The One Graph that Answers the Central Economic Issues of Our Time

Credit: Brookings Institution

Credit: Brookings Institution, (Click for larger image.)

by James A. Bacon

If you want to understand the intertwined phenomena of lackluster economic growth, persistent unemployment, stagnant wages and the income gap, I present to you the Rosetta Stone, a graph that explains all. It comes from a new paper written by Ian Hathaway and Robert Litan and published by the Brookings Institution: “The Other Aging of America: The Increasing Dominance of Older Firms.” The graph charts the long-term decline in entrepreneurship, as measured by firm formation, in the American economy. Firm formation traditionally has been one of the great strengths of the American economy but as can be seen above, the spread between firm creation and firm death has been narrowing since 1978 when the data series originated. Then in the mid-2000s, the two lines crossed. In the Great Recession and its aftermath, more firms expired than were born.

A decline in business formation is directly responsible for the weakness of the job market. The weakness of the job market is directly responsible for wage stagnation. And wage stagnation, which affects the 99% who depend upon wages/salaries for the livelihood far more than it does the 1% whose income comes from returns on capital, is directly responsible for the increasing income gap.

Credit: Brookings Institution

Credit: Brookings Institution. (Click for larger image.)

What accounts for the decline in entrepreneurship? Hathaway and Litan present data to help understand that question: Older, established companies are becoming more dominant in the economy. That trend can be seen at right. Write the authors:

There is a secular increase in the share of firms aged 16 or more years, while simultaneously there have been steady declines in the share of firms at every other age category during the history of our data,” the authors write. … Perhaps more surprising is the sheer pervasiveness of this trend, which is occurring in every U.S. state and nearly every metropolitan area, across all firm size categories and broad industrial segments; even in high-tech.

This trend, the authors argue, is a worrisome thing. “An economy that is saturated with older firms is one that is likely to be less flexible, and potentially less productive and less innovative than an economy with a higher percentage of new and young firms.”

In searching for  explanations for this trend, Hathaway and Litan explore the possibility that technology-related economies of scale are driving a consolidation. Could the rise of Walmart and other superstores, for instance, account for the demise of mom-and-pop retailers, and could that that trend apply to all industries? Just the opposite, they find: “While economy activity is shifting into mature firms generally, it is the smaller firms where the most growth is occurring.”

The authors are at a loss to explain the trend, which is long-term in nature, transcending business booms and busts. Let me advance a hypothesis. There is a direct correlation between the size and scope of government and the rate of entrepreneurship. The greater the share of national resources controlled, regulated or otherwise captured by government, the lower the rate of new business formation.

In my book “Boomergeddon,” published in 2010, I suggested that the long-term growth prospects for the United States were poor, citing a number of reasons, including greater resource scarcity, loss of  fiscal flexibility due to the massive size of the national debt, and the rise of the rent-seeker economy, the phenomenon in which corporations utilize the coercive power of the state to advance their narrow economic interests at the expense of the public good. As I wrote then:

It is an iron rule of political economy: Dominant industries will utilize their wealth and power to influence the political and regulatory arenas to protect their dominance. They will manipulate the regulatory process to favor themselves over smaller, nimbler competitors. They will see subsidies under the guise of saving jobs or advancing the public interest. They will raise tariffs and other trade barriers to limit competition from overseas. Corporations that maximize profits through rent-seeking are less likely to invest in productivity and innovation, the only true sources of economic progress. By gaining preferential access to capital, they will starve the entrepreneurial sector of the economy — as is occurring in the current business cycle. Rent-seeking companies will be more stable, but they will be less dynamic, economic growth will be slower, the tax base will be smaller, and deficits will be bigger.

The influence of the federal government over the economy has increased without let-up since the mid-1960s. There was a brief roll-back in the early 1980s, coinciding with the Carter-era transportation deregulation and Reagan small-government revolution and with a momentary resurgence in business creation. Then, as the federal government piled layer upon layer of regulation on the economy, the rate of business formation continued to falter, culminating with the Great Recession (not president Obama’s fault) and the imposition of an unprecedented regulatory burden (very much his fault). State and local government power has followed a parallel path in the arena of zoning and land use.

I’m not saying that all regulations are bad. Broadly speaking, environmental regulation is desirable and necessary (although subject to overkill in specific instances). But most regulatory initiatives have imposed huge costs on the economy overall, not only in complying with administrative requirements but in the rent-seeking it inspires. The longer and better established a firm becomes, the less likely it is to be concerned about survival and the more more time and resources it can devote to winning subsidies, tweaking regulations and creating barriers to new firms seeking to enter its industry.

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46 responses to “The One Graph that Answers the Central Economic Issues of Our Time

  1. pretty thought provoking but I have another couple of contributions to the simmering pot.

    and that is that – we are in a rapid-fire technological change era where as soon as someone thinks they have got a good idea – the technology evolves – and does so, so quickly that they become almost irrelevant and it’s gets increasingly more difficult to be able to predict – not where technology is ultimately headed – like self driving cars – but how fast we are going to get there …and how we get there.

    the second part of this – is that all but the largest existing companies that have secured some foothold in the market – know they too must innovate and evolve or else they will also be overcome by events. Even Jeff Bezos of Amazon has said that he would not expect Amazon to be around in 10- 20 years.

    So what companies are doing – is they are buying up the start-ups that seems to be on to something, to hedge bets, to acquire value.

    without a doubt – the confluence of the internet, GPS, smarphones and “apps” on smartphones and the “cloud” is driving a lot of this – and you can look at this with a half-full or half-empty mindset because the advent of the open system for phones and other technologies has enabled many people – and many more people – to get into the innovation game – and they can and do – accomplish stupendous things for a fraction of the cost of a big corporation with some R/D arm – at least in the world of software and communication – maybe not so much in the drug/DNA/Medical world in terms of “freelance” innovators but even in those worlds – technology is changing and evolving at breakneck speed compared to the more sedate tempo we saw in the 40’s, 50’s and even the 60’s and 70’s.

    Today – you’re not only got to have a viable concept in the current time-frame – you have to have the smarts to see where things are headed and how your good idea might fit into a fast changing world – a year or two years from now.

    and really – what this means is that as an individual – whether a college grad or not – you have to be well-equipped educationally.

    You have to be well schooled in language, math and technology – enough to use them in tandem as tools to not only understand the current world but to synthesize evolving “value”concepts.

    I submit this common core problem for 4th graders to give an example of what employers want in employees and what individual innovators must have to compete.

    http://blogs.edweek.org/edweek/curriculum/2014/08/a_closer_look_at_a_math_perfor.html?cmp=ENL-EU-NEWS2

    in short – people need to have good command of language and math concepts AND to be able to synthesize a multi-step approach to get to – a real world solution.

    This is the area where US 4th graders end up in 25th rank when compared to Europe and Asia.

    The KEY to our economy – to the economic security of our nation – in the 21st century of globalization – is – education.

    without it – we are going to end up a “has-been” nation who pre-ordained our destiny by seeking institutions and other things to blame instead of us recognizing opportunity and going after it.

  2. People think Steve Jobs and Bill Gates were “geniuses” and they were but the guy who really saw where the world was going – was Larry Ellison – who saw that it was not just the software – it was what the software was manipulating – data – that needed to be separated from the software and contained in its own repository – with tools to manage it – and ultimately that – that repository – would not necessarily be on the same computer as the software – but on a remote server … in the “cloud”.

    from the very beginning Ellison knew that Oracle – the interface to Oracle – needed to work the same way no matter whether it was on a Microsoft PC or an Apple or something else like IOS or Android…or Java or Forth and today – un-recognized by most people – if you use the internet or have a laptop or a smartphone – you use Oracle databases many times a day.. and never know it.

    that’s the kind of “vision” that innovators need to have to be sustainable for the long run – in my opinion, of course.

  3. Without disagreeing with Larry, I think it’s an supported argument to blame government regulation on the graph’s depiction: it’s a case of post hoc ergo procter hoc, or, where there’s smoke there’s fire. What regulations might have this effect on rent seeking? Perhaps it’s rent seeking that has a resurgence. Given the rise in corporate profits and the lack of investment in research and employment, I’d say the behavior of business in rewarding shareholders above all, and CEOs and Board members, have together a lot to do with this unfortunate phenomenon.

    • I guess I’m a skeptic of “it’s the regulations” – for several reasons not the least of which are the well-known uber regulations in the European Union – and the over-involvement of the government in many Asian nations.

      All things equal – is anyone saying that on an international basis among countries that are competing for global jobs – that the US has a demonstrable – quantifiable – disadvantage due to specific named regulations that Europe and Asia do not suffer from also?

      These days “excessive regulations” is a right code-word for ObamaCare and the EPA emissions but the rest of the OECD world has – universal health care and are, at least in Europe – stricter than we are – and end up paying twice as much for electricity and 3 times as much for fuel.

      so where exactly are we disadvantaged in competition with the rest of our economic competitors?

      here’s where we are different. We spend more on “defense” than the next 10 nations – COMBINED – INCLUDING most if not all of the rest of the OECD world.

      And the “defense” that goes into that calculation is really only DOD – not the rest of the “defense” we spend money on – like the VA (not counted as DOD), Homeland Defense, NASA military satellites, and DOE nuclear weapons and ship reactors.

      We take in about 1.3T in income taxes – I’ve given the OMB link that documents this fact – many times – and here it is again – so folks should go verify it:

      http://www.fms.treas.gov/fr/12frusg/12frusg.pdf page 56

      this is where the money is going that perhaps should be going into the free market economy – or perhaps someone will make the case that DOD/Defense jobs are just as “real” as civilian jobs – the primary difference being the govt is spending the money for things we “need” as a country rather than citizens spending it for things they “need” as citizens (presuming that a global military presence is not something citizens “need” as much as they’d like to have that money for their own choices.

      we keep blathering also about entitlements which are 1/2 or less what Europe and Asia spend…. and it’s something we have much more ability to control if we really want to – we current “give” seniors – guaranteed non-denial health care for 100.00 a month – EVEN IF they have a retirement income of 85K a year which is double what the median is for working people who can’t get health insurance – at any price unless it is ObamaCare.

      we whine – a lot – about things we do have control over. We don’t have to give mortgage deductions for million dollar homes or second beach homes. We don’t have to subsidize flood insurance. We don’t have to use MedicAid as a wealth-preservation tool for people who own their own homes – and more.

      we are basically a spoiled country of fat-butted whiners.. largely who don’t want to make the “sorta” hard choices that would return this country to economic strength and instead want to find things to blame besides ourselves.

      I agree way, way more with Mbaldwin than disagree so I’d be curious to know how much of what I’ve said he disagrees with – and why. I do change my views when challenged …. and convinced.

  4. And yet….I was in Alaska this weekend visiting a friend who retired to Anchorage after making a quick killing in Silicon Valley……for all the beamoaning of gov’t regulation, think about this: Compare your life in 1978 and today. Think about all the products, services, technology, and lifestyle choices available today versus then. It’s not even comparable. So this idea that the “federal gov’t” is choking innovation, business, and markets is utter balderdash.

    If “regulation” and “government” were such drags on the American economy, why have we had such an explosion in goods, services, products, etc. over the last 35 years?

    A couple of simple things to look at: ice cream and TV. In 1978, if you wanted ice cream…..maybe your town had an ice cream shop. If not, you could go to the grocery store and pick from chocolate, strawberry, vanilla, and sherbert. That’s it. Compare the choices and variety of ice cream today.

    TV was basically the big 3 networks and, if you were “rich”, maybe 20 additional cable channels in 1978. Look at what you have today.

    It’s hard to think of a single aspect of life where I don’t have more choices and products and services today than I did in 1978. And yet, I’ve got a cottage industry of lunatic right wingers screaming 24/7 that we’re almost the new Soviet Union with all this “gubmint” and “regyoulayshun.”

  5. “It’s hard to think of a single aspect of life where I don’t have more choices and products and services today than I did in 1978.”

    Look at the chart. The new firm entry rate was high in 1978. It was still pretty high in 1984 and tolerably high, though lower, during the 1990s dot.com boom. The problem isn’t the state of innovation and new business formation in 1978, it’s the state of innovation and new business formation now. In 2008-2011, the U.S. was experiencing a net decrease in the number of firms. Do you honestly think we can maintain the pace of innovation we experienced in the 1980s-90s? Do you think our children we experience the same explosion in the availability of goods and services — and jobs, a factor you omitted — that you described for your lifetime?

    Perhaps you have a better explanation for the declining rate of business formation. I’d like to hear it.

    • But Cville resident is basically correct. We have a plethora of options these days.

      we also have many more protections – which is at least part of regulation.

      regulation protects property rights – as well as restricts would-be “rights” that sometimes come at the expense of others.

      we blathered the other day about sugar and cholesterol here – an argument we’d not be having at all – if the big bad nasty government did not REQUIRE nutrition labels as well as some level of truth in labeling.

      take those away and you certainly free of businesses of those nasty, costly “regulations” – but are there also “losers” when the regulation is not there?

      the “regulation” narrative these days is standard pro-forma right wing echo chamber – grade A – blather.

      • Yes, most regulations exist for a reason. Some are better conceived than others. A particularly strong case can be made for regulations that protect the public health, public safety and the environment; a less compelling case can be made for regulations that regulate economic activity on other grounds. But that’s irrelevant tot he post.

        I’m not making the case that “regulations are bad.” I’m making the point (1) that the sum total involvement of government in the economy — taxes, tax breaks, regulations, tariffs, subsidies, credit allocation — has reached the point that corporations devote considerable effort to rent-seeking behavior, which can be readily documented by seeing how many lobbyists are employed in D.C. and how much money is devoted to political campaigns; and (2) that corporations utilize all those tools to, among other things, restrict barriers to entry, thus leading to the decline in the number of start-up competitors.

        Do you or Cville Resident care to dispute either of those two points, or is your rhetorical gambit simply to change the subject? I guess you’ve already answered: You want to change the subject. Basically, you’re saying, that all might be true but it hasn’t hampered innovation. Your evidence, of course, is purely impressionistic and anecdotal, and it ignores the fact that much of the innovation occurred during a time when the rate of new business formation was much higher.

        • re: ” I’m not making the case that “regulations are bad.” I’m making the point (1) that the sum total involvement of government in the economy — taxes, tax breaks, regulations, tariffs, subsidies, credit allocation — has reached the point that corporations devote considerable effort to rent-seeking behavior, which can be readily documented by seeing how many lobbyists are employed in D.C. and how much money is devoted to political campaigns; and (2) that corporations utilize all those tools to, among other things, restrict barriers to entry, thus leading to the decline in the number of start-up competitors.”

          Let’s agree just to get to the next point. Is this a US-only problem that is so much worse here than in the rest of the world that it puts us at an economic disadvantage?

          “Do you or Cville Resident care to dispute either of those two points, or is your rhetorical gambit simply to change the subject? I guess you’ve already answered: You want to change the subject. Basically, you’re saying, that all might be true but it hasn’t hampered innovation. Your evidence, of course, is purely impressionistic and anecdotal, and it ignores the fact that much of the innovation occurred during a time when the rate of new business formation was much higher.”

          no…

          1. – be specific as to what the problem is – not just a mile wide and an inch deep

          2.- show how it disadvantages the US in a worldwide economy – compared to our most potent economic competitors – not 3rd world countries.

          what is the point you are making – in the context of a global economy?

          are we – the US – worse in regulation and rent-seeking, etc to the point where it is hurting our ability to compete globally?

          I’m not changing the subject. On the contrary, I’m asking for you to provide something more than a pro-forma right-wing sound bite.

  6. For someone who wrote a book about Boomers, I think you’re missing the point.

    Go to every. single. financial. advisor. in. the. country. If you are over 50, you’re going to get the same advice: DIVIDEND stocks and corporate bonds.

    As the population has aged, you’ve seen more and more and more capital placed in the large corporations which pay good dividends or issue debt.

    I’d say that’s a heck of a lot bigger factor (capital allocation by the Boomers) than regulation or “rent seeking.”

    As for 2008-2011…..most people didn’t even have a smartphone in 2008. Now….look at how many tiny companies in those years have made a killing off of popular apps. Go tell them that innovation is dead due to the federal gov’t. Have you ever spent time with creative folks in tech? Do you know how much time most of them spend thinking “gosh I guess I better not try to develop this product b/c the fed’l gov’t is just too oppressive”? About as much time as you will spend considering a vote for Elizabeth Warren in 2016….none. : )

    • ” “gosh I guess I better not try to develop this product b/c the fed’l gov’t is just too oppressive””

      dead on correct.

      name the countries on the planet where this is a REAL concern because it not the US and it’s not the OECD…

      Ask yourself why the least regulated countries on the planet – are the worse off – economically. why is that?

      how come the least regulated countries on the planet – don’t completely cause a stampede of US companies to leave and go there to do business – with a whole lot less regulation ? rent seeking? hahahahahahahhahha

    • Gee, did I say that “innovation is dead due to the federal gov’t. ” I don’t recall making that statement. Maybe that’s because I didn’t! What I did say is that business formations have declined because of the federal government. The point of the post was to draw the connection between declining business formation, high unemployment, lagging wages and income inequality.

      I do believe that lagging innovation is another possible outcome. Just because companies are spending more money on rent-seeking and creating barriers to entry doesn’t mean they can’t still innovate. I would argue that they spend fewer resources than they would otherwise — it would be interesting to see how corporate R&D spending is holding up, for instance — but that’s a harder point to prove, and the issue is a distraction from the main point of the post.

      • “What I did say is that business formations have declined because of the federal government. The point of the post was to draw the connection between declining business formation, high unemployment, lagging wages and income inequality.”

        you made the assertion – sound bite style – with absolutely no foundation or evidence for the claim.

        “I do believe that lagging innovation is another possible outcome. Just because companies are spending more money on rent-seeking and creating barriers to entry doesn’t mean they can’t still innovate. I would argue that they spend fewer resources than they would otherwise — it would be interesting to see how corporate R&D spending is holding up, for instance — but that’s a harder point to prove, and the issue is a distraction from the main point of the post.”

        well ..when you jump to totally unsupported conclusions that sound a lot like the standard right-wing tropes…. it’s kinda sucks.

    • One of the biggest booms – cell phones and related products and services – came in large part from a combination of Bill Clinton and the GOP overriding Congressional Democrats. The GOP long favored auctioning radio spectrum, while Democratic Majority Staff despised it – too much like free markets and not enough bureaucratic control. Radio spectrum auction had been killed by Democrats in Congress for many years. But Clinton needed money and worked with the GOP and conservative Democrats to pass legislation permitting spectrum auctions. That and legislation that essentially stripped states from the ability to impose traditional utility regulation on wireless providers (while retaining traditional consumer protection authority over such things as fraud, cramming, etc.) spurred a brand new industry.

      Do I think things are perfect with the wireless industry? No. Is there still a role for government oversight? Yes.. But the non-application of traditional regulation made a huge contribution to both the American economy and consumer welfare.

  7. Larry, to your point about U.S. regulation and competitive economic advantage. Check out the 2014 Index of Economic Freedom, which rates countries on the basis of rule of law, limited government, regulatory efficiency and open markets. The top ranked countries are:

    Hong Kong
    Singapor
    Australia
    Switzerland
    New Zealand
    Canada
    Chile
    Mauritious
    Ireland
    Denmark

    The United States ranks 12th. So, the answer to your question is that we have more economic freedom (smaller economic role for government) than most countries… and we out-perform most of those countries economically. But other countries have more freedom than we do, and they tend to out-perform us.

    Is economic freedom the only factor influencing economic growth? Of course not. A country’s industry mix plays a role. So does its education level. So does its location on the development scale. Countries can make huge gains by importing foreign technology and management practices — witness China — replacing peasant farming with modern manufacturing.

    • I’m familiar with the economic freedom index but

      1. – what are the things in the index that we rank low on?

      2. – if you ranked the countries by economic performance – would it coincide with the economic freedom rankings and/or with your own view of govt restrictions in this country verses it’s competitors?

      I’d bet you dinner that you’d find the regulations in the European Union more onerous and the rent-seeking/bribery/etc worse in Asia and China.

      right?

      your argument basically is that we could be “better” – right?

    • If you took a poll of what restrictions and regulations did the most harm to the economy – what would it look like?

      would there be any kind of majority agreement on the worst offenders or just a mile wide, inch deep of differing individual views?

      and take something like net neutrality – where everyone involved has “property rights” but they are largely divided into opposing sides.

      Do you have the govt stay out of it all together or not?

      how about LightSquared ? A VERY innovative company trying to build a hybrid network of cell towers and satellites so that people always have coverage?

      they want to use a frequency that is “close” to GPS and there are fears that they could bleed over and disrupt GPS.

      should the govt stay out of it? Are their competitors who are petitioning the govt to deny use of that radio frequency engaged in rent-seeking to protect their own business models?

      keep the govt out of it so these companies can innovate and compete?

      how about drones? keep the govt out?

  8. A side bar to this discussion: local and state regulations can be substantial financial hurdles for small businesses. Something we know from experience. No federal regulations in sight, but time delays, uncertainties, and costs from these local/state regulations — zoning, health, transportation — are substantial barriers to new, small enterprises.

    • I totally agree. State-local regulation is part of the story.

    • Mbaldwin is right – but when you hew from the right these days – it don’t really matter “who” the govt really is.

      😉

      therefore – the “specifics” are almost never provided – because the real point is that the “govt has – gone too far”.

      don’t get me wrong. I’ve see this first hand locally where until recently it cost 5000 to get a special use permit which was intended to encourage applicants to stay within the existing zoning and not get too “creative”.

      the net result of that was to discourage the smaller players because while that is big money to individual start-ups, it’s chump change to companies like Walmart or Lowes.

      but basically Jim’s assertion is not really that we are less competitive to the rest of the world – but that we could be “better” if we did not have these “drags”.

      but let’s go back to the special use. A guy wants to put an auto shop near a subdivision. The nearby residents consider it an incompatible use unless adequate mitigation is performed. But new start-ups (as opposed to the bigger companies) don’t have that kind of money so they try to get those restrictions reduced – and the residents insist – so the start-up “blames” the Govt for making things harder and more expensive for him.

      is it really govt ?

  9. Larry, I’m not blowing you off but I have paying work to do this afternoon, so I don’t have much time… If you care to address the thrust of the original post — linking size/scope/intrusiveness of government (not just regulations) with the decline in business formation, high unemployment, wage stagnation and income equality, I’m happy to engage. Otherwise not.

    • Jim – I have to leave shortly also but I essentially do not believe that you have provided a specific bill of particulars and instead follow the typical mantra of the right – which is largely unspecified beyond the vague assertion.

      basically if you asked a 1000 people to name the specific restrictions – you’d not get a rankable list. You’d get stuff all over the map including a lot of ideological mythology and generic anti-govt blather.

    • A few points….

      Federal regulations have increased every year in that graph….so why isn’t there a consistent slope downward if they are part of federal intrusion.

      Also, I notice a bump upwards in business formation from 1993 to 1996, AFTER a federal tax increase. Again, that seems to run counter to your “federal intrusion” hypothesis.

      I’d also note that the 08-09 recession was the worst since the Depression. Not a big shock to see a drop in startups and an increase in exits. I’ll be interested to see 2013/2014 when someone is able to do the calculations.

      I would make another observation: is total firms a number worth looking at? What about quality firm startup? One thing that you learn over a lifetime is that the aggregate usually tells you little. Does Amazon count as “one” firm? Google? Are 10 Mary Kay “independent consultant” startup firms better than 1 Google?

      One final observation: I have worked with literally 100s of small businesses in my career as an attorney. I’ve been a co-owner of 2 small businesses. And yes, I’ve defended companies from regulatory compliance charges pursued by the gov’t. I find all the right wing maniacal focus on “regulation” to be off-putting. Most businesses accept regulation as a cost of doing business. They hire an attorney or consultant and keep plugging along and pass on the cost to the customer.

      The guys who claim “gov’t regulation put me out of business”? Well I know of 3 specific individuals who make this claim. And I can tell you that all 3 needed to be put out of business. They lived to cut corners and screw their customers. Do I shed a tear for them? Not one.

      As for “rent seeking”, I find your posts to be contradictory. I never see you take the hammer to Southside or Southwest VA(instead it’s always “pity”). Yet you blast “rent seeking” in tons of posts. Why is this contradictory? Look at the millions upon millions that Southside and Southwest VA hand out in free money to companies. If you’re going to blast “rent seeking”, then take both barrels to Southside/SWVA and call them out for these ridiculous subsidies. If you’re not willing to blast Southside/SWVA/Tobacco Commission and call for the end of economic development “incentives”, then don’t post jeremiads against “subsidies”, etc.

      • Them’s fighting words! I’m totally consistent about opposing rent seeking. I’ve done more in-depth reporting on the McDonnell administration’s P3 mega-projects than any other reporter in Virginia as well as rent-seeking by developers. Over the years, I’ve also been extremely skeptical of the Tobacco Commission. (So has PeterG). Search “tobacco commission” and scroll back through two or three pages of results. Between Peter and me, I dare say Bacon’s Rebellion has done more reporting on rent-seeking in the Old Dominion than any daily newspaper.

        • re: rent seeking

          without making excuses for it or defending it – what exactly would we call the process by which Virginia was originally divvied up and distributed to “friends of the king” – and whose land ownership was subsequently respected – as legal – by the folks who declared independence from the King?

          and if that’s not clear cut enough – tell me how the railroads deserved not only government money – loans, grants, etc but enormous swaths of free land such that many railroads today – like RFP – exist not as operators of rail – but owners of land they were given way back when?

          I don’t like rent seeking but I’m not convinced it is any different than it has always been and the problem with Jim’s narrative is that he seems to be asserting that – it’s more than it used to be – AND – that the reason why is regulations and restrictions.

          Finally – the argument is not being made – that we have more than other countries thus putting us at a competitive disadvantage – nope.

          the assertion is that basically, we’d be “better” economically without it and that we are worse off because of it – and worse off more of recent times because there is more of it than before.

          There are no fact-based metrics to prove it. Nope. The only “evidence” is to point out some aspect of the economy that is “down” – and the correlation an causation becomes the claim of regulations, restrictions and rent-seeking.

          In other words – the whole thing is basically an unproven assertion with little or no real evidence – just a narrative that “explains” why the economy sucks – oh – and it implicates liberalism… and govt intrusion into commerce.

          It then, should come as no real surprise that when you ask people on the right with preconceived sound-bite ideas of how the economy really works that their explanation entails all manner of cockamamie blather.

          and further – when you ask them what specific restrictions and regulations that they’d get rid of – they say ObamaCare and the EPA.

          My question is – does any of this make any real sense or is it just Wizard of Oz stuff?

          I don’t think most on the right -have a clue – as to real specifics. It’s rather a belief system – and the actual details of what would get repealed and rolled-back is totally TBD – until they get both houses of Congress and the POTUS and we find out – and God Forbid they tell us ahead of time what they have in mind – sorta like election promises… no can do.

          I think Jim Bacon is a fine upstanding human being who unfortunately has been co-opted by the siren song of the blather butts. A sad thing actually.

          • Regulations are only one way in which the federal government intrudes in the private-sector economy. The government taxes. The government grants tax breaks. The government spends and subsidizes. The government acts to promote or restrict free trade. The government controls the money supply and influences the allocation of credit. Larry, you are laser focused on only one part of the story.

            Essentially, your logic has gone like this:

            (1) I don’t like the implications of the post, which highlights the intrusive role of government in the economy and the increasing rent-seeking taking place.
            (2) I will focus on a tiny and peripheral point made in the post regarding the cost of regulation, and act as if the entire argument rises and falls on that one point.
            (3) I will focus on the fact that many regulations are necessary and beneficial, even though no one is disputing that fact.
            (4) I will tar the author with being co-opted by right-wing zealots in blaming regulations for everything, even though he’s never said that.
            (5) I will studiously ignore the evidence he presents in his original post. If I throw up enough chaff, perhaps I will blind the readers to what he is really saying.

          • re: ” Regulations are only one way in which the federal government intrudes in the private-sector economy. The government taxes. The government grants tax breaks. The government spends and subsidizes. The government acts to promote or restrict free trade. The government controls the money supply and influences the allocation of credit. Larry, you are laser focused on only one part of the story.”

            one very important context to your words above – ALL GOVT ON EARTH does this – it’s not a US-only issue.

            Essentially, your logic has gone like this:

            (1) I don’t like the implications of the post, which highlights the intrusive role of government in the economy and the increasing rent-seeking taking place.

            nope – I point out it’s been with us since mankind began and it exists everywhere on the planet .

            (2) I will focus on a tiny and peripheral point made in the post regarding the cost of regulation, and act as if the entire argument rises and falls on that one point.

            no. I point out that you make the distinction as if it is a problem with US govt – not found in other govt.

            (3) I will focus on the fact that many regulations are necessary and beneficial, even though no one is disputing that fact.

            I expect a bill of particulars for the assertions – not generic anti-govt narratives.

            (4) I will tar the author with being co-opted by right-wing zealots in blaming regulations for everything, even though he’s never said that.

            because the author is engaging in the same right-wing, echo-chamber talking points using the same “all govt is bad” mantras.

            (5) I will studiously ignore the evidence he presents in his original post. If I throw up enough chaff, perhaps I will blind the readers to what he is really saying.

            The “study” you cited did NOT say what you said.

            You added your own suppositions as to the reasons why – and it was non-specific, and mile wide / inch deep that indicts essentially govt – as a global institution but you frame it as a specific US issue when it’s clearly not.

            you come across, in general, – as opposed, as the right wing does – as opposed to government in general –

  10. I think the decline in business, although to a smaller degree might be due to the TOXIC political climate we have had since before Bush. Bush and Obama didn’t make it any better. But when you look at the TOTAL and complete unwillingness of elected officials to DO THEIR DARN JOBS, what would you think if you were thinking about starting a business?
    Maybe you would think” hey, I’ll go over here where there is no taxes, and when the tax does kick in, I’ll move” Reference every EMPTY WalMart, just on an international stage.

    Oh, in 1978, I was 7 years old. Our TV sets were huge wooden boxes. To change the channel, you had to GET UP.
    At dinner time, your mother hollered out the front door (and your but had better be within hollerin range) Now, we call/text the kids on their smart phones.
    In 1978, You actually had to go to the store to shop. I have not been near a mall in over 5 years.
    The video games didn’t come until a bit later, but when they did you had to go to the mall arcade.
    That’s about all I can remember for now…heck, I was only 7 🙂

    • re: spectrum auctioning…

      and yet having the govt set up an insurance marketplace where private insurers compete against each other for health insurance is a “bad” thing?

      I do not recall specifically about how the vote went for auctioning spectrum but I strongly suspect a great number of Dems also supported it.

      Andrea has her finger on it – everything has become a partisan sumo wrestling game.

      The anti-regulation folks don’t have a unified agenda – a ranked list of regulations they oppose. They are all over the map. Each one has a particular regulation they don’t like but when they group up – they SOUND like they are opposed to virtually all regulation – because – if you tally up from each one what they don’t like – into one list – it becomes a de facto list against ALL regulation.

      it’s loony.

  11. the study seems to be almost self-contradictory:

    ” There is a secular increase in the share of firms aged 16 or more years, while simultaneously there have been steady declines in the share of firms at every other age category during the history of our data,”
    ….
    In searching for explanations for this trend, Hathaway and Litan explore the possibility that technology-related economies of scale are driving a consolidation. Could the rise of Walmart and other superstores, for instance, account for the demise of mom-and-pop retailers, and could that that trend apply to all industries? Just the opposite, they find: “While economy activity is shifting into mature firms generally, it is the smaller firms where the most growth is occurring.”

    Is there basically a belief that we STILL have a LOT of smaller-firm “churn” but that few are surviving to become “older”?

    and then Jim thinks the reason is because of increasing govt “interference” that is squashing innovation?

    If folks read the business news these days – it’s very hard to not see what the larger companies are now doing. Companies like Apple, Microsoft, Google, Facebook etc – are doing what? They’re buying up start-ups – in vast numbers – paying billions for start-ups that are barely a year or two old.

    to back up the point – look at this list of over 160 acquisitions by just one company – GOOGLE, who itself is just 16 years old:

    https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Google

    this is a “big fish eating small fish” economy…. where the big fishes are essentially strategically buying out would-be competitors and incorporating their start-up product into the big fish company products.

    If you think about two companies “merging” – one of the biggest side benefits is to get rid of duplication of efforts – both human and capital and today’s companies have become more and more efficient.

    One example – Walmart – (but you could choose any retailer like Lowes or Best Buy).

    when you take your stuff to check-out – and one-by-one the scanner “beeps” them to total up your bill – that scanner has replaced several other employees – because at the same time you’re checking out – the server is building a re-order that will be transmitted – in real time – before you even pay your bill and leave.

    When WalMart squeezes out the mom/pop – they are basically eliminating wasteful operations that rely on more employees to conduct business.

    So my “supposition” is – that’s it’s NOT govt intrusion that is causing this but instead companies changing the way they are doing business – to cut costs and increase profits… which means – less jobs… because jobs are the biggest drivers of costs and expenses to companies and that’s the 21st century strategy being pursued by “efficient” companies.

  12. Would these graphs be different if health care for call (and not just those on taxpayer-funded Medicare) was de-coupled from employment?

    • re: ” Would these graphs be different if health care for all (and not just those on taxpayer-funded Medicare) was de-coupled from employment?”

      Some have called for the dissolution of tax-free employer-provided health care – which would create a true free market in health care.

      Then EVERYONE could essentially write off ALL their health care expenses on their taxes including those who normally don’t itemize.

      sort of treat it like the health care equivalent of the earned income credit.

  13. I posed this question on another website and I would be interested in y’alls prespective. I was surfing around and came across an article ” Ten Reasons to Hate the Airlines”. I have never flown on an airplane of any sort due to suffering from GIS. (Ground Impact Syndrome). In reading the article I was reminded that the airlines were deregulated in the Carter administration. 40 or so years ago. I don’t fly so I only have hearsay knowledge about flying from people who do. After 40 years of deregulation, flying should have become a much better experience than I seem to hear from my flying friends. What failed to happen? Did re-regulation occur? Like I said I don’t have any experience with this but it doesn’t seem the less regulation concept worked out as well as it should have. Love to hear what y’all think. (I apologize but the “y’all” thing seems epigenetic)

    • Airline deregulation occurred and, overall, it was very successful, despite the loss of some routes to smaller cities and a cutback on the quality of in-flight service. But the cost of buying a ticket went way down. Air passenger service became far more accessible to millions of Americans.

      • on airlines in the US – I would posit some things:

        1. we probably have the most regulated airline industry on the planet – save for perhaps Israel.

        2. The US is the gold standard for safety in terms of designs, maintenance and operations.

        3. we – ALSO – heavily subsidize the airline industry including incentives to provide air service to places where it is not profitable.

        http://www.faa.gov/airports/aip/overview/

    • re: airline de-regulation

      still heavily regulated – in many areas but good point about regulations pushed back… and the resulting outcomes – good and bad, depending on ones point of view.

      but let me give one example of how regulation comes about.

      For some odd or ignorant reason – the airlines think they can essentially imprison you on a delayed aircraft on the tarmac – not a few minutes – but sometimes hours… they currently have the “right” to do that.

      but guess what? People are DEMANDING that the govt pass a law/regulation to stop the airlines from doing this.

      Now the airlines will tell you that this is an unwarranted govt “intrusion” into THEIR private business that is restricting their property rights.

      this is how regulation comes about.

  14. And to follow Larry’s point with another OBVIOUS example: DERIVATIVES!
    Even Paulson admitted no one wanted regulation…until the whole caboddle came crashing down. So what did they do? They allowed some of those firms to merge with regular banks. It made them BIGGER.
    Yes, I understand why they took those actions, but DARN.

    Here is my thought on regulation: If a product or service bears any threat to the health, safety or welfare of the public, there needs to be a minimum amount of oversight, just enough to keep the would be greed mongers from doing any harm. This does not apply to utilities that, in my world, would all be run by states or localities.

    I don’t think the majority of the public or the government would agree but then again “consensus” and “compromise” have become bad words.

  15. I have to say, perhaps now when folks have moved on from this post, that I particularly enjoy its thoughtful approach to tough issues, even when I disagree. So, it’s important for progressives et al. to consider the question of whether governments’ (local, state, federal) obviously increased reach for some arguably good reasons has unexpected and unwanted results. Surely that’s true. But it’s also important for those on the right to recognize the perversity of corporate incentives, sometimes but not always affected by government. Anti competitive impulses, rent seeking, basic greed. remain social problems, as they were in the late 19th century. I don’t believe we’re doing well in containing these impulses.

    • I always appreciate Mbaldwins balanced approach to the issues.

      I personally think rent-seeking is as old an mankind and that the govt version of it is by no means restricted only to govt. I also point out that in many countries – “rent-seeking is one of the more civilized variants of outright bribery… and even in this country – Jonnie Williams is not charged with

      I’d point out that rent-seeking is not a dead-loss to the government or citizens.

      Look at how this country changed the game for itself and its citizens by giving money and land to the railroads in exchange for creating a national rail transportation network.

      So many towns and so many farms and other businesses were created just by having access to markets – providing by one of the more odious examples of rent-seeking.

      Even today – we have even essentially codified the quid-pro-quo relationship with P3 – public-private “partnerships” which in large part is so non-transparent as to beg the question about what the govt is getting and what it is giving.

      Again, I’m not defending it or advocating for it – I just think the modern-day sound and fury from the right on this – portraying it as yet another example of the government going rogue is – well.. it’s silly –

  16. Hey thanks y’all. that was interesting. On the other website the best answer that I got was that price was the main thing that improved. Will competition produce improved services eventually or will price competition dominate? Is the flying public mostly concerned with price, riding a sort of race to the bottom, or will people start to say ” I’m willing to pay more for better service”? What about all those added “fees” and charges? Can you do without them ? If you can’t do without them, has the real price not really dropped and started rising? It seems like a bus line. BTW, I know someone who rode Orlando to Atlanta for $40 on a MegaBus. (round trip, but that may be my memory). Are people willing to be like the Beverly Hillbillies who flew to England but thought they were on a bus? I have friends who are involved with the trucking industry. Is a 97% turnover rate an expected thing coming from less regulation? It has been said that there’s a good chance that the truck driver you meet is ready to quit or a rookie. This is interesting stuff. Thanks again.

    • logically – here is what is going on – in my view.

      we show some examples of rent-seeking – clear and undeniable examples.

      but then we just totally jump the trolley because – we say that because we have proven the existence of rent-seeking that govt has become too “intrusive” and is “causing” rent-seeking because is has become more intrusive than it used to be … no we’d don’t lay it out like this – we engage in more subtle words but if we deconstruct the narrative – that’s essentially what I come up with.

      for example:

      “The influence of the federal government over the economy has increased without let-up since the mid-1960s. There was a brief roll-back in the early 1980s, coinciding with the Carter-era transportation deregulation and Reagan small-government revolution and with a momentary resurgence in business creation. ”

      where exactly is the evidence to support this broad statement?

      “Then, as the federal government piled layer upon layer of regulation on the economy,

      again – where is the evidence? it’s basically based on the unsubstantiated claims in the prior paragraph that also had no evidence.

      and then ” the rate of business formation continued to falter, culminating with the Great Recession (not president Obama’s fault) and the imposition of an unprecedented regulatory burden (very much his fault). State and local government power has followed a parallel path in the arena of zoning and land use.”

      did we have a housing meltdown and collapse of the auto industry because of regulations? what regulations?

      this is Jim’s version of the same right wing fairy tales that make the rounds of the echo chamber… there is no evidence. this is a proof. there is basically a series of unsupported statements that have on the right been taken as the truth from on high but totally lacking in any kind of presentation of even the most basic data and evidence.

      It’s just thrown on the wall to see what sticks.

      “I’m not saying that all regulations are bad. Broadly speaking, environmental regulation is desirable and necessary (although subject to overkill in specific instances). ”

      here, Jim veers sharply away from the right who would, without the blink of an eye – get rid of the EPA.

      “But most regulatory initiatives have imposed huge costs on the economy overall, not only in complying with administrative requirements but in the rent-seeking it inspires.”

      can you make the case about the quantifiable harm of specific regulations ?
      How about a rank list of the top 5 or 10? Name them and show how much each one cost the economy.

      “The longer and better established a firm becomes, the less likely it is to be concerned about survival and the more more time and resources it can devote to winning subsidies, tweaking regulations and creating barriers to new firms seeking to enter its industry.”

      totally and completely and unapologetically made up of whole-cloth without a scintilla of real evidence to support the “established” part and even worse on the second part as to their strategy for rebutting over regulation.

      companies have ALWAYS sought the best, most advantageous treatment they can receive. This is why Washington (and Richmond) have ALWAYS been the land of lobbyists. Lobbying is not some “new” profession. Have you ever heard of the TeaPot Dome scandal?

      bigger, stronger, companies have a much wider array of weapons besides just rent-seeking to undermine and overcome their competition.

      finally.

      rolling-back regulation (that companies don’t like ) is the way to get rid of rent-seeking?

      how in the world does rolling back regulation fix that problem? Does anyone think that if we get rid of regulation that it will reduce the incidence of rent seeking?

      really?

      the more you listen to these kinds of tomes – the more it sounds like some kind of mythical Conservative fairy tale – passed on from one right-leaning generation to another – an article of faith…of almost religious belief!

      there is virtually no evidence associated with trying to connect causation and effect – it’s just baseless bald assertions … using phrases like “too much regulation” without every really laying out a bill of particulars that – say would result in a dirty-dozen of bad regulations… and their costs… and how they actually increase those costs.

      we have the “war on coal” – for instance, – sure enough – but how many people are adversely affected by coal-induced health problems? Is it the “property rights” of the coal-burning companies to discharge pollution that adversely affect others “property rights” – their personal health?

      This is WHY we do not see a rank list of the dirty dozen of bad regulation.

      As soon as it was released – the other side of the story would be strongly presented and it would prove that there are almost always two sides to the “govt intrusion) issue and so what the right prefers instead broad, generic accusations without specifics using phrases like “overwhelming increase in regulation” and “government intrusion” rather than hard data and evidence to back up the claims.

      is a narrative that provides nothing specific but rather weaves a fairy-tale type story instead.

  17. 1. You can’t equate innovation with the number of firms being formed or exiting. If 500 candy stores are replaced by 1 Candy Warehouse in a city that does nothing to affect innovation.

    2. The influence of money in politics is a big problem. Big companies make big donations. When big donations talk, politicians listen.

    3. Holding interest rates artificially near zero has implications. While that policy frees up some money for investments in start-ups (usually via venture capital companies), that effect is more than counter-balanced by the propensity of private equity forms to acquire and roll up multiple companies into single entities and the ability of large companies to simply serially acquire small companies.

    4. However, more than all that – stagnant median wages stifle demand. Yes, wealthy people becoming wealthier have more money. However, there is only so much to buy. After that, the increased wealth is invested in various instruments which often include foreign businesses and in large businesses. Meanwhile, the majority of people are not making more money in real terms. No growth in real median wages means no growth in the aggregate demand for clothing, pizzas, cars, etc.

    5. Regulation matters. Obama’s shameless suspension of contract law in his ill-conceived auto bailout resulted in the annihilation of a lot of car dealers – who had the misfortune of not having unionized employees.

    6. Regardless of Obama’s inexperience and serial missteps, neither he nor the US government is clearly to blame here. I am spending yet another week in Australia right now. How do these statistics look here in Oz? Eerily like the statistics in the US. Now, it’s hard to blame Obama or Congress for an inversion of entries and exits in Australia!

    https://bluenotes.anz.com/posts/2014/07/big-fall-in-starts-ups-a-jarring-wake-up-call/

    • I’ll bet Australia has seen a secular increase in the size and scope of government as well.

    • re: ” Obama’s shameless suspension of contract law in his ill-conceived auto bailout resulted in the annihilation of a lot of car dealers – who had the misfortune of not having unionized employees.”

      I agree with most of your points but Obama did not do this. Congress did – they enabled it and Bush did the deed.

      It’s IMPORTANT ALSO – to get the facts straight especially when trying to demonize specific individuals.

      ” On December 19, 2008, a week after Republicans in the Senate had killed a bailout bill proposed by Democrats, saying it didn’t impose big enough wage cuts on the U.A.W., Bush unilaterally agreed to lend $17.4 billion of taxpayers’ money to General Motors and Chrysler, of which $13.4 billion was to be extended immediately. He had to twist the law to get the money. Deprived of congressional funding, he diverted cash from the loathed TARP program, which Congress had already passed, but which was supposed to be restricted to rescuing the banks. “I didn’t want there to twenty-one-per-cent unemployment,” he said to a meeting of the National Automobile Dealers Association in Las Vegas last month, explaining why he acted as he did. “I didn’t want history to look back and say, ‘Bush could have done something but chose not to do it.’ ”

      Obama, who in December, 2008, was the President-elect, publicly supported Bush’s move, saying it was a “necessary step to avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers.”

      ” Bush announces $17.4 billion auto bailout”

      try harder guy.

      • I cannot believe the mythology that gets promoted here at times.. It’s as if great swaths of known facts – are just washed away so that a different history can be asserted:

        ” President George W. Bush stepped in Friday to keep America’s auto industry afloat, announcing a $17.4 billion bailout for GM and Chrysler, with the terms of the loans requiring that the firms radically restructure and show they can become profitable soon.

        “If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy,” Bush said at the White House, in remarks carried live by the national broadcast networks. “In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed.”

        Bush said that “bankruptcy now would lead to a disorderly liquidation of American auto companies.”

        “My economic advisers believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis,” he said. “It could send our suffering economy into a deeper and longer recession.”

        The money will come from the Wall Street bailout passed by Congress, a reversal for the White House. President-elect Barack Obama and Democrats had long advocated that course, and Bush had resisted it.

        Of the total, $13.4 billion will be paid out in December and January, administration officials told reporters in a briefing. The last $4 billion is contingent on release of the second installment of the Wall Street bailout funds by Congress.”

        http://www.politico.com/news/stories/1208/16740.html

  18. Obama’s greatest accomplishment may be expanding crony capitalism for big business while appearing to be a populist who seeks to limit the power and influence of big business.

    “Obama’s collusion with big business exposes his political dishonesty. During a speech, the President complained about companies exploiting the tax code to avoid paying taxes, arguing, “Our tax code shouldn’t give an advantage to companies with the best-connected lobbyists.”

    Yet, Obama endorsed the insertion of the corporate tax credits into the fiscal cliff deal by lobbyists which yielded significant financial benefits for companies like GE.”

    http://www.realclearmarkets.com/articles/2013/02/14/the_dangerous_partnership_between_business_and_government_100148.html

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