The State of the Union On Main Street

Jan 27 2014, 9:20am CST | by

The State of the Union On Main Street

President Obama will mention “small  business” in his State of The Union address many times, a popular pastime for politicians since owning a small business is one of the most respected occupations in the U.S. (we will not mention where politicians rank).  He’ll point to the stock market at record high levels and note the millions of new jobs added since the recession ended.  But there are very few indicators that suggest the real economy is really doing well.  A record high stock market reflects government policy as much as underlying strength in the real economy where consumer spending and unemployment are more typical of a recession than of a recovering economy.  The economy has grown every quarter since the official end of the recession in June, 2009, but that growth has left employment over a million short of its peak in January, 2008.  Much of that growth has been accounted for by the brute force of population growth which adds about 3 million more people to the population each year (more haircuts produces new barber shops and jobs etc.)..

According to government statistics, small business produces about half of the private GDP (government excluded) and employs about half of the private workforce.  Most new jobs are created by small businesses, a sector that is the R&D for the economy.  Many firms start, many fail, providing tens of millions of jobs and on-the-job training in the process.  It is in this primordial stew where giants like WalMart, Microsoft, Apple and so many other large companies get their start (while many attempting to succeed will fail).  Thus, both in it dynamics and its aggregate size, small business is “big business” in the U.S.

But in this “recovery”, the small business sector has lagged.  The “stimulus” money was mostly squandered by transferring money to states to support public sector employees.  Monetary policy contributed to asset price inflation (a record stock market), but this left out the majority of people who don’t own large amounts of stocks and bonds.  New taxes sent negative signals to new entrepreneurs and drained consumer spending power. Record numbers of new regulations drained valuable capital from firms and the owners’ valuable time and threw up barriers to new starts.  Crises and scandals shook confidence in government, with record numbers of owners blaming “political conditions” as the main reason not to expand their businesses.  Uncertainty about economic policy ranked in the top 5 “Most Important Problem Facing Your Business Today”. In short, the economy became “bifurcated”, with large firms doing well, exports rising, while the small business sector was left treading water.

For many reasons, owners are not very optimistic about the future for the economy or their own prospects.  As a consequence,  record high percentage of the owners have no interest in a loan because there are few profitable uses for the funds (a record low 4 percent complain their credit needs are not met).  Few owners think it is a good time to expand their firms, and this view has persisited through the entire expansion.  Washington policies are not supportive of business and job growth, punishing those who create jobs with higher taxes and regulations and threats.  All the President talks about is redistributing income and wealth, taking from those who create and earn and giving it to those who not.  There is no meaningful talk about policies that will restore confidence and energize the private sector to grow and create jobs, the best way to address inequality and poverty.

Source: Forbes Business

 
 

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