I took part in a bloggers’ conference call with Forbes Magazine managing editor Carl Lavin yesterday. I was probably the most pessimistic of the participants since the specter of huge inflation combined with high unemployment looms large in the horizon. It’s happened before.
The more optimistic participants in the call saw small businesses being the answer to the economy. Unfortunately I don’t share their optimism.
Larry Kudlow, who is usually not a pessimist, writes today on how hard The Jobless Recovery is hitting small businesses:
The jobless-recovery theme re-emerged on Friday with the arrival of a disappointing employment report. The daunting number was the unemployment rate, which jumped from 9.4 percent in July to 9.7 percent in August. This is a big-versus-small-business issue. Sort of the haves versus the have-nots.
The large companies are gradually recovering as a result of major cost-cutting, inventory reduction, and a lean-and-mean return to profitability and high productivity. So the payroll survey registered a 216,000 job loss, the smallest drop in over a year.
However, the household survey, which picks up small, owner-operated, LLC/S-Corp-type businesses, registered a devastating 392,000 job loss, which follows losses of 155,000 and 374,000 in the prior two months. This is the source of the unemployment-rate jump, as 466,000 newly unemployed were scored in the report.
So while the big companies are getting healthier, the smaller firms are being left in the dust. Unfortunately, small businesses provide most of the new job creation in the United States.
Veep Joe Biden is out there saying the Obama stimulus plan has saved or created 150,000 jobs in the administration’s first 100 days and another 600,000 in its second 100 days. But he sure isn’t talking about small-business jobs.
In fact, it’s hard to know what he’s talking about. Uncle Sam has borrowed $388 billion in the second quarter and is scheduled to borrow $406 billion in the third quarter and nearly $500 billion in the fourth. In order to provide $152 billion in so-called fiscal stimulus, the government is draining close to $800 billion from the private-sector savings supply — $800 billion that will not be invested in new-business enterprises, including small businesses.
In addition, Kudlow explains that small businesses are confronted with,
- Trouble getting credit, and can’t find enough capital for new start-ups
- all the tax and regulatory threats related to health-care and energy reform
- The cost of hiring with continue to go up
- “The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don’t forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.”
Kudlow points out what I had brought up in my post the other day, the huge increase in the money supply:
The Federal Reserve’s monetarist experiment to balloon the money supply will backfire with much higher future inflation unless the economy is capable of generating enough new investment and jobs to produce the goods to absorb all the new money. Indeed, this is a worldwide problem. Too much cash chasing too few goods.
Go read the rest of the article.
For as long as there is a total lack of governmental financial discipline, I will remain pessimistic.