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The Professor And The Entrepreneur: Alan S. Blinder vs Jim Prevor On The Nature Of Job Creation

Jim Prevor’s Perishable Pundit, August 10, 2010

Alan S. Blinder is a professor at Princeton and a former vice chairman of the Federal Reserve Board. His opinion influences many, and he is a highly intelligent man, but he lacks any real understanding of what moves entrepreneurs and what promotes entrepreneurialism. So when he wrote a column for The Wall Street Journal, we couldn’t let his financial analysis stand unanswered. We wrote a piece titled Professor Blinder Shows a Blindness to the Entrepreneurial Spirit, for The Weekly Standard. Here are some excerpts:

The big source of investment capital for America’s small businesses is “friends and family” money and the willingness of entrepreneurs to defer gratification and borrow personally. This money does not come from the impoverished masses that, Professor Blinder says, rush out to spend their unemployment checks — it comes from people capable of that horrid bugaboo Professor Blinder so fears: People who can save and invest.

Like St. Augustine yearning for chastity — but not yet — Professor Blinder calls for “more stimulus in the short run with more budgetary restraint for the long run,” seemingly not realizing that the confidence of business will never be earned by making lots of promises that future leaders must keep.

A government, drunk on deficits and spending, promising to be prudent tomorrow, will be viewed with the same credibility as an alcoholic announcing a plan to go on one last bender this weekend and then be sober. Skepticism is the order of the day…

At one point toward the end of his article, Professor Blinder downplays conservative concerns over the disincentive to work that unemployment insurance creates: “As the unemployment rate rises, the disincentives that worry conservatives become less important because there are fewer jobs to find…” In this line, we see a true conflict of visions about the way the world works. Professor Blinder sees some fixed number of jobs out there and too many people fighting for them.

He thinks that businesses don’t hire more because there is not enough demand for their products. Yet this is an impoverished view of the motivations of entrepreneurs. In my own small business, not one of our products was launched with any known demand, but we believed in our products, and ourselves, and thought we would create the demand. This is not atypical.

When Sam Walton created his first supercenter, nobody in America was clamoring for this, and then it became the most successful retail format in the country. How many years of losses did Amazon.com absorb before demand caught up to the idea? There are no neighborhoods gathering petitions because they lack a pizza place or a great diner or a Chinese take-out — yet they open every day, mostly on the belief of entrepreneurs in themselves and the willingness of friends and family to back a worthy entrepreneur.

You can read the whole piece here.

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