Government Small Business Investments

So the government is all about deciding where our hard-earned money should go -- at this point, this is a fact that we probably can no longer afford to wrestle with. But hey, if they're gonna take it, they might as well use it correctly, right?

Many would argue that the government supporting small businesses is a noble use of taxpayer dollars, especially now that we have entered an era of alternative brands and stores being "cool". The government, however, is all about making jobs (because creating jobs has political ramifications), and will often cite job creation statistics as an argument for investing in small businesses.


While multiplier effects are used as political rhetoric for virtually all government investments (and some private ones), I've noticed that they are often used--and abused--to argue for small business policy. Job creation, it seems, is the justification for most policies to support startups and established small businesses.

Link to article

But what they don't tell you is that job growth numbers are dramatically skewed when used to justify government support. The article illustrates this nicely, arguing that multipliers in these justifications dramatically distory the degree to which government intervention actually helps.

What do you guys think of this info? With the amount of interest policymakers have in creating jobs in areas that they represent, I would imagine that a great deal of resources are misallocated based on sub-par locations for businesses.

Thanks for reading.

Comments (2)

Apr 18, 2012

The government is an inefficient allocator of capital and in effect the tax payer subsidizes inferior business model. There is a reason these government sponsored small businesses can't get loans from banks.

Apr 18, 2012