Small business and the Great Recession

Click to enlarge or open

Click to enlarge or open

In the long run, the health of the U.S. economy depends on small and newly-created business.  Not only to small businesses create a large fraction of new jobs (often a majority of new jobs, if you don’t count jobs lost through small business failure), but small businesses are the seedlings that grow into future large businesses.  Every Fortune 500 company was once a small start-up.  And when new technologies and businesses emerge, it is seldom the Fortune 500 companies that take the lead.  IBM Corp. was not the leader in personal computers, nor Eastman Kodak Co. in digital photography.

These two charts from the Bureau of Labor Statistics show the decline in the number of small-business startups and in small business hiring during the past few years.  The decline actually began before the official start of the Great Recession, and continued after its official end.

The Federal Reserve Board’s “quantitative easing” is intended to help small business.  By making more money available to banks, and by driving interest rates down nearly to zero, the board intends to make it easier to finance business startups and business expansion.

The charts only run through March, 2010, so they don’t provide any information on how successful the Fed’s effort is.  But it doesn’t seem to have had much effect so far.  The big banks aren’t investing in the real economy.  Debt-ridden consumers have every reason to cut back on spending and pay down existing debt, rather than take out new loans.  Businesses can’t be successful unless they have customers, and, in the present economic climate, it is hard to see where new customers will come from.  Unless something changes, the Great Recession will be self-perpetuating.

Click on Entrepreneurship and the U.S. economy for the facts and figures from the U.S. Bureau of Labor Statistics.  The impartial civil servants who compile economic data such as this are one of this country’s great national assets.

Click on Small business optimistic about economy for the results of a survey on the 2011 outlook for small business.

Click on Small Business Owners May Not Be So Optimistic After All for a critical analysis of the survey.

Click on Small Business Single Most Important Problem for comment on a survey indicating that the main problem of small business is lack of customers – not taxation or regulation.

Hat tip to Kevin Drum for the charts.

Here’s a chart on another economic subject which I find informative but potentially misleading.

It is misleading because the brackets for all the Presidential terms should be moved one year to the right.  Thus FY 2009, which began Oct. 1, 2008, is the last budget of the George W. Bush administration; FY 2001 is the last Clinton budget, FY 1993 is the last budget of the George H.W. Bush administration, and FY 1989 is the last Reagan budget.

Keeping that in mind, the chart provides an interesting picture of taxation and spending during the past 30 or so years.  Overall spending levels declined during the Clinton administration and rose during the George W. Bush administration.  The collapse in revenue starting in FY 2009 was due mainly to the recession.  The surge in spending – both for already existing programs and for the economic stimulus program – also was a response to the recession.

My opinion is that best way both to help small business and to get the budget into better balance is to put people to work doing useful things and earning wages with which they can buy goods and services and pay taxes.

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