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Beware Policies that are Pro-Business

Posted By Don Boudreaux On November 6, 2010 @ 3:24 pm In Complexity & Emergence,Myths and Fallacies,Other People's Money,Politics,Subsidies,Trade | Comments Disabled

The New York Times reports [1] that Pres. Obama’s export-promoting trip to Asia is partly “an attempt to ease tensions with America’s chief executives, many of whom spent the recent campaign accusing the White House of being antibusiness.”

There are two ways for a government to be ‘pro-business.’  The first way is to avoid interfering in capitalist acts among consenting adults – that is, to keep taxes low, regulations few, and subsidies non-existent.  This ‘pro-business’ stance promotes widespread prosperity because in reality it isn’t so much pro-business as it is pro-consumer.  When this way is pursued, businesses are rewarded for pleasing consumers, and only for pleasing consumers.

The second, and very different, way for government to be pro-business is to bestow favors and privileges on politically connected firms.  These favors and privileges, such as tariffs and export subsidies, invariably oblige consumers to pay more – either directly in the form of higher prices, or indirectly in the form of higher taxes – for goods and services.  This way of being pro-business reduces the nation’s prosperity by relieving businesses of the need to satisfy consumers.  When this second way is pursued, businesses are rewarded for pleasing politicians.  Competition for consumers’ dollars is replaced by competition for political favors.

The fact that more than 200 American business executives are in India with the President is cause to fear that any pro-business policies he might adopt will be of the second, impoverishing sort.

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