Another Hostage from the Federal Shutdown: Small Business

chris-edwardsCHRIS EDWARDS, CATO INSTITUTE

We are in the fourth week of the partial federal shutdown, which is starting to disrupt the broader economy because the government exerts control over many major industries. These sorts of disruptions will become more frequent in coming years as deficits rise and partisan divisions persist.

To minimize the damage, we should privatize or devolve to the states activities that do not need to be run by Washington. Those activities include air traffic control, airport screening, parks, and services on Indian reservations, as discussed here and here.

The Wall Street Journal reports today that the “shutdown leaves small-business loans in limbo.” The newspaper says that Small Business Administration (SBA) “loans are a mainstay for many entrepreneurs… The shutdown has already delayed about $2 billion in SBA lending.”

Why is the government a “mainstay” of entrepreneurs? Why should the government subsidize businesses with loan guarantees? Banks have been providing business loans for hundreds of years, so it is not as if the government has unique lending skills unknown to the marketplace.

Tad DeHaven and Veronique de Rugy explain the folly of SBA loans in this Downsizing Government study. They discuss the history of the SBA and explain how politics sustains the agency’s existence rather than any coherent theory of market failure.

They argue that America’s impressive entrepreneurial achievements did not stem from small business subsidies and that the SBA is an unneeded agency that should be terminated. Tethering small businesses to Washington is misguided and the shutdown is illustrating the damage.


Chris Edwards is the director of tax policy studies at the CATO Institute and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.


Used with permission. Cato Institute / CC BY-NC-SA 4.0