Unfortunately, the continued weakness in the labor markets – today’s Employment Situation Summary (the monthly jobs report) from the Bureau of Labor Statistics showed virtually no net job creation in the US in June – is leading some commentators to suggest that another round of government spending is essential. But please Mr. President, the last thing this economy needs is more Federal spending. In fact, the nation’s economy has technically recovered from the recession in that GDP is now larger than it was prior to 2008, employment levels are still about 8 million lower than they were at their peak. More importantly, growth in employment is well below the trend since the 1970s. The question therefore is not whether the economy needs stimulation, but rather what is keeping employment from growing.
Reasonable people can disagree on the factors that are stopping employment growth. Some may suggest that large losses in government payrolls are a major cause. While it is true that state and local payrolls have been falling, and will have a short term effect on unemployment rates, the real problem seems to be a complete lack of hiring in the private sector – particularly by small and mid-sized businesses. This is important, since large firms tend to be net job destroyers. They do not generally grow internally, but rather by scooping up small businesses and incorporating them into their operations. Google, Microsoft and all of the pharmaceutical companies do this – on steroids. Small businesses on the other hand begin with a person or an idea and grow from this seed into operations employing hundreds of people.
The current environment is particularly harsh on small business development. The macro regulatory environment has become quite uncertain. EPA regulations on carbon dioxide, NLRB pronouncements that companies are not free to construct facilities where they see fit, and unbelievably complex financial and health care regulations are difficult to digest. More importantly, however, is how the regulatory environment at the local level impacts small firms. State and local governments have been particularly good in recent years at making it difficult to start a firm and to hire. More and more states require licenses for even the most mundane tasks (like polishing nails). State and local government require more and more small service firms to collect sales taxes – a difficult and often expensive procedure. Health care restrictions like smoking bans, salt bans, and fat bans make starting restaurants and taverns more complex and risky, and myriad bureaucratic inspections, labor law audits and inspections all make starting and growing a business problematic. In fact, the Economist Magazine in its May 12, 2011, issue suggested that America’s Licence Raj crushes would-be entrepreneurs.
On top of this, ham-fisted financial regulations and Federal Reserve policies have in many cases dried up capital that small firms with little credit history may need to start. Finally, restrictive labor laws and generous unemployment benefits have made less skilled employees more expensive than they should be. No wonder small business creation and hiring are almost at a standstill.
Even the most well meaning people in government simply do not understand how entrepreneurs work and really believe that they need to control businesses so that they do not lie, cheat and steal. This attitude permeates the bureaucracy from top down and will need to change if America is to start hiring again. So please Mr. President, don’t lay any stimulus on me. Simply leave me (and other small business people) alone, and let us pull the economy out of its malaise.