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Wednesday, June 20, 2007
Pro-Market vs. Pro-Business
Prompted Matt's harping on the Hamilton Project (see here, here, and here [but no so much here]) and my keen interest in economics, I've been trying to substantiate this thesis:
There is a real and important difference between pro-market policies and pro-business policies.
Although policies designed to encourage business growth may actually increase the size of the economic pie, it does not necessarily follow that those policies in fact (1) improve economic efficiency and (2) improve equity.
Case in point:
In the early 90s, President Clinton implemented a student loan program in which the government loaned college funds directly to students. But, when the program was initiated, the incumbent program which subsidized intermediary banks to loan to college students continued. Via Kevin Drum, the situation today:
Are private lenders more efficient after all? Hardly. The subsidized loans are unquestionably more expensive for the government, to the tune of nearly $3 billion a year. As Jon Chait explains, the reason for the continued popularity of the subsidized system is a little more prosaic:
It now turns out that the private lenders' success came not through superior efficiency but through superior graft. The emerging college-loan kickback scandal is a vast scheme by private lenders to bribe colleges into foisting their services onto students. Lenders plied college-loan officers with meals, cruises, and other gifts. Some loan officers were given lucrative stock offers.
Consumers, workers, firms, owners of capital, and the government are all participants in the market. Policies aimed at "helping" any one of those parties may or may not make everyone better off. This is why we should be weary of any policy that is advertised as "pro-market" but remains silent on the effects - especially distributional effects - on all market participants.
Posted by Craig Jennings
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