Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktOne of my favorite conservatives, Bruce Bartlett, confirms what I’ve been saying for the last year. We’ve seen the economy worsen, from the small business perspective, and slow to a crawl. We talk to between 30 and 40 business owners a day, and don’t forget 78% of small businesses have less than 20 employees, and they all tell us they don’t really give a diddly squat about regulations or taxes right now. They care about the lack of customers. I understand my evidence is anecdotal, and there’s not necessarily a reason to believe me, but now the Bureau of Labor Statistics has verification. I also get it that Republicans and some large businesses care about regulations, especially the energy and health care industries, but could we stop pretending it’s true for small businesses or all large businesses?
On Aug. 29, the House majority leader, Eric Cantor of Virginia, sent a memorandum to members of the House Republican Conference, telling them to make the repeal of job-destroying regulations the key point in the Republican jobs agenda.
“By pursuing a steady repeal of job-destroying regulations, we can help lift the cloud of uncertainty hanging over small and large employers alike, empowering them to hire more workers,” Mr. Cantor said.
Evidence supporting Mr. Cantor’s contention that deregulation would increase unemployment is very weak. For some years, the Bureau of Labor Statistics has had a program that tracks mass layoffs. In 2007, the program was expanded, and businesses were asked their reasons for laying off workers. Among the reasons offered was “government regulations/intervention.” There is only partial data for 2007, but we have data since then through the second quarter of this year.
The table below presents the bureau’s data. As one can see, the number of layoffs nationwide caused by government regulation is minuscule and shows no evidence of getting worse during the Obama administration. Lack of demand for business products and services is vastly more important.
(lmsinca)
I also came across this interesting study yesterday. We’ve looked at so many statistics on income inequality, but I’m not sure anyone really understands why it’s important. I think this study gets to part of it at least. I also believe the “Occupy Wall Street” protests reflect the helplessness people, especially young people, feel in being able to combat it. Oh I know, they’re just a bunch of kids and unemployed people who don’t understand the global economy, but they know what’s happened to them over the last three years and it feels wrong. They’re calling themselves the 99% and that’s for both being unemployed and without benefits and also in the bottom 99%.
For example, the bailouts and stimulus pulled the US economy out of recession but haven’t been enough to fuel a steady recovery. Berg’s research suggests that sky-high income inequality in the United States could be partly to blame. So how important is equality? According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.
Berg and Ostry aren’t the first economists to suggest that income inequality can torpedo the economy. Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation’s wealth gap. “A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth,” Eccles recalled in his memoirs. “In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped.”
Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.
There is a link to the study here which is in the current issue of Finance & Development, the quarterly magazine of the International Monetary Fund.
(lmsinca)
And last, but not least, it’s the trade deficit stupid. This piece in The Nation is an important one I think. Essentially, we need to get the wealthy investors to quit investing in financial instruments and steer them into long term “making stuff for export and consumption” stuff. There are ways to do that but they probably won’t like it too much because it’s much easier to do what they’re doing now.
But what’s behind it all is the fact that the United States cannot pay its way in the world. And while a smaller country would have expired long ago, we keep stumbling along, getting sicker, losing industrial weight, because the rest of the world has an interest in continuing to hold us upright.
For Keynes that would be the challenge—not just to bring down but to eliminate it: the whole thing. The failure to do so has real implications for other parts of Keynes’s theory. The answer to our crisis is not to “hire and rewire,” or to have a lot of public works. Let me add, by the way: I’m a labor lawyer; I want the government to spend. I love public works. I’d love a new O’Hare Airport. I’d love a repaving of Lake Shore Drive. And certainly Keynes loved public works. He saw people starving; he had a heart. We have to do something. We can’t wait for the trade deficit to come down. But that’s not the answer—it’s urgent, to be sure, but it’s just a first step. The answer is to get rich people to put their money into real “investments” and not “loans.” It’s to induce the rich in this country to invest “by employing labor on the construction of durable assets.” Call them widgets; call them iPads. Call them anything we can wrap, ship and sell to somebody abroad.“Oh, but he wouldn’t put that ahead of the stimulus.”
No—but he’d put them together.
Filed under: free trade, income inequality, Keynes, lack of demand, regulations, small business | Tagged: Eric Cantor |
All Things in Moderation 
"and they all tell us they don't really give a diddly squat about regulations or taxes right now."Indeed. I've been involved in numerous small businesses, and the #1 problem and uncertainty always involves present and future customers. Everything else is a distant, distant concern. I've been at companies getting audited for taxes, and that was always an additional expense and a pain in the ass–that time could have been spent getting customers and the money could have been spent on new equipment, instead of appeasing the government bureaucracy. But those times were of a much lesser impact. The other problem is, most government regulation that strangles small business owners is state and local level (zoning, etc). The audits were always state level. What people may intuitively think of when they think about government regulation, and some uncle who was put out of business by oppressive regulation, they are likely thinking of state and local regulations. However, I've been in many, many, many dire meetings about the imminent doom of the company (at several different companies). It is *always* about losing clients, losing customers, lack of demand, missing a big sale, too many returns, getting screwed by a supplier . . . if you're a small business and doing any web business, Paypal and First Bank (or whatever credit card transaction processor you use) are a 100 times more problematic than government regulation or future taxes. I also think this objection fails a simple logical question. If someone comes in with a million dollar contract, are you going to refuse it because of uncertainty about what taxes you might be paying on million dollar contracts a year or two or five from now? Or what sorts of government regulations might be written a year or two or ten from now? No, you take the contract. Additionally, if you have certainty that there would be no new regulations or taxes on your business for twenty years, and all your customers left and you lost your biggest client and your suppliers doubled what they were charging for you, could you somehow stay in business, based on your certainty? … cont
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… I'm sure there are some people who feel uncertainty about what the government might do, and base their behaviors on that. There are probably some folks who think Armageddon is nigh, or that global warming will kill us all in 30 years, and base their decisions on that. I don't think the terribly uncertainty of the wrong political party being in power is what's wrong with the economy. The first business I was ever in did well for many years. It was a small business. At one point, we employed 12 people (from what was once a 1, then two, person shop). After I got pushed out, a few other people also got the boot. Then were hired back. Then got the boot. Then more got the boot. Then it all came to an end. There were multiple factors involved, including some interesting decisions by certain people that may have hastened the demise, but the biggest problems were structural. When I first started in 1991, printing, design, all that stuff was contracted out. By 2002, when I got the boot, many companies had brought that stuff inside. And this was happening more and more, leaving less and less for the small firms. When I started, I knew people at a dozen small print shops and design shops. All those businesses are closed now, most of them doomed by the same thing that made them possible in the first place: desktop publishing and desktop video. I knew a place that did tens-of-millions in pre-printed labels. All the companies eventually brought that in house. That place is out of business. These are structural changes in the business environment, and having nothing to do with taxes, uncertainty over taxes, or uncertainty over government regulation. While government regulations make it tougher to start businesses (especially certain local regulations), this isn't Egypt, where it can take 15 years to legally start a businesses due to the density of the government bureaucracy. Our fundamental problems are structural.
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There used to be a video rental shop on every other corner. Now there is one–Hastings, which is a boutique bookstore plus rental place, and benefits mostly from being the last man standing (it's like Borders + Blockbuster, only still in business). Now, people rent online, or from Redbox, and the industry that serves those rental customers now does so with 10% of the labor it used to employ. You could see this process happening over the last decade, and it wasn't uncertainty about government regulation.
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lms,I can understand why Bartlett is one of your conservative faves; he's not actually a conservative (any more). ; )This argument is myopic imo. Of course, all businesses have customers and sales as a foremost concern, and their lack or always confront businesses most visibly and directly. But we have been running the greatest Keynesian aggregate demand experiment in the history of the world, with unprecedented deficit spending to make up for lack of demand, as well as essentially free money. It really isn't working. The demand pump is sucking wind.What this argument also does not address is the much lamented and criticized fact that companies have cash but are sitting on it. If you talk to those CFOs and other executives, they'll tell you quite plainly that they are sitting on it and not spending and investing for growth because the current political climate makes it imprudent. A CFO of a major bank in my area spoke to a group just recently about this. It's real. With an activist Democratic President threatening more taxes, more regulations, an aggressively anti-employer NLRB, etc., this just isn't seen as a time to take chances. Would they be happy with another million-dollar contract coming it? Sure. Are they interested in building a new plant to expand the business? No, not really, not now. Not when we have a "populist" government with a President who seems to spend most of his time bashing business and telling them they need to be more regulated and taxed.
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Income inequality: if a few people make a trillion dollars (real buying power) while the vast majority of folks only make a million dollars a year (real buying power), income inequality would be even worse than it is now. Yet I have a hard time seeing how that would wreck the consumer economy, except by comparison to some other world where everyone made an even billion. And the history of nations with near perfect income equality hasn't been very good. I'll pick America, with huge income inequality, over 1970s Soviet Union any day of the week. Income inequality might be a symptom of problems, or a red flag, potentially, but the causative poker-chip argument just doesn't do it for me. On the credit issue, wealth inequality was much lower in the 70s than the aughts, but credit was also much tighter. It's not a linear progression from concentrated wealth to no poker chips for anybody else, and no credit. I'd argue a little more rationality in lending and extending of credit is exactly what we need to be doing right now–no matter how rich very rich people are.
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"But we have been running the greatest Keynesian aggregate demand experiment in the history of the world"Really? We're funding car makers to make green cars in Finland and money's getting sat on and projects aren't starting. I saw a lot of signs go up. I'm sure some things are happening. But I suspect this particular experiment, though the best funded in the history of the world, has not been executed very well. That being said, it may not be possible to execute it well. Thus, why the pump is sucking wind. "Are they interested in building a new plant to expand the business? No, not really, not now."While this may be true of certain very large banks and other companies, smaller businesses cannot afford to make decisions based on the bloviating by politicians on the various Washington, DC-based reality television shows. They will build the new plant if they see the business being there to support. Period. End of sentence. Even large companies will. I refer you to the huge cloud storage Apple put in North Carolina recently. Google has done the same thing. Amazon, despite being at war with California's ass-backwards Internet sales tax, recently came to an agreement that has them putting in two new distribution centers in California. Apple is building a giant new campus in Cupertino. Of course, they have $57 billion in cash, so they could afford to do it without any concern about their cash position. Still, they wouldn't do it if they saw the bottom dropping out of the iPhone market. HPs a big computer company that just failed to launch a tablet, and is now getting out of the PC business. They could be building data storage centers in North Carolina and big shiny new campi in the valley. But they aren't, and I don't think it's uncertainty caused by Democrats having positions of power in government. In businesses that operate as businesses, the customer is king. Well, actually, cash is king, but in most businesses, that comes down to the same thing. Cash + customer. Everything else is a distant third or fourth or seventh. I've worked in a design firm (we also did a lot of printing and video and multimedia work), did my own independent consulting for awhile, worked for a discount online retailer in the model of Overstock.com, worked for a computer hardware and software e-tailer, worked for a medical supply company, and–for a few months–I worked for a wedding guide. And I've seen, as a contractor, doings and goings on in huge companies, like FedEx, Thomas & Betts, Schering-Plough, Newell Home Hardware, Orgill and Sarah Lee.My experience is strictly anecdotal and observational, but the primary influence is going to be where they see the marketplace headed, where they see their customers going, and what they project in terms of sales. If they think demand will be there, they will expand. They will grow to meet the projected demand. Even if there might be more taxes next year or a new regulation that means they have to put in handicap ramps out in the warehouse. Unless the government steps in and unambiguously puts them out of business, it's all about retaining and attracting customers, and being able to come up with the product or service if the customer has the cash.
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qb, I know re Bartlett, but that's why I like him. I was being a little controversial by calling him a conservative because I know it bugs conservatives. That's an old plumline tactic of mine, lol. But really if you look at the numbers, and still opine that regulations and taxes are holding back business investment, I don't think the facts are on your side. As I said, it may be true for a small percentage of large business but really it's not true for the majority of us business owners.Regarding the spending, I would argue per The Nation piece in my last link, that no amount of government spending on stimulus right now will give us anything more than a short term benefit until we solve the trade deficit issue. What demand we have has been in the consumption of foreign produced goods and services and healthcare, always healthcare.I couldn't find a thing wrong with that piece from the aspect of what we're doing wrong and how to attempt to fix it. I don't agree with many of Obama's economic policies, as you probably know, but I am highly skeptical that his rhetoric is what is keeping business investment down. We've made it quite comfortable for the big money boys to move their interests overseas and between unemployment and falling wages most people have very little disposable income. What they do have is going to paying down their debt, smart but time consuming over the long haul, with no real current benefit to the real economy.I am kind of shocked, if you want to know the truth, that legislators are focusing so much on China's currency manipulation rather than our own new free trade deals, which I believe will only exacerbate our trade imbalance.
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Yes, there is a huge disconnect between big business and small business in America. But we really need Tao here. My non-service small business clients are either in construction or are in manufacturing, but related to construction [door and frame manufacturing, prefab housing manufacturing, sewer pipe manufacturing]. All are in the boat LMS describes.Also, they are in the boat Kev describes – they HATE Austin regulation. It may cost jobs in some instances. It always costs money.
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I have to run and do real work, but just a couple of points without much time for thought (why think when you can just blab).K, no doubt there are examples on all sides. I've heard it directly from the horse's mouth on on multiple occasions that company X is sitting tight because of the chaotica and threatening political/tax/regulatory climate, obviously in the midst of existing economic adversity.I wonder re the survey stats and generally: does anyone have good stats on layoffs versus hires. I.e., unemployment figures are basically a function of both sides of the coin — layoffs and hiring. This survey purports to explain layoffs. My sense is that since 08 our problem is not so much layoffs as non-hires. So how do you figure out why businesses aren't hiring as opposed to why they are laying off.In general, the "low demand" explanation seems to me to be pointing to a symptom more than the cause. Like Kevin, the inequality explanation is completely unpersuasive to me.
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Tao dropped by. I don't know if he's going to make a commitment, though. 😉
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