"But here's my real beef with AEI and the economic theology of American conservatives: How can entrepreneurs in an industrial economy have any chance of succeeding when the financial system is based on usury, rent and speculation? For three decades we've seen hundreds of billions of dollars thrown at into increasingly complex schemes of financial derivatives, while real entrepreneurs working on real problems, such as fuel efficiency or resource substitution, have been begging and pleading for mere millions to try and stay afloat."

Here's the problem.

The financial system is based on loaning people money at competitive interest rates they are willing to pay. American interest rates (especially for business loans) aren't usurious; they're -shockingly- low by world standards. Paying only 10% on your money is unheard of in Brazil or Argentina.

Certainly, certain borrowers can get in over their heads, and the context in which many transactions occurs gives control to the lender. That's true in any lending situation, and it is exacerbated by regulations which make it difficult or impossible for small players to be competitive (regulations, capital requirements, and internal controls are all barriers to entry).

Microfinance may not be as effective in the United States, but that is partially a result of the cost of capital, and the wealth of human capital already competing. In Mexico, an uneducated, marginally bright person can more successfully start a business, because they aren't instantly competing with marketing and distribution plans thought up by MBA's from Stanford.

That's not to say that entrepreneurship isn't the answer (probably the most effective argument for the general AEI position is the success of immigrant communities in starting their own businesses with no more resources than the local poor). It is. But a certain amount of scale is required just to be competitive in the United States, because this is a country with very picky, aggressive, and educated consumers.

You want to foster entrepeneurship? Implement national health care and the rest of the social safety net. That way poor people don't have to choose between the day job that lets them stay healthy and housed (yeah, as if for too many of them already) and the chance of a better future. And if they start a business, they don't have to tell their prospective employees "well, you'll have to give up your health insurance for a few years..."

What you generally see in successful entrepeneurs is situations where they're not at risk of losing everything they have if the bold new plan doesn't work. Oh, and in the US you often see a huge government-aided market for their products (e.g., customers reachable via the internet, the interstate highway system or the postal system).

And one other thing, which is sometimes hard to figure out: it would be nice if the regulatory environment were not skewed toward the largest firms. Smaller enterprises with dedicated employees still need to do all the necessary things for health, safety and product quality, but sometimes the prescribed methods and sheer burden of proof can be an issue. (Unfortunately the previous administration seems to have been mostly interested in removing regulatory burdens from large players, so we're not starting from a good baseline.)

Mr. Brooks,

Okay, so I thought I was commenting to some guy who ran a little free-enterprise organization somewhere and had no idea I was talking with the head of AEI, Mr. Darth Brooks himself. (Sorry about the pun but I just had to write it! :)

Since we may have your attention on this thread, and I hope we do since you did ask, I really want to suggest that you and your fellow scholars look very closely and without blinders at the specifics of how traditional aid suffocates the conditions for local entrepreneurship and how things might be changed. You should also examine very closely and without prejudice all existing local entrepreneurship, including entrepreneurship of the shady sort and the entirely illegal, which exists in urban, suburban and rural low-income areas. I'm not suggesting that you should support illegal businesses--my point is, everybody out there in low-income-land is trying to make a buck just like the next guy. It's important to keep that in mind when you talk about how traditional aid messes things up....

All this involves really going to poor areas and observing people at length, which I don't think most AEI people are willing to do, but I could be wrong about that.

There are a lot of other things that could be said, but an additional point about "traditional aid" is that it tends to be spotty and has to be combined with other forms of income, just like every other poor-people income source. Just competing for and managing one's aid sources is almost an entrepreneurship in itself in many cases. I'll bet if you looked at successful legal-side entrepreneurs, they tend to be people who found a way to make or at least manage a sustainable, consistent income on which to start or run their business.

At the end of the day, the short story is that poor people in general find it hard to pull together enough stability to engage in entrepreneurship of the type that you and the folk at AEI see as entrepreneurship. So my suggestion is that you guys either start seeing entrepreneurship differently, or work to create an environment in low-income areas where there's enough genuine stability that ordinary people can engage in the types of entrepreneurship that you do recognize. I hope that doesn't sound mean or oversimplistic, I'm just trying to answer the question you asked.

Also, I know this is sort of parenthetical, but it's important to draw a distinction between being out of money and being poor. If you have any or all of the above: a college degree, a good suit, wealthy family, friends or acquaintances, a high IQ or exceptional mood and executive function, you may not really be "poor" and your chances of succeeding in starting a business will be exponentially higher than those of a "real" poor person, though of course by no means guaranteed. I think this is an aspect of the issue that free-enterprise scholars sometimes miss.