Free Markets, Free People

Slowly killing the Golden Goose

You all know the nursery story about the Golden Goose.  Well, as we head into “Recovery Summer V” with no real recovery in sight, subject to false unemployment numbers and pitiful quarterly GDP earnings, it might be useful to look at something else that is likely a factor in all of this:

Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.

And all of that is a function of what?

That evil thing called “capitalism”.  Yup, evil capitalism encourages entrepreneurship and through that cycle, we see the market at work – creating profit, which creates jobs, which expands businesses and creates more of them and more jobs and more wealth and … etc., etc., etc.  It is that repeating cycle that has, at least till recently, gotten us where we are in terms of wealth and power as a nation.

Not government.  Government is a net leech.  It sucks the blood out of productivity in the form of taxes.  But government also plays another role – as a regulator. Most look at that as a necessary evil.  But most governments always go overboard with their regulatory regimes and end up making it harder and harder for entrepreneurs  to do what they do best.  The Brookings institute has taken a look at this and found that over the past few decades, the entreprenurerial role has declined and, as a result, we have, for the first time, seen more businesses exiting the economy than entering it:

Now Brookings tries to stay claim this can be reversed, even though it is such a widespread trend it should alarm us all.

In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Note the oblique way Brookings points to government, but nevertheless identifies the problem.  The phrase is “entrepreneurship enhancing policies”.  And what would that look like?  Well Brookings thinks liberalizing entry of high-skilled immigrants might to the trick.  I, on the other hand, think a thorough review of the regulatory regime and revocation of all unnecessary regulations along with those found to punish or hinder entrepreneurship would have a much speedier and positive effect than the Brookings suggestion.

Certainly, we know why there was a precipitous drop in 2008, but again, what has the government, in terms of policy, done to ease the situation?  Nada.  Nothing.  Except play a little crony capitalism (i.e. pick winners and losers) in the green energy game.  And, of course, most of their “winners” have gone belly up.

As a consequence of this refusal to consider steps concerning rolling back regulations (and, instead heaping even more on the books), we see the trend get worse on both the entry and exit levels.

Entrepreneurship IS the “Golden Goose” of capitalism.  One of the big reasons our economy continues to lag badly can be found in the chart above.  And what has this administration done in 5 plus years to address this problem?  Well, to be honest, it’s done more to exacerbate it that help it. Thus the Golden Goose on life support.

All hands prepare for “Recovery Summer VI”.  And VII.  And VIII …


39 Responses to Slowly killing the Golden Goose

  • “…unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.”
    Now THERE’s a typical delusional Brookings Collectivist mind-fluck.
    The reasons for the decline in entrepreneurship are not “mysterious”.  Nor are the things that would reverse that decline.  The Obamic Decline is the broad-form set of reasons.  This is PRECISELY the kind of thing you expect in a fascist economy, and it’s exactly what we’re getting.
    One of the things that will reverse the trend is NOT importing “high-skilled immigrants”.  They cannot calculate risk any better than any other population of people.  That is a red herring.  Or red whale.

  • Yeah.
    In a country with 300+ million citizens the problem is that we just don’t have enough native high-skilled talent of our own.
    If only we could bring more in from other countries, then we, this country, would see a sky rocketing number of new economy revitalizing ventures.   Skilled “foreigners” will fix it because…..what, Americans have no ideas?  Brains?  Ambitions?   Goals?  Money to invest?
    What is it that makes skilled foreigners the answer to this problem?
    As to the environment itself, the lying democrats, and progressives, alternate between telling us how good things are under Obama, to lamenting how the Republicans are all that stands between things being good under Obama and things being great under Obama.   Funny how so much will be fixed by letting more immigrants in.
    But this is, after all, America where if I take this one pill, I won’t have to diet, or exercise,  but I’ll become thinner, more handsome, younger, have more energy, more hair, money, and time to do all the things I want to do.

    • high-skilled immigrants

      Surely that is merely a euphemism for “foreigners with enough cash to cut through the red tape and bureaucracy to make starting a local branch in the USA feasible”.

      • I was thinking more along the line of foreigners who haven’t figured out how the red tape and bureaucracy will kill their business yet.
        Or, alternately, foreigners from places where red tape and bureaucracy are so bad that our system looks like some anarchist’s unregulated wet dream.

        • I think Russian “housewives” already have a better avenue figured out.

          • We should leave Erp out of this.  Although I’m damned if I can think why…???

          • My best guess is because he’s the equivalent of having a mosquito buzzing around your ear when you’re in the midst of dealing with a 5 alarm fire.

    • Silicon Valley would have to start training people or hire older workers.
      Can’t have that. So let’s import people instead.
      That said, the people who come here make good citizens. Overall, its probably a plus.

  • Slowly?

  • Probably just racist business owners going out of business on purpose to make Obama look bad, or refusing to ‘help’ Obama by starting new businesses.
    Yeah, that’s the ticket.

  • On a related matter, has anyone seen any pundit out there who has noted that all the lefties having an orgasm over Piketty are creating another barrier to private investment.  After watching how all the Krugman types just LOVE the idea of confiscating wealth at exorbitant rates, why would any rational person want to start a business or make a sizable investment as long as there is a risk that these Lefty confiscators might be advising as president someone like hillary or elizabeth warren?  Especially with all the other uncertainty and risks for investment that the left has piled up in the last 5 years.

    • Yep.  PLUS, Monsour PeeKitty suggests a transnational tax.  So you CAN’T vote with your feet unless your feet leave the planet.  I predicted this decades ago in my novel that nobody has read.  Do you remember one of the VERY FIRST things that Obama did on taking office?  It was getting together with a bunch of heads-of-state and closing financial loopholes people were using to harbor money away from Uncle Sugar.  THAT told me gobs, rat thar….

      • The loopholes left by the Republican congress in the 1990s, when they made taking money outside the US more onerous than Germany in the 1930s, or the Soviets EVER?

    • Piketty is brilliant.
      The know communism failed because of the problem of calculation, so they decide to simply have capitalism, but tax everyone to the hilt. Its like Communism without the math!
      Of course, by removing or severely weakening the profit motive, their plan is as doomed as creating the New Soviet Man.

  • While you made short mention of regulation, it is that part that kills startups, the ones that can’t hire a boatload of lawyers to get them past the regulations, or lobbyists to “fine tune” the regs.
    What regs DO we need beyond fraud/theft and torts? Speaking of which, the most insidious aspects companies must get past is our ABSOLUTELY BUSTED torts system, where things were so nicely set up for those bastions of campaign contributors (a euphemism for “bribes”) the left, the trial lawyers.
    Regulations, jobs programs for unemployable bureaucrats,  tend not only to go overboard, it is CERTAIN they’ll go overboard. Back a few years ago, coal fired electric generation plants were told, not to met an emission standard, but HOW to do it,,. Naturally, the EPA methods was eight time more expensive to implement than methods already on the market.
    Anyone want to bet that some Senator had an insider position on the companies that manufactured the specified emissions controls?

  • Heh! “Change”.

  • Obama said the political system faces challenges from legislative procedures, a partisan media and too much money in politics. But he said the main cause for gridlock was fundamental differences between what Democrats believe and “what this particular brand of Republicans in Congress believes.”
    —Report on Baracula’s West Coast fundraiser
    “Partisan media…???”  “Too much money…???”
    Wholly crap.  Talk about your reality disconnects.  That is Erpian in scale.

    • It would be waaaaaay too much to suggest he means he knows the media wants to favor everything he does (that would include murder on the capitol steps) and that his big pocket contributors influence things.
      But we know that is NOT what he means.
      I’m trying to decide if he’s really stupid enough to believe the media is working against him and that he doesn’t have a huge amount of cash to draw on.
      Now Erp on the other hand might believe that crap, which is precisely why Obama continues to say it.

  • The labor force participation rate in April 2014 for Americans ages 25 to 29 hit the lowest level recorded since 1982, when the Bureau of Labor Statistics (BLS) started tracking such data.
    The labor force participation rate, which is the percentage of the civilian non-institutional population who participated in the labor force by either having a job during the month or actively seeking one, hit a record low in April 2014 of 79.8%.

    And the hits just keepa’ comin’.  There is news the economy actually CONTRACTED last quarter.
    Tell us how this freedom from “job lock” is a good thing, Erp.  “Fun-employment” for all…!!!  Does the term “Cloward-Piven” ever intrude on your tongue baths of Baracula?

    • Yeah, how them kids going to buy into Obamacare?
      Well, okay, the children between 25 and 26 can still get their insurance through mummy and daddy.
      That whole sentence is sick and wrong and shows part of what’s wrong with this country these days.
      Show of hands how many here were married and had kids of their own by that point in their lives?

      • Erp will be dismayed to know that I have been PROFOUNDLY reproductive (8 chillins).  My first was born in the Army Hospital at Fort Wolters, Texas, in ’74.  She holds a PhD in a field of microbiology concerned with cancer research and makes WAY more money than I do.

        • Ain’t it awesome when they make it?
          I blame any of that kind of thing on my wife’s influence.

          • Well, of course!  IF you don’t say it, THEY will!
            OTOH, Erp tells me how grateful he is that I’m not someone who has “made a difference”.
            OK, then…

    There is a growth industry in America, in which an employee has almost a death-grip on a job that pays more than market price and offers perks that real PRODUCERS can’t expect.
    (And it isn’t even being a professor of a junk science at Moosesqueez U.)

  • I started working for a new employer this week.  One that used those “high-skilled migrants”.
    Frankly, it’s sort of weird.  They are 2nd class workers, not by their choice.  They are treated like mercenaries, and dispensed of with equal rigor.

  • I believe Sweden has more large firms, and less small firms due to its taxes and regulation. Basically, big entrenched firms do well with such regimes.

    • I own and run a small firm in Sweden 🙂
      It is true that there are big firms that are firmly entrenched over the decades, Volvo, Scania, SKF, etc etc. But many aren’t so hot these days. Volvo is Chinese now. Scania is almost owned by VW. To be fair the “right wing” government in power of the last few years has made things easier to get a company going by reducing capital requirements, making the tax on capital more lenient and dropping the company tax rate some. There are quite a few start-ups that have done well, mostly in the IT business. The irony is that these have been in large part financed by unemployment benefits, where people on a benefit have stayed at home for a few years with a computer and a fast broadband connection to develop a few good ideas. Many have also failed of course. And these are businesses that require little capital investment, just the brains of a handful of people. If you are in my business where you need some engineers, consultants, some high-end machinery etc then things are much more difficult. Getting that going is hard. You certainly can’t get a benefit to support you while running a company that produces something other than gambling sites.
      But I think generally from what I understand of other countries, the regulations are not too onerous these days although why company tax exists has always escaped me. What we pay in company tax could easily employ another couple of people if we were sure of the reduced risk. The remaining difficulty in growing a company is employing people, the “social fees” or payroll taxes add a lot to the calculation of the cost to the company, plus the pension and other benefits which are semi-“standardized” by larger union agreements with the big companies. So small companies have a hard time growing in that way and you get owners who work their asses off and concentrating less on running the business, which is not an ideal division of labor.

      • As we say in Texas, “Bless your heart!”.
        Just as a small observation, one of the most deceptive of taxes is a “company tax” or corporate tax.
        With few possible exceptions, such taxes are paid entirely by consumers, not business entities.  Businesses only serve as tax collectors.

        • You can look at it like that in the broad sense. But on the other hand if you’re running a small company with uncertain cashflows, having a big chunk of cash demanded at the end of the year is rather disconcerting. I’d far prefer to be able to save that for reinvestment in R&D or potential employment. Of course the consumer ends up effectively paying the tax when everything is balanced out, but keeping the company growing can be crippled along the way. Which, really, is just another impediment to people taking the chance on starting companies.

          • Very true.  “Cash flow’s a killer” is a constant dred for all small business.  People don’t understand that a profitable business with lots of good things to offer can be killed by cash flow crisis.
            One…of MANY…things that is horrible about Dodd-Fwank is its effect on capital formation.  All part of that “mystery” that The Brookings Collectivists note.

    • Competition is the golden goose of capitalism.  Its been under attack for a long time from what might be mistaken as both sides.  Wallstreet (which would often get assigned to the right which I find questionable) loves monopoly/oligopoly formation.  What investor wouldn’t love high profit margins and no risk of going under.
      The left loves hyper-regulation.  This just destroys upstarts/entrepreneurship who are already extended to just get going and get deterred by the extra overhead.  The smaller the less likely it can be borne.  But what does the Left care, they don’t want uncontrolled choas in any sector.  Hyper-regulated monopolies/oligopolies are virtual extensions of the government.  The new re-tooled approach to socialism/communism.  Control companies, but keep them at a far enough distance to put blame on them for any failure and corruption.  In return, the companies are rewarded with a firm hard to lose stake in a sector to yank in the money with  little/no threat of competition.  A case in point is Comcast being allowed by the FCC to throttle Netflix’ feed.  Entrenching Comcast’s TV share in a given market and entrenching an old technology and model.  The companies reward the politicians and buraeucrats for their situation.
      Its an old model.  Kings use to parcel out land to nobles that ran the land economically with the tennants becoming their serfs.  Instead of chunks of land and Nobles, its sectors of the economy and business/regulatory Cronies.  Consumers and Employees play the roll of serfs.

      • Right.  What I’ve called the new baronial system.  But you have to include the professional political class, as well.

  • Completely off-topic:  I see many mentions of the esteemed Dr. Erb’s name here in this thread.  If you really want Erb to respond, you need to let Billy Hollis write more posts.  Those are like siren songs to the Moaner from Maine.

  • So, essentially, we’re at the stage just prior to our Brilliant Central-Planners finally deciding –since it’s axiomatic that their economic policies are indeed brilliant, as well as necessary-and-sufficient to bring Utopia– that it’s manifestly evident that Somebody Somewhere is engaging in “Economic Treason”. (That’s the point at which the scapegoating and takeover of various classes of producers begins; this initiates a period of repression which is later described in textbooks as “The Reign of Terror”.)

    Look at Venezuela now; or look at the plight of bakers back during the French Revolution (Ace-of-Spades wrote a wonderful article about this last October; please go read : )

    Essentially, “The Purges will continue until the economy improves!”

    No, we’re not there yet. But the hubris of Our Rulers (no longer “leaders” in my not-so-humble opinion) guarantees that they will keep trying to seize, bind, and control the organic process popularly referred to as “the economy”. They will, of course, continue to fail. And they will, of course, crack down even harder.

    Hard times are coming…

    • I read last week that Venezuela (!) is rationing water and power.  Imagine.  Two things that they have in natural abundance.
      They are also seeing malaria seeping back into urban areas.
      And all this is directly the result of RE-playing the old, old failed tapes of the Collectivist experiment.  How stupid is that?
      Well, of course, for a very few it isn’t stupid at all.  It pays off in millions or billions.  For them, it works every time it is tried.