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Archive for the “Economics” Category

Chicken Little famously said, “The sky is falling!  The sky is falling!” Well, for small business it may be true.

Small business is much more troubled than is being acknowledged. Small business is also not being sufficiently covered in the national press. It is the canary in the coal mine, despite 3 1/2 quarters of continuing real growth in G.D.P.

I can tell you categorically, brothers and sisters, that small business is not recovering like the macro-economy supposedly is. While my own firm is chugging along OK, the bulk of the clientele my small company serves is other small companies, and the fear and uncertainty I encounter every day in my clients and colleague entrepreneurs is palpable. No one wants to take risk. No one wants to substantially invest in the future.

You may say I am one small business guy at a little pip-squeak company spreading counter intuitive anecdote and calumny. One of my friends calls me the “the Nouriel Roubini of small business” because of my bleak outlook. I prefer to think of myself as a cold-eyed realist. I do not enjoy writing jeremiads or screeds. Nevertheless, I fear small business is entering a permarecession. Here is why.

1.  No one wants to lend money to risk-taking entrepreneurs.  Despite the so-called rebound of the economy, entrepreneurial accommodation from banks and venture capital ain’t happenin.’

2.  Health care mandates will keep small business small and profit diminished. I don’t know a single entrepreneur–not one–who evinces a full-voice enthusiasm to expand his workforce in this environment.

3.  Federal taxes is acomin’ in. This is on two levels. The new statist fiats by Washington on health care will have to be paid for. But other increases in taxation will fall hard on small businesses and, also, individually on small businessmen. Why invest in your company? Investment is disincentivised. So entrepreneurial passion and creativity becomes muted.

4.  State taxes will also increase. A lot. This includes property, sales and income taxes, plus continuing fee augments. This is particularly true for the Greece of America called California. And, unfortunately, it will soon be true of my beloved New York (Greece, Jr.). Business, of course, will migrate to seven or eight tax friendly states that I don’t live in. (See April 13, 2010 blog, “Texas and Entrepreneurship“)

5.  Bureaucracy will increase exponentially. I can assure you small business is already groaning under the demands of governmental paperwork. I see no option but for this to augment vastly.

6.  Unemployment, now between 9.7-10%, must eventually be felt by business as loss in demand.

7.  The present “recovery” is a government financed phenomenon. Keynesian to the max. When it stops, as it inevitably must, either a double-dip recession will ensue or a Jimmy Carter, Japan-style stagflation will appear. Small business (or big business for that matter) will not be robust enough to buttress employment when government ceases goosing the public sector and union jobs. Apres moi, le deluge, mes amis. The piper will be paid.

8.  The Fed has shot its wad. It cannot save us again.

9.  Because both Republicans and Democrats lack the political will to honestly exercise fiscal sanity, a huge new tax called inflation will sooner or later monetize the debt. I guarantee it. We will not become the Weimar Republic or Zimbabwe, but it will not be good.

Oh, dear. I seem to have gone on a bit. Mercifully, I will stop. There must be an end to such mordancy. I don’t like being a small business Paul Revere of the dour. But this is my view from the street.

Our country will not recover if small business does not do better. On a positive note, I’m glad to see there was some press attention yesterday to the small business conundrum. Meredith Whitney wrote on page 21A of the Wall Street Journal (May 17, 2010) a piece titled “The Small Business Credit Crunch.”  She states, “Unless real focus is afforded to reengaging small business in this country, we will have a tragic and dangerous unemployment level for an extended period of time.” The same WSJ edition has an article on page R4 titled “Tightening the Credit Screws“, about the difficulty of small business finance. And Robert Schiller, economics professor at Yale, discussed a long-term double-dip recession scenario in the Sunday New York Times (May 16, 2010).  He states, “I use a definition of a double-dip recession that doesn’t emphasize the short term.  Instead I see it as beginning with a recession in which unemployment rises to a high level then falls at a disappointingly slow rate.”  In describing certain parallels of the present to The Great Depression, Schiller describes a “…feeling of uncertainty that discouraged entrepreneurship, lending and spending, and, most important, hiring.

Hmm.  Sounds familiar.

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Paul KrugmanMary McCarthy famously said of Lillian Hellman, “Every word she writes is a lie–and that includes ‘and’ and ‘the’.” In terms of his conclusions, that pretty much describes the depth of my disagreement with Paul Krugman, columnist for the New York Times.

I disagree with just about every opinion Paul Krugman voices. I am a believer in the free market, he seems to be a committed socialist. I am  a fiscal conservative with a fierce belief in balanced budgets, he an unapologetic Keynesian. I feel the current health care reform bill will be catastrophic for small business and employment, he feels it is salvific. (Note his most recent op-ed in the December 4 New York Times.)

Nevertheless, I view Paul Krugman as by far the most useful popular economic writer out there. He has a real didactic gift for simply explaining his process, analyses, and conclusions. I would love to have him as a professor (which he is at Princeton University). He’s a damn good (and unpretentious) writer.  He’s just a terrific explainer. He illuminates the most byzantine financial matters with a clarifying ease that is most helpful to me as an entrepreneur seeking to understand the world macro-economic picture.

I bring this up because I increasingly notice people of both liberal and conservative persuasions are losing a fair-minded and objective openness to quality argumentation.

It is a practical value for an entrepreneur to constantly be open to new thoughts, to consider the discomforting. For me, one way to enforce this discipline is to actively read and engage with those I disagree with. I really try to keep my firm, Corporate Rain, a forum for open discussion with colleagues and employees. Healthy dialogue and disagreement in a corporate community is creative and energizing. It fosters a frisson of aliveness and passion.

That said, ultimately there is only one boss, and, in the immortal word of Mel Brooks, “It’s good to be  King.”

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