Terry Corbell, The Biz Coach
By Terry Corbell
Business Consultant

Government Spending Causes Companies to Cut Back, Harvard Study



With $20 trillion in debt and 24 million Americans either unemployed or under-employed, the song title of a 1955 Johnny Mercer hit song, “Something’s gotta give,” is apropos about the U.S. economy.

The federal government has become a major part of the economy. Government entitlements are at an all-time high.

But paychecks from private sector employers are the lowest-ever per capita, which prompted a CNN report, Why Trump resonates: Wages plunged for ‘middle skill’ workers.

Another indicator: the average American’s workweek was still only 34.4 hours in late 2016.

Harvard study

With millions under-employed, the cause was best described by a bombshell from a Harvard Business School’s study of four decades of data.

The 2010 47-page study is entitled, “Do Powerful Politicians Cause Corporate Downsizing?” It reveals that massive U.S. borrowing and spending has wasted trillions of dollars in flawed efforts to stimulate the economy – there are now fewer jobs and there is higher federal debt.

Stimulus spending by the government results in less business investment.

Three professors analyzed spending – specifically, the government expenditures resulting after a lawmaker in the House of Representatives or Senate became chair of a committee.

Earmarks increased over 40 percent to benefit the states chaired by Senators in the three top committees. The average per committee was 20 percent in the House. In other words, we’re talking about pork. A lot of pork.

But the initial assumption by the professors – Lauren Cohen, Joshua Coval and Christopher Malloy – was that politically connected companies benefited from the entrenched committee chairs. That turned out to be a major fallacy. Just the opposite occurred.

Federal spending impact

In an interview published on Harvard’s Working Knowledge Web site, Dr. Coval said the average company in those states did “significantly cut physical and R&D spending, reduce employment and experience lower sales.” Why?

“Some of the (federal) dollars directly supplant private sector activity – they literally undertake projects the private sector was planning to do on its own,” Dr. Coval said.

Millions are still under-employed. The cause was best described by a bombshell from a Harvard Business School’s study of four decades of data.

“Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. For instance, our effects are strongest when unemployment is low and capacity utilization is high. But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement,” he added.

Using my preferred verbiage, if pork spending doesn’t stimulate private-sector growth, what are his public policy suggestions?

“Our findings suggest that they should revisit their belief that federal spending can stimulate private economic development. It is important to note that our research ignores all costs associated with paying for the spending such as higher taxes or increased borrowing. From the perspective of the target state, the funds are essentially free, but clearly at the national level someone has to pay for stimulus spending. And in the absence of a positive private-sector response, it seems even more difficult to justify federal spending than otherwise,” he asserted.

One would think that politicians would understand that the government’s ability to function hinges on tax revenue. But they fail to understand or care that little tax revenue is derived from entitlement programs.

The more the government owns, the less the economy is worth. And it’s worth comparatively little.  Something’s gotta give or our grandchildren will not experience the American dream. More like the American nightmare.

From the Coach’s Corner, if you agree the trend is unacceptable, you might want to contact your Congressperson or Senators.

Related resources:

Fiscal Fact-Check: Deficit, Social Security, and Medicare — America’s economic system is in grave danger. Like your personal finances, fiscal discernment in U.S. public policy is important for our economic recovery. But it won’t unless major changes are made.

Trusted News Organization Blasts Obama Administration over Continuing Censorship — One of the world’s most-trusted and largest news reporting services warned about censorship imposed by the Obama Administration. It was the organization’s second warning in 2014. Ignoring the public’s right to know is a serious accusation, especially from the Associated Press (AP).

Q&A with Dr. Ben Carson – The Full Meal Deal with Solutions — Naturally, Dr. Ben Carson is known as a uniquely soft-spoken retired neurosurgeon. His voluminous accomplishments include his pioneering in the separation of conjoined twins at the head. But, of course, there’s more. A lot more. With his gentle, low-key demeanor, he’s also known for his powerful insights on the issues facing the U.S. and the world.

Memorial Day: What Would Abraham Lincoln Say Today? — Memorial Day is a holiday to remember the armed forces’ men and women and why they died to protect our freedoms. What would Honest Abe would say today? It’s been well documented that Abraham Lincoln is the political idol of President Barack Obama. Memorial Day. In imitating the structure of the Gettysburg Address starting in January 2011, Mr. Obama has ostensibly started to pattern his speeches after Honest Abe’s. The two presidents from Illinois have something else in common. Each has polarizing results from their presidencies – Mr. Lincoln in saving the nation in the Civil War and Mr. Obama in 21st century far-left policies.  So it’s apropos to anticipate what the 16th president would say about the behavior and performance of Mr. Obama on Memorial Day.

“There is no public tooth fairy. Father Christmas does not work on the Treasury staff this year. You can never bail someone out of trouble without putting someone else into trouble.”

-Arthur Laffer

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of Kenn W. Kiser, www.morgueFile.com 


Seattle business consultant Terry Corbell provides high-performance management services and strategies.