Tuesday, November 23, 2010

New Deal or Raw Deal (Book Review)

Book Review, New Deal or Raw Deal by Burton Folsom, Jr., 2008 Threshold Editions (Davison of Simon & Schuster). 270pp plus notes and index

Conventional wisdom among many historians and educators is that Franklin D. Roosevelt's New Deal brought an end to the Great Depression of the 1930s. Those who look at the data realize that is not the case. However many have fallen back on less conventional but still popular “wisdom,” namely that World War II ended that depression. This book disputes both conclusions and in my opinion should be required reading in our schools. As many of our current politicians attempt to duplicate the New Deal we should inform ourselves about what really happened during FDR's administration.

Briefly Folsom shows, with copious notes and data, that the New Deal actually worsened and extended the depression. Furthermore though the war did reduce unemployment, major effects of the depression persisted until Harry Truman dismantled much of the anti-business climate FDR had created.

The book describes FDR's background which may have been the cause of his lack of understanding of business and economics, as well as his dishonest ways. His family on both sides demonstrated a lack of business sense. His father James inherited a fortune but barely maintained it, making a series of poor investments. On his mother's side his grandfather made money selling opium illegally to the Chinese. When he tried honest business he did so poorly that he returned to that illegal business. FDR was raised without being taught basic budgeting or anything else that would have prepared him to deal with financial problems.

FDR was a mediocre student, having a C to C+ average at Harvard. He concentrated on the social-political world of clubs, debates and journalism and ignored subjects like economics that might have prepared him better for his future career. At the same time he regularly misled his parents with out and out lies, claiming to have performed better than he actually did in sports and other events. For example after doing poorly in a race he told his parents he came in forth. He knew his parents would see the school newspaper which listed only the top three finishers. That disregard for truth was also manifest later when he would categorically deny having made certain statements he had in fact made.

The result of all that seems to be a future president who did not like business and did not understand economics. He was, however, very charismatic and persistent. Those characteristics governed his presidency.

The next section of the book discusses the causes of the Great Depression, why what might have been a short-lived economic downturn became the epitome of an economy in trouble. While those causes are complex the three major causes were the Smoot-Hawley tariff bill which caused retaliation from trading partners, very poor decisions by the federal reserve which cut back on the money supply at the worst possible time to do so, and refusal of other countries to repay debts incurred during World War I. (Smoot-Hawley contributed to refusal to pay those debts since debtor countries used that also as retaliation.) Though those causes happened before he took over, Roosevelt did not understand the causes so it is no wonder that his corrective measures missed the mark.

Roosevelt's response to the depression was to crack down on the very businesses that needed to do well in order to increase employment. One of his first measures was the National Industrial Recovery Act, NIRA, later shortened to NRA. That encouraged price fixing and even allowed major players to set prices with the force of law. Some smaller competitors went to jail for undercutting prices so determined. That drove many companies out of business, worsening unemployment.

Other measures such as the Agricultural Adjustment Act had similar effects. By law farm prices were set high with the resulting loss of business to farmers. Particularly bad was the undistributed profits tax which discouraged business investment.

While damaging the economy, FDR managed to gain power and get re-elected. That was due not only to his charm and charisma but also to the way he used the federal budget to influence (many would say buy) votes. States firmly in his favor or firmly against him got little federal money. Swing states were saturated with federal relief money and FDR's people made sure they knew where it came from. They also hired 300,000 WPA workers just before the 1936 election, then dismissed 300,000 soon after that election. Only someone with FDR's charm and charisma could have pulled that one off.

The result was that the depression continued at least until the start of World War II. Unemployment remained high and business was terrible. The war reduced unemployment by putting over 12 million men in the armed forces and many more to work building war materiel. However stock prices remained low and other economic indicators also failed to recover. That changed only when Truman became president and allowed the business climate to improve.

The last two chapters describe why historians have missed the mark on the New Deal, and how it continues to affect us today. Basically historians have mostly favored statism and have indulged in groupthink. Any historian deviating from the conventional wisdom will be dismissed as irrelevant. Meanwhile, the New Deal legacy of big government, high taxes, and distrust of business continues to harm us today.

I strongly recommend this book. There are eerie parallels between what FDR did and what many Democrats want to do today. We should study the effect of the New Deal before trying to repeat it.

Thursday, November 18, 2010

Game Theory and Government

After a couple of blogs on game theory, let's now tackle how it fits with government. I already mentioned the foolishness of city governments throwing taxpayer money after professional sports teams. Sports leagues make sure that a city has essentially no added value. That leaves the league with all the power in negotiations so the league and the team owner win every time

However professional sports are small potatoes compared to other government functions. What about those? Do they have added value? The answer is that some do, some do not.

At its best government provides added value in what economists call external benefits. That is benefits not worth the price to any individual user but useful to enough people to make them worth the cost in the aggregate. For example few companies would find it worth the cost to build a road for their customers. However if we consider all the users of that road it becomes worth the price. Government can use tax money to build the road which then gets used by not only that company but nearby businesses, shoppers, even visitors from far away. The road provides external benefits.

Notice that if there were no government there would probably be no road. The value of the road represents added value provided by government. Whether that value exceeds the cost is another question but that is not our concern here.

Police and fire departments also provide added value. Few homeowners could afford their own fire department but the city or county as a whole can spread the cost over all citizens. The fire department can then save homes and lives as well as lower insurance costs. It represents an added value.

However many government expenditures add no value to the game. What happens in a typical economic bail-out? The statists would claim added value because they think it really helps the economy but does it? So far in this crisis our government has saddled us with huge debts, yet unemployment remains high. Where is the added value in that? The fact is that such programs merely move money from one pocket to another, they do not create goods or services. Instead they take money one business or person might have used to create wealth and give to someone else.

The real effect of many government programs is apparent only in retrospect so it will probably be years before we can really understand the effects of the Bush-Obama bail-out. However there are eerie parallels with the Great Depression and the measures taken by Hoover and Roosevelt. Most economists now recognize that the New Deal prolonged that depression.*

The problem with government it that it has not only a monopoly but also the power to force its will on others.. A business that insists on being paid more than its added value will soon find itself with no customers at all and thus no business. However government has the ability to take what officials want or think necessary. That allows it to grab more value than it provides. In almost all cases, government provides no added value if it does something a private business could reasonably do

The only solution is a strictly limited government, one constitutionally restricted from expansion and in which the citizens insist on following that constitution. And please note that the added value problem is only one of many reasons to limit government. Even if government can add value there are often good reasons for it to stay out of the game.

*cf the book New Deal or Raw Deal by Burton Folsom, Jr.

If you like my blog please tell others.
If you don't like it please tell me.

Tuesday, November 16, 2010

A Bit More Game Theory

Remember the eccentric millionaire who handed you a puzzle piece and offered $100 for that plus its matching piece? He's back, this time with a twist. First he informs you that you were not the only player in the last game. He actually handed out 100 identical pieces, scattered around the country so players could not know the others who were playing. Joe had 100 identical matching pieces. All 100 pairs were turned in so the millionaire paid out a total of $10,000. The players were sensible so Joe walked away with half of that, $5,000. The other players got the other half, $50 each. Everybody got half of his added value.

Our rich if slightly crazy friend now wants to play the game again, but with a difference. Again you have one of the 100 puzzle pieces scattered around the country. However this time Joe only has 95 pieces but he knows there are 100 pieces out there to match his. Five players are going to get left out. The total value of the game is now only $9500. Joe's added value is again the entire value of the game, this time $9500, but what is your added value now? If you pull out of the game how is does that change the total value?

Well, if you pull out that leaves Joe with his 95 pieces but there are 99 others with whom he can negotiate. You cannot change the value of the entire game so your added value is zero. You have no negotiating power at all unless you can contact the other players and negotiate as a group. Joe has all the power and if he offers you a dollar for your puzzle piece you might as well take it. In fact if he offers you a dime you might as well take that. If you don't, somebody else probably will and you will be one of the five players who get nothing. Joe is negotiating with people who have no added value.

Does this happen in real life? You better believe it. Some businesses make sure that they never quite fill demand. That leaves them with the power to set the price, subject only to the maximum people are willing to pay. Of course that works only when those businesses have an effective monopoly. They may have patent protection or their product may be the “in” thing, people believe that they must have not only the product but a particular brand name. It also happens in franchise businesses which limit franchisees so they don't compete with each other. And it happens in entertainment.

Movie stars provide a good example. When a director looks to hire actors he must look at how many people will pay to see the movie. He may find a wonderful unknown actor willing to work for a pittance to get the exposure. However he will prefer the star, the well-known veteran who is popular with the public. In fact he will pay that star many times more than an unknown whose acting talent is equal or even better than what the star offers. The unknown has no box-office drawing ability so he provides no real added value. The star however will bring in paying customers and he has a monopoly since there is only one of him. He has a high added value and can demand a lot of money to play the part.

Consider also professional sports. The National Basketball Association, the National Football League, and major league baseball have effective monopolies on their product. They could put franchises in any city big enough to support a top-notch team in their sport but they don't. Instead they limit the number of teams. They know that many cities regard having a major sports team as a very desirable status symbol so they make sure that there are fewer teams available than cities wanting those teams. That forces those cities to compete against each other. Typically the city must be willing to provide a fancy stadium or other facility. In many cases it is the city, not the team owner that foots the bill for that and is stuck with that bill should the team move to another city. Any given city has an added value of essentially zero when negotiating with a professional sports league. (There are some exceptions such as New York with so many potential fans that they want teams there. However even there the “New York” Giants and Jets actually play in New Jersey.)

That is one reason why professional teams often move to new cities. They get better deals by moving. The Seattle SuperSonics became the Oklahoma City Thunder. The St Louis Cardinals now play in Arizona. The Dodgers long ago stopped dodging trolley cars in Brooklyn and moved to Los Angles. Many other teams no longer play where they once did, leaving behind empty stadiums or arenas and unhappy fans and taxpayers. Cities are put in a position in which they cannot win in that game.

What should cities do to level the playing field with the sports leagues? Clearly bidding against each other is a losing battle; the team owners have all the power. They have only two rational choices. First of course they can just refuse to play the game, tell the sports team owner that they are not going to give him any special treatment. That is an option I think voters and taxpayers should insist on in the present situation. The other rational choice is to get together as a league of cities and negotiate as a group. Such a group would have an added value equal to that of the sports league. No longer would the owner of the Seattle Sonics be able to tell Seattle and Oklahoma City that they better give him what he wants or he will go to another city. That owner would have to deal with a league of cities that has as much added value as he does. Of course cities being jealous of one another will probably never form such a league so the owners will continue to have all the power.

I could go on but you get the point. Any person, city, or business that understands added value can use that concept to decide if it wants to play the game. If it does play, that concept helps know how to play and what results to expect.

If you like my blog please tell others.
If you don't like it please tell me.

Monday, November 15, 2010

A Bit of Game Theory

Game theory so-called is an interesting and useful subject, and it's not just about playing games for entertainment. It can be very useful in a wide range of situations. In fact most students of the field would agree that it is mis-named. It would be better if it were called something like “theory of human interactions.” However game theory is the historical name and we are stuck with it. That means that we call such interactions games, be they games like poker or other interactions such as business decisions.

For our purposes here, a good definition of a game is any interaction between people who do not control the actions of others in the game. The theory deals with finding the best course of action when playing such a game. Obviously that means it can apply to business, government, international relations, family life, and a myriad of other areas. Just as obviously I cannot cover the entire subject in a couple of blogs. However I can point out some interesting results.

One useful idea is the concept of “added value” discussed in the book “Co-opetition” by Brandenburger and Nalefuff. In any game your added value is the difference between the value of the entire game with you in it and the game if you do not play. For example if a tire manufacturer were to invent a tire that reduced fuel consumption by 10%, the added value would be the value of the fuel saved.

In most games you can never hope to get more than the value you add. The major exceptions are shysters, criminals, and governments. All of those can take out of a game more than their added value. They do that by taking the value someone else adds. However in honest games participants get no more than they add and usually a lot less. Here is an example, based on one in the book:

Suppose an eccentric millionaire walks up to you and hands you piece of a jigsaw puzzle, along with a toll-free phone number. He tells you, “If you call this number you will be able to talk to Joe who has the matching puzzle piece. I will pay $100 to whoever gives me the matching pair.”

The total value of this game is $100, the amount the millionaire will pay if you and Joe agree to turn in the matching puzzle pieces. But the real question is what added value you have, and what added value Joe has. If either of you pull out of the game and refuse to play, the whole game is worth nothing. The interesting part is that your added value is $100, but Joe's added value is also $100 even though the entire game is worth only $100. You cannot both get your added value. The best compromise would be to split the difference. Joe pays you $50 and you give him your puzzle piece. He then turns the matching pieces in to the millionaire and walks away with the $100. You are each richer by $50.

In a fair game, your added value is the maximum you can expect, but in many cases you will get less than your added value. That is an important idea when entering into any negotiation. You may think that you are adding a certain value to the game and you may be right. However others also add value and the total added value usually exceeds the total value of the game.

A more practical example would be when an employer and his employees divide up the gains from a business, say manufacture of some widgets which bring in sales of a million dollars per year. The employer provides the equipment, the raw materials, and the building. He may even provide the knowledge of how to make widgets. Without the employer nothing gets made and the value of the game is zero. Therefore the employer's added value is the entire value of the game, one million dollars per year.

But wait. The employees do the actual work of making the widgets. If they don't play the game no widgets get made and the value of the game is again zero. The added value of the employees is also one million dollars per year. Clearly employer and employees will not all get of their added value. Should either side insist on one million dollars per year the other will walk away, remove his added value, and the value of the game will be zero. They must reach some compromise in which each gets only part of the added value they provide.

Similar considerations hold for almost any interaction, be it trade, family relations etc. We can only function as a society if we are willing to compromise and settle for less than our added value.

Now that's enough for one day. Next I'll throw an interesting curve-ball at the eccentric millionaire game and see how that applies to life.

If you like my blog please tell others.
If you don't like it please tell me.

Friday, November 12, 2010

Hooray for the Irish

Here is a big cheer for the Irish. No, I'm not talking about the Notre Dame Football team; I'm talking about the people of Ireland. Like much of the world Ireland has economic problems. Unlike many other countries they are not asking for someone to bail them out of those problems. Instead most seem determined to deal with the situation on their own. To do so they are willing to take pay cuts, cut back on luxuries, and otherwise tighten their belts.

Many Irishmen are making comments like, “batten down the hatches and take the pain.” “Ireland recognizes one of the things about being an independent country is if you borrow, you pay your way,” “It’s time for the Irish to pull together and make sure they keep control of their finances, even if that means enduring higher taxes like the Greeks.” That is to their credit and a refreshing change from Greece and France where people riot if asked to cut back.

Of course Ireland's problems are serious and at this point there is no guarantee that they will be able to avoid requesting outside help. A minority of Irishmen do want to request help. However most are trying and are willing to make the hard decisions, even if it means unpleasant lifestyle changes.

The Irish are an example for all to follow. They realize that there is no money tree, no big daddy with unlimited resources. They also know that if they accept outside aid it will come with strings attached. Rather than sell their freedom and independence to a bail-out plan, they are willing to suffer the inconveniences that come with remaining self-reliant.

If only other countries, including the U.S. would emulate the Irish attitude. What a difference that would make.

If you like my blog please tell others.
If you don't like it please tell me.

Tuesday, November 9, 2010

Olberman the Biased

By now you know if you care. MSNBC suspended Keith Olberman because he donated to some congressional candidates. The reasoning was that those donations demonstrated bias on Olberman's part. Well yes they did and we would like our news people to be unbiased. That is pretty obvious and it will be no surprise that I disagree strongly with Olberman's views. However I also disagree with his suspension. In fact I believe all news people, judges etc. should demonstrate their bias so we can know what their real beliefs are.

The fact is that news people do have political beliefs, that is inevitable. The better ones try, often quite successfully, to keep those biases out of their work but they still have political beliefs. Wouldn't it be better if they were all up front about it so we could know where they are coming from?

A similar problem affects judicial candidates in many states. In Oregon, for example, judicial candidates are prohibited from expressing their views during their campaigns. A candidate may believe that criminals should not be incarcerated, or he may oppose the death penalty, or he may think that freedom of speech should be restricted. Voters should be made aware of those beliefs but under the current system he is not allowed to tell them what he believes. He may only list qualifications, endorsements etc. Aside from its first amendment implications, that restriction puts voters at a disadvantage.

Now there may be some reason for judicial candidates to be discrete in their campaigns. They should not express views on particular cases since the evidence will not yet be in. However they should tell us what they believe in general terms, things like if they support the constitution or specific laws etc.

I would support MSNBC if they suspended Olberman for expressing flagrantly biased views on the air. If they want to present unbiased information they should insist that their employees do just that (though it is questionable if that is MSNBC's objective). I would also support disciplining judges for allowing their bias to influence courtroom decisions. Judges are entitled to their beliefs but their job is to deal with the law as written, not to make or modify law (except when the law violates the constitution). However I cannot support institutional hiding of the beliefs of either judges or news people. That sort of policy withholds important information from the citizens.

If a news person is so biased that he will refuse to publish stories that go contrary to his belief, we have a right to know that.

If a judicial candidate is so set against the death penalty, for example, that he will never apply it, voters have a right to know that.

We need news people who can say openly, “I have these political beliefs. This story seems to contradict my beliefs but I also believe it is important to get the information to the public so I am publishing it.”

We need judges and judicial candidates who can say openly, “I believe this law is wrong and should be changed. However it is the law and until it is changed I must follow it.”

The problem is not when such people admit to their biases; it is when they allow those biases to affect their work. That problem is exacerbated when they are required to hide their biases.

If you like my blog, please tell others.
If you don't like it, please tell me.

Monday, November 8, 2010


As discussed previously, most of today’s so-called liberals are really statists. Maybe we should discuss statism, the idea of strong government control. What are its advantages and disadvantages?

The statists point out that true liberalism allows inequalities. Those who have more ability and work harder will have more, as will their descendants (until they become wasteful or lazy and lose it). In fact some will have more simply due to luck. They also point out that in a liberal society the poor often lack good medical care and similar benefits. While those accusations are true, we must be careful about the proposed solution. It is easy to find problems and nearly as easy to propose solutions. The difficulty comes in making those proposed solutions effective without causing more serious problems.

Indeed one of history's most colossal failures was the result of well-intentioned solutions to the problems mentioned above. Communism, the ultimate form of statism, was supposed to fix inequality, poverty, lack of medical care and the other problems allowed in a liberal society. The results were the exact opposite of the intentions. Poverty was rampant, the government class was "more equal than others," medical care was abysmal for most of the people. Why? Why was statism such a failure?

The problems with statism start with the assumptions one must accept in order to believe in it. Implicit in statism is a belief that government is somehow wiser and more moral than the average citizen. Unless it possesses that wisdom and integrity there is no reason to trust government instead of average citizens.

Communism demonstrated that, contrary to statist assumptions, government has no special wisdom, nor is it less subject to temptation to abuse of power than is the average person. Good intentions may be comforting but they make a poor supper.

The communist state attempted to be all things to all people. It gave quotas to farms and factories, telling them what to produce and how much of it. It even assigned people jobs.

The result was one of the most spectacular failures in human history. The five year plans failed. The factories and farms did not their quotas and what they did produce was often shoddy. The people were held captive in an unworkable system. Communism produced shortages of nearly everything except misery.

We must now ask, where would government get the wisdom and integrity statists think it has? It must come from one of two sources:

1. Divine wisdom. Monarchists claimed that the king was God's anointed. If one accepts that, he could also accept that the king has some special, God-given wisdom. However most statists in the U.S. today seem to deny that God should have any voice in government. With few exceptions, U.S. citizens will reject the divine right of kings, and with it any divine wisdom or integrity for government officials.

2. The second possible source of special governmental wisdom is the wisdom of the majority. If we believe that the majority is always right or at least right more often than the average person, then we can believe that leaders elected by the majority are wiser than that average person. However, the beliefs of the majority will inevitably be the beliefs of the average person. Majority rule is, after all, essentially an averaging process.

Integrity is even worse. Majority integrity suffers from a mob effect. People will do as a group things they would not think of doing as individuals. People who agree theft is wrong may think it is somehow just fine to vote themselves benefits at the expense of others.
(cf http://hallillywhite.blogspot.com/2009/07/mob-rule-part-1.html)

One of the more pernicious aspects of statism is its tendency to turn social theory and personal preference into law. Be it the old official state church or modern political correctness, this tendency leads to silliness at best and institutionalized idiocy at worst. For example, the mayor of Portland, Oregon once proposed outlawing "snout houses," houses on which the garage projects out in front. What business did she have forcing her architectural preferences on everybody else? If people want to avoid those houses they can buy a different style. They can even live in neighborhoods where voluntary covenants prohibit them. However it is a serious infringement on liberal freedom for government to decide what kind of house everybody should live in.

Clearly there are problems with classic liberalism and freedom. However those problems are not nearly as serious as those we cause when we allow a statist government to rule our lives, whether we call that government "progressive," "positive," "modern" or anything else. Freedom leads to more production and more goods for everyone. Statism leads to less for everyone except the ruling class.

The goal should not be elimination of inequality but enhancing life for everyone, even if the rich still have more than the poor

If you like my blog, please tell others.
If you don’t like it, please tell me.

Saturday, November 6, 2010

I Am a Liberal

If you've been reading my blog for a while here's some surprising information for you. I am a liberal. Yes it's true. Have been for years, not even realizing it for many of those years.

Now before you faint you might ask just what kind of liberal I am. After all, I have criticized many today who call themselves liberal. The answer is that I am a classic liberal which is almost the polar opposite of what passes for a liberal today.

I believe in liberty and individual responsibility. Furthermore I believe our liberty is a God-given right, not something government doles out to us. I believe strongly in the principles set out in the Declaration of Independence. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed...”

Now if each of us has inalienable rights it follows that government should not take away those rights. That is true if government is a monarchy, a democracy, or a republic. Even if 99% of the people want to restrict the rights of the other 1%, they have no justification to do so.

That is liberalism in its true sense. It is the historic meaning of the term. Any political philosophy that unduly restricts liberty is not liberal, it is statist. The appropriation of the word by today's statists is Orwellian newspeak, a triumph of public relations but a detriment to our supposedly free society. Some call themselves “modern liberals,” “positive liberals,” “progressives,” etc. but the fact remains that they want increased government and less individual freedom. They are statists.

Sadly, the real liberals did not step up and point out the fact that "positive liberalism" is in many ways the opposite of true liberalism. Rather than being "progressive," it is in fact a regression to the days when government was regarded as having divine wisdom to which the people should defer.

One example happened recently in Oregon. A farm in the eastern part of the state hosted a wedding. I confess that I fail to see who was harmed by that event. My liberal attitude says that we should allow them to use their property as they see fit. It is their property after all. However the statists who call themselves liberals have created a law that governs how people use property. Farmland must be used for farming until the government blesses some other use. The owners of that farm had to pay a fine for their horrible crime.

The whole thing is reminiscent of the children's game, “Mother May I” in which each child must do exactly as instructed by the child playing the part of the mother. However in this case I would call it “Big Brother May I.” The statist attitude is that Big Brother, that is government, knows best and we all better obey. If we want to do something out of the ordinary we darn well better ask permission first. That is the opposite of the liberal attitude that allows us freedom to do whatever does not infringe on the rights of others.

This newspeak also creates confusion when we read literature written before it came about. I've recently read Hayek's book, “The Road to Serfdom” written during World War II. He continually talks about liberal ideas as opposed to various forms of socialism. What he means by liberal is freedom and individualism. However today's “liberals” tend towards exactly the socialism he was opposing.

We should not fall for the linguistic tricks of the statists. Instead any discussion of the topic should focus on the ideas themselves and how effective they are in benefiting humanity. A start is to use correct language which means we must insist that they are properly called statists. Webster defines statism as, "The principle or policy of concentrating extensive economic, political and related controls in the state at the cost of individual liberty." That obviously fits today's "liberals." In fact it fits many politicians of either party in the U.S., though the parties differ in how they apply their statist ideas.

Today's “liberals” are illiberal statists, not liberals. Our “progressives” are regressive statists, not progressives. They believe in big government, not freedom and individual responsibility. Let's call them what they are.

Next time I plan to discuss some of the problems statism creates.

If you like my blog please tell others.

If you don't like it please tell me.

Monday, November 1, 2010

Help Small Business?

You've seen the political ads. “I will help small business” is scattered over the airwaves and the mail you receive. Most every candidate wants voters to believe he or she will be the salvation of small business. However that raises two questions for those candidates:

1. How will you help small business?, and
2. Why only small business?

Let's deal with the second question first. Why should we only worry about small business? The answer is that we should worry about all business in this country. They are all interconnected. Take for example the small businesses near my home. There are restaurants. There are contractors who do plumbing, electrical work, painting, carpentry etc. There are clothing stores and other small retail establishments. They employ lots of people though in the current economic climate many have had to reduce employment.

What allows them to employ those people? In many cases it is big business, especially Intel which has several major facilities in the area. Intel directly hires many contractors. Intel employees eat at local restaurants and shop at the small retail establishments. Then the net spreads outward. The electrician who wires an Intel facility also eats at the restaurant and his wife shops at the clothing store. The restaurant and clothing store employees eat and shop locally providing yet more jobs, and on and on and on.

Nor is Intel the only such big business in the area. Several other major businesses provide employment not only for their own employees but for contractors, retailers, eateries etc. In some cases they even buy components from small businesses.

The small and big businesses are all interconnected. If big business were to vanish, most of the small businesses would soon disappear also.

We might also look at employees. Why is it better to work at a small business than at a big business? In most cases it is not. Some small businesses are great places to work, but so are some big businesses. The same can be said of bad places to work, some are small, some are huge.

We need both large and small business to provide employment for the people.

How about how the politicians plan to help? It's easy to say “I will help small business” but rather more difficult to actually do it. Most political ads are thin on how the candidate intends to help. The most I've heard is a promise to make loans available. In some cases that would help but banks already have money available. They are not lending because of uncertainty in the political climate.

That uncertainty harms business in two ways. First, entrepreneurs are reluctant to start businesses if they fear that changes in regulation will affect those businesses. Second, even if someone wants to start a business, banks are reluctant to loan money for the same reason.

For example, suppose Bill wants to start a plumbing business. He knows how much it will cost to get a business license, buy equipment, and hire plumbers. However his jurisdiction is considering changes. If those changes take effect he will need different equipment. They may increase the cost of a business license as well as permits for any work he does. They may require expensive benefits for his employees. Will Bill start his business under that uncertainty? Probably not. Even if he wants to go ahead, will the bank loan him the money he needs to buy equipment that may soon become obsolete? Again probably not.

The best thing our politicians could do for small business, indeed any business, is to reduce unnecessary regulation and to make the business climate predictable. And they should not concentrate only on small business. Instead they should treat business as the interconnected entity it is.