Advancing a Free Society

Obama Does Not Understand Business

Monday, February 7, 2011

As a teacher of comparative economics and textbook author on the subject, I cannot refrain from commenting on President Obama’s unfortunate lack of understanding of business.

Obama’s last weekly address to the nation shows his profound misunderstanding, despite an international consensus as to what determines a good business climate. The various indexes that purport to measure it have one thing in common: A good business climate is one where the government gets out of the way of business. Overregulation, inconsistent application of the rule of law, a heavy tax burden, and insecure property rights reduce business formation, investment, and economic growth. The strong positive correlations between such measures of business climate and economic performance prove this basic fact.

Obama’s pronouncements suggest a quite different understanding: In his mind, a good business climate emanates from public and private alliances, subsidies of progressive business activity, industrial policy, state-directed investment, the “saintly” non-profit sector, and massive infrastructure campaigns. It should be noted that none of President Obama’s “good business climate” measures are included in the existing business climate indexes.

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