And again, they’re more tilted to those schools today than 5 years ago.

        I think that’s what people are missing about “higher ed”…it’s not so much that the schools themselves offer the value, it’s that the high-paying employers in the country have decided they’re only going to hire from a certain batch of schools….kids and parents know this….thus, they will pay whatever it takes to go to those schools that offer their kids the opportunity to work for an elite employer.

        Perhaps if top employers interviewed candidates from “other” schools, that might take some of the allure from higher ed. But until employers change their behavior, I don’t think you’ll see a lot of change.

  7. re: other things that affect business formation … WHAT? you think it’s not just nasty govt policies? HOLY GOAT MILK! that’s blasphemous!

    how dare you “speculate” that other factors might be involved and just totally mess up a perfectly good blaming of government policies!

    One of the downsides of the internet of things …is the super easy availability of data these days which has spurred the attendant growth of armchair “analysts” …

    they start with the data … look for correlations then proceed to claim the relationship is actual causal (don’t need no stinkin study). Even if other data contradicts their premise – they just ignore the other data…

    so we end up with these simplistic sound-bite concepts – like:

    cut taxes – the economy “grows”

    increase regulation – (or student debt) – business formation decreases… and the economy shrinks.

    bad bad govt. bad bad Obama.

    here’s a typical example of how these simplistic ideas get started :

    HEADLINE : ” Government report finds regulations have spiked under Obama”

    now dig down a little into the actual article (which critics apparently dain to do):

    ” From 2009 through last year, there were more than 13,000 final rules published in the Federal Register, while fewer than 12,400 were finalized from 2005-2008, the report found. That’s an increase of nearly five percent.”

    5 percent?

    oh, and then they add this:

    ” … a small number of the 2009 rules might be regulations from the last days of the Bush administration.” (how many? who knows? who cares, it’s still Obama’s fault!)

    but this is all it takes for the Heritage folks to then gin up their usual serving of “analysis”:

    “A report issued last week by the conservative Heritage Foundation placed the price tag of Obama’s first-term regulations at $70 billion.”

    give the Hill, credit, they did add this in THEIR article – (which Heritage ignored).

    “But the White House has maintained that the benefits of new regulations finalized during the Bush and Obama administrations total upward of $800 billion, far outweighing the expense of implementing them. ”

    http://thehill.com/regulation/administration/299617-government-report-shows-spike-in-regulations-under-obama

    Now.. if you then go peruse the right leaning echo chamber sites after a headline like the Hill or Heritage Press Release :

    – what you will get – repeated over and over at light speed – spreading like wildfire on the web from Drudge to Breitbart to FAUX News – is things like:

    ” … massive wave of regulation enacted in the past six years has dampened the economic recovery by imposing large new costs on businesses.”

    as Jim wrote… and it apparently is an article of faith based on what he is reading… that confirms his own deeply held beliefs (biases?) that no matter what the govt calculates as cost-benefit – it’s simply not true, you ignore it – just as Heritage and CATO do.. and who go on to claim that the costs of regulation are a dead loss to the economy – those costs go to an economic black hole.

    want another right here in BR? – go back to the discussion of CPP – which discusses the costs but never mentions the fact that the EPA calculates 14-34 billion in reduced health impacts.. as a result of 8 billion in regulation costs.

    it’s a continuing theme… and it needs to be challenged….because apparently it just will be repeated over and over , if not.

    at the very least – there needs to be a competing view…

  8. Actually, Germany already cracked this nut by making college freely avavailable for everyone, so the solution really isn’t that complex.

    • http://www.marketplace.org/topics/education/learning-curve/how-german-higher-education-controls-costs

      “Students in Germany also tend to stay local, so there aren’t any dorms. There are no active student clubs, or big football stadium. And every lecture hall looks huge.”

      “Most of the time you don’t even know who is sitting next to you or who your professor is,” Schwarz says. “You just listen and then reproduce your knowledge during the exams.”

      “All of this translates to savings: the average cost of an undergraduate degree in Germany is $32,000, paid for by the state. In the U.S., some schools charge that much for one year”

      “To limit spending, Wolf says, professors teach more and earn less than their American colleagues.”

      “And unlike their American counterparts, German universities have very little administrative bloat. Many administrative tasks for which you would have specialized personnel in the States is done by the teachers and professors here,” Wolf says.

      • re: ” “Students in Germany also tend to stay local, so there aren’t any dorms. There are no active student clubs, or big football stadium. And every lecture hall looks huge.”

        and that’s your problem. And it’s not that the schools are forcing students to want these things. It’s the other way around. How many parents would send their kids to a school without a sports program?

        the schools are providing what there is a demand for and the govt is providing virtually unlimited loans to pay for – not just academics – but sports programs.

        In other words – students are piling up debt – to pay for sports and other non-academic services…

        and somehow – Jim and Crazy see this as a govt policy that ends up harming business formation but the drop it right there and do not call for specific reforms. One of them might well be – that the loans ONLY COVER direct academic expenses – and other costs are owned by the students and parents.

        The states could take a similar approach. They could restrict state funding to ONLY direct academic expenses… nothing else.

        but you’ll hear none of that from the anti-govt folks – because their essential premise is not to fix the problems – but to blame govt and taxation – as essentially wrong.. in any flavor or degree …

        when I hear Crazy and Jim come back with specifics on how to reform – I’ll issue a mea culpa.

        • 1.2 trillion in outstanding federal debt from student loans is “too big to fail” territory and we’ve been down that road before..

          So we really ought to see student loans for what they are- a big govt program gone wild, akin to the mortgage industry before it imploded.

          Seems that we can either keep feeding the beast or enact new rules to limit borrowing. Honest question: would conservatives oppose regulations on student loan? Or do the financial institutions/higher ed lobby get to keep their blank check from the feds?

  9. Larry G

    Again, your argument proves too much. Saying the money does not go away neatly avoids the real issue, which is allocation of economic resources. The question is not druthers, or need, or wisdom. It doesn’t matter whether the individual buys a suit or a Jaguar. What matters is the sum impact of all transactions and all choices on the economy. When there is but one player making the choice for everyone else, it is necessarily inefficient. Lots of players make for better efficiency, even though some will make mistakes.

    We hear all the time that you can’t give money to inner city folks to decide which school they will go to under a voucher system because they are too stupid to make those choices. Some are, to be sure, but more are not. Even if some initially make a bad choice, the market will teach them they made a bad choice and they can correct, rather quickly in fact, unless the government restricts them as it does in Virginia. The same cannot be said for government. The government may well make a good choice, but when it does not, we all know that it cannot correct itself quickly like a free market can. That is simply in the nature of any monopoly and really can’t be disputed.

    So when you say we take the notion that government spends badly as an article of faith, it misses the point. Badly or well, what the government does just cannot be changed quickly, nor can government adapt quickly to what is going on in society and correspondingly shift resources.

  10. the market won’t teach parents they made bad voucher decisions for their kids but the govt can require demonstrated performance if tax dollars are being used.

    but I think you’re not on point on the govt spending part.

    I’m not advocating govt spending – I’m merely making the point that when the govt taxes someone and then spends that money on a sailor in Hampton – that it has a real economic impact.

    you can argue whether the sailor is “needed” or not or that govt waste in inherent anytime it spends – even for sailors.

    but my sole point is that the tax money is not going into a black hole – it’s going back into the economy – and essentially a choice was made to buy a sailor and not a backyard pool.

    the thing is with the folks you and Jim align with – they treat ALL taxes as a dead weight loss on the economy and there is no discretion at all with respect to taxation for govt services at all.

    in other words – Jim will admit that SOME govt services are needed but he has no criteria himself nor do Conservatives in general for how much is enough or too much.

    its just an article of faith – a “belief” that ANY tax is damage to the economy … but.. if we have to do it .. then buying a sailor is better than medical care for the unemployed or some such.

    Again – taxes do not go into an economic black hole.

    If that were the case – the aspect of the sequester hurting NoVa and Hampton would be a myth.

    Instead – it’s very real. You cut taxes via the sequester.. and cut spending – you very much do impact the economy.

    whether you “needed” to collect a bunch of additional taxes for all those govt jobs in NoVa or Hampton is a separate issue.

    we mess up when we say that a bad use of taxes – goes into an economic black hole. The reality is – even a bad use of taxes – STILL generates economic activity. Govt bureaucrats STILL buy groceries and cars with their ill-earned salaries!

    • “You and Jim … treat ALL taxes as a dead weight loss on the economy.”

      No, I don’t, and I never have. Sure, government spending “creates” jobs. My point (and Crazy JD’s, too, I’m sure) is that when government creates a job over here, it does so at the expense of a job over there. It creates a visible job, for which politicians get credit, and kills an invisible job, which no one notices.

      PLUS, there is a small economic loss on the margin because, as Crazy JD explains, government generally does a poorer job of meeting peoples’ preferences than people do themselves. The more control government co-opts the allocation of resources, the greater the net loss to economic efficiency, productivity and fulfillment of individual preferences.

      • re: monpoly, and efficiency – I agree with that somewhat but it’s also a different allocation of resources.. The private sector is not necessarily productive either – and can and does waste resources also.

        ” You are equating economic activity with what is essentially taking money out of your right pocket and putting it in your left. I know of no economist who would call that economic activity, because no new wealth is created.”

        economic activity and wealth creation are two different things.

        you assume wealth is when a guy can buy his own TV but you don’t think a policeman that protects the theft of it is “wealth”.
        I’m saying that “wealth” is not just as how you define it with respect to the individual. “wealth” is a public education for his kids or a road he uses to get to work or have that TV delivered to his house. It’s the GPS satellite that powers his smartphone navigation.

        “You improperly focus on the consumer parting with his money without describing the source of the money. ”

        he works for the money. He has to pay for things he wants as well as infrastructure and services he needs.

        “Yes, whether he buys porn or cigarettes does not matter. Those folks have PRODUCED something of value to someone.”

        and the “value” of infrastructure and services that benefit him?

        “What matters is where the consumer in your example got his money to buy the porn or cigarettes.”

        if he spent it on cigarettes and not the road he uses?

        ” If he got his money as a transfer payment, no new wealth was created.”

        if he got it working by digging ditches – it’s not “wealth” either.

        why do you characterize “wealth” relative to the source of his money?

        do you think that Boeing investors get “wealth” from the govt buying Boeing aircraft?

        “Someone else was taxed who now could buy fewer cigarettes or porn. If he got his money by working on an assembly line, then new wealth was created.”

        if he chose cigarettes and not food for his kids and others have to feed his kids?

      • well you do – because you say that regulation “costs” without admitting that it can reduce harm to others nor that it can also generate jobs.

        you treat regulation and taxes as if they do not contribute to the economy – because they are forced on those who pay.

        whether or not someone is forced to pay taxes or the costs of regulation does not determine if the money taken – and spent on other things – does not go back into the economy the same way it would as if he kept it and spent it.

        whether he keeps it or the govt takes it – in both cases that money goes back into the economy.

      • ” No, I don’t, and I never have. Sure, government spending “creates” jobs. My point (and Crazy JD’s, too, I’m sure) is that when government creates a job over here, it does so at the expense of a job over there.”

        if that job is a professor at UVA instead of a a car for junior but there is no room for him at UVA?

        see my problem is – that you and Crazy say that ALL taxes have the same problem rather than:

        1. – admitting that in some cases we may need the govt job
        2. – not providing any rational for criteria for determining when you
        need the govt job or not.

        according to you – ANY govt job that does exist is ..essentially – a necessary evil.. not something you’d do as part of a rational approach to what society’s needs are that do need to be paid for and what are not.

        for instance, do you and Crazy believe , since college loans are a problem, that tax dollars for college loans are justified at all – no matter what because every dollar for a college loan is a dollar lost to business formation?

        you guys have a belief system without any rules… it’s a philosophy without any admission that there is a threshold for the need for taxes and the things that taxes buy – that most of society believes is not govt theft but – agreed to investment – with the agreement being – elections.

        When I see you and Crazy and the folks you align with step up and say the govt should not be providing college loans and promise to REPEAL the law – across the board – then I’ll then put more stock in your claimed philosophy.

        Until then – like a lot of other advocacies.. there is no such specificity…

        where are the national candidates for POTUS – who will actually honestly get up and stand for the principles you guys support?

        all we have is posers… at best.. if they actually believe your philosophy – they never admit it much less make it a overt part of their promises.. It’s almost like they have a secret agenda of getting elected however they can get elected and THEN implement these beliefs.

        tsk tsk

  11. re: ” The government may well make a good choice, but when it does not, we all know that it cannot correct itself quickly like a free market can. That is simply in the nature of any monopoly and really can’t be disputed.”

    then the sequester did not work? we did not cut spending?

    re: ” Nicely said, Crazy!”

    my point – not responded to – is the fact that it’s false to claim that govt spending (good or bad) is a dead weight loss on the economy…

    this goes back to Jim’s premise here that student debt and/or govt regulations are a dead weight loss because they result in less business formation.

    more spending on Colleges results in more college employees who will be spending on goods and services including new businesses that offer something of better value than other choices.

    more regulation – actually does not kill jobs any more than a new competitor does.

    People decide to change cell phone plans – and the result is a loss for one company and a gain for the other.

    similarly when air bags add to the cost of a car – jobs manufacturing air bags are created and the buyer of the car economizes in other spending. Perhaps when they buy that new car – they get one that uses less fuel.. so they’re trading fuel purchase for air bags.

    beyond that – if they have an accident – instead of getting hurt to the tune of 50,000 – some of which they pay – they walk away.

    the basic premise that govt spending or regulation is a dead loss on the economy is wrong.

    Crazy wants to reduce govt because he/she believes Govt is inherently makes wasteful choices.

    that may well be – but it’s still economic activity – the very same way that a consumer buying porn or lottery tickets or cigarettes also create economic activity.

  12. “my point – not responded to – is the fact that it’s false to claim that govt spending (good or bad) is a dead weight loss on the economy… ”

    I suppose it depends on what is meant by dead weight loss. It is surely a transfer payment, usually away from a productive resource to a less efficient one. There are two parts to this. 1. Gov’t spending per se, and 2. Gov’t transfer payments from a productive resource to a less productive resource (welfare, disability payments, etc.) You may prefer not to call it dead weight loss, but it surely is a loss.

    “Crazy wants to reduce govt because he/she believes Govt is inherently makes wasteful choices.”

    You argue by mischaracterization of my argument. Gov’t is not inherently “wasteful” ( a different problem). It is a monopoly, which restricts the flow of capital to the most efficient supplier. It is an “inherent” monopoly. There can be no question of it. You can’t walk down the street and get another gov’t.

    “but it’s still economic activity – the very same way that a consumer buying porn or lottery tickets or cigarettes also create economic activity.”

    You are equating economic activity with what is essentially taking money out of your right pocket and putting it in your left. I know of no economist who would call that economic activity, because no new wealth is created. You improperly focus on the consumer parting with his money without describing the source of the money. Yes, whether he buys porn or cigarettes does not matter. Those folks have PRODUCED something of value to someone. What matters is where the consumer in your example got his money to buy the porn or cigarettes. If he got his money as a transfer payment, no new wealth was created. Someone else was taxed who now could buy fewer cigarettes or porn. If he got his money by working on an assembly line, then new wealth was created.

    • I don’t know that I agree with your entire argument. I think infrastructure can create wealth and it is most assuredly more efficient for the government to provide this good than the private sector.

      Anyone who has ever lived on a private road will tell you that (my great uncle lived on a private street for over 50 years….and everyone always wanted “the state” to “take the road in the system”…no, we’re not talking about some crazy socialist hive…we’re talking Montgomery County, Virginia…the inefficiency of a private road is bewildering to anyone who lives on it). Try getting three separate landowners on a private road to ever “agree” to spend money on the road at the same time and then tell me that government is always more inefficient than the market or that the market quickly corrects itself…..it takes a private street’s “owners” years, if not a decade, to finally agree to repairs to serious defects.

      • the road is a good example. and there are TWO separate but equally important parts to it:

        1. – that taxes are collected and used to pay someone to build, maintain and operate the road. So “wealth” was taken from the taxpayer to “transfer” to the guys who build, maintain and operate the road. The taxpayer now is an “owner” of that asset.

        2. – the road generated direct and indirect benefits and wealth to the taxpayer.

        the road enhances the productivity of those who have the ability to utilize it.

  13. Jim and Crazy say that if you tax someone you’re taking their “wealth”

    even if the money goes to build a road they can use – as CR points out.

    or if the govt puts up GPS and NOAA satellites that benefit the taxpayer and enable greater productivity

    or his kid gets a public education

    or the govt protects his intellectual ownership

    or keeps outlaws from taking his property

    or he can go to the ER and get treated even if he has no money?

    etc, etc..

    but the claim is that ANY TIME taxes are taken – it deprives the taxpayer of wealth.

    surely it’s not a 100% all or nothing proposition so perhaps Crazy and Jim can explain the criteria for when taxes are not stealing wealth or they are but it’s okay because the taxpayer is compensated… with valuable, wealth-creating government services and infrastructure?

  14. re: ” Again, your argument proves too much. Saying the money does not go away neatly avoids the real issue, which is allocation of economic resources. The question is not druthers, or need, or wisdom. It doesn’t matter whether the individual buys a suit or a Jaguar. What matters is the sum impact of all transactions and all choices on the economy. When there is but one player making the choice for everyone else, it is necessarily inefficient. Lots of players make for better efficiency, even though some will make mistakes.”

    would you let people CHOOSE to pay for traffic signals? How about fire and rescue or aircraft carriers?

    what is your approach to paying for these things? voluntary donations?

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