The Fallacy Of Stimulus

There can be no doubt that we desperately need new thinking to turn the economy around. Old ways just aren’t doing the trick. Progress always comes from innovation, and for that we once again can learn from entrepreneurship.

New ventures can rarely succeed by taking on large corporations head to head. Established companies have vastly greater resources and economies of scale to wage the war. Instead, entrepreneurs leverage the agility inherent in start-ups to change the rules of engagement to their advantage.

Huge bureaucracies, such as governments, are not only sluggish, they are also highly inefficient. The enormous amounts of cash that they wield cannot come close to compensating for those deficiencies.

Debt is severely depleting already scarce resources, demanding those resources be put to the most efficient use possible in the most raid manner achievable to stimulate the economy. The plodding pace and wastefulness of government spending cannot compare with the agility and frugality of entrepreneurs.

It’s not that the government is unaware of the benefits of entrepreneurship. The word pops up in nearly all political speech. The problem is merely the Achilles’ heel that allows new ventures to seize market share from giant corporations: the belief that bigger is somehow better.

Successful entrepreneurs don’t go to big corporations for funding, they raise the capital on their own, largely from the private sector. They also must commit a great deal from their own resources to secure that funding, giving them a strong incentive to economize and succeed.

There is no such commitment when start-up capital comes in the form of a government handout. On the other hand, cuts in government spending and lower taxes free up money in the private sector.

As disenchantment with the stock market grows and the money market fails to produce acceptable yields, growing numbers of investors will turn to angel investing for the promise of much greater returns.

No other form of stimulus can be as efficient and effective as that: private capital funding private ventures.

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