Government Encourages Debt, which Discourages Entrepreneurship

debtDebt is good for government. Taking money directly from people, a.k.a. taxation, a.k.a. stealing, carries with it a lot of baggage. People resent it. Debt is the easiest way for politicians and bureaucrats to get the money they need to ruin lives both at home and abroad. But even if you think government is a necessary evil, consider how the desire to do good things leads government to make everyone worse off.

Joe Politician wakes up one morning and realizes that education is good. So good, in fact, that everyone should have lots and lots of it. To make this happen, he gets the government to make it very easy for people to get loans for education. People take on debt, purchase more education, and the price of education goes up. So people take out more loans and the price goes up. Soon it becomes normal for 22 year olds to have the equivalent of a mortgage with no house.

There are many ways in which this distorts the economy, but one that is not often discussed is entrepreneurship. Entrepreneurs are part of a healthy, growing economy. They take risks to build new technologies and services that usually fail, but occasionally have a huge impact on the millions of people.

One thing that plays a big role in whether someone will decide to be an entrepreneur is their financial situation. If someone has a lot of savings, then they can afford to quit their job and start a company, even if that company ends up going under. On the other hand, if someone does not have any savings or has debt that they need to service, then they are much less likely to take that risk. Fewer entrepreneurs then leads to fewer new companies and less technological development.

Now you might think that government debt is different from consumer debt. If a potential entrepreneur takes on debt then they are less likely to become one, but what does government debt have to do with whether someone becomes an entrepreneur?

Well, government debt absorbs investment from savers. This reduces the amount of capital available for startups. So when the government soaks up huge amounts of capital to build bombs, each of those bombs will not only blow up businesses in foreign countries, but also destroy domestic companies that would have otherwise been created.

This is not to say that debt is bad in itself. It is an essential tool for economic growth even in a free market. It is just when the government distorts the market for debt that problems occur. The solution, of course, is anarchy.

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