Semi-OT: When the engine of the economy sputters …

Sort of like Ayn Rand’s excellent Atlas Shrugged, when eventually enough barriers to building companies and forming wealth occur, they will stop trying. See the WSJ article about this.

This impacts HPC, as smaller folks with good products, and awesome future products now see enough uncertainty that many are hedging their bets. Which means not taking as many risks. Or hiring as many people.

Funny how that economy thing works. Jobs are created when entrepreneurs take risks that result in capital formation. Anything that impedes this (higher taxes, uncertainty of the meaning of 2500 page legislation that impacts every business top to bottom, inflation, cost of capital, …) works against job creation.

This ain’t rocket science.

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4 thoughts on “Semi-OT: When the engine of the economy sputters …

  1. So how do we encourage entrepreneurs to take risks? Do we support *them* directly, e.g. by providing tax incentives for new/small businesses and/or their employees, by reducing health-care risk, by reforming IP or liability law so it doesn’t place them at a disadvantage relative to larger competitors? Or do we cut funding for public infrastructure and procurement that would primarily benefit them, then deliver the savings as tax cuts for a whole different group of people who are anything but entrepreneurs (mostly inheritors) themselves? Why should we assume that the beneficiaries of such an approach would defy both history and self-interest by investing in domestic entrepreneurs instead of in established and/or foreign companies, or by spending money in ways that can’t realistically be considered investment at all?

    No, it’s not rocket science at all. If you want something to grow, nurture it. Don’t lavish all of your attention on something else and then wonder why “trickle down” didn’t work.

  2. @Jeff

    We get out of their way. We stop increasing their costs across the board by imposing solutions in search of problems, such as imposing a fine on a small company if it can’t afford to provide health care (as if it could afford the fine), or excessively taxing small companies which have taken the cost hit and are funding very good health care for their people, you know, those so called “cadillac” plans . We stop diminishing the available capital in market by altering regulatory environment which has effectively frozen the debt side of capital. We stop with these inane “lets tax everyone over $250k in income” discussions, as entrepreneurs, setting up flow through entities (LLC or S corp for example) will get pummeled because they are “rich”.

    You do talk of history. History shows that growth occurs when small businesses are unshackled, with reduced taxes, better certainty as to actual costs going forward, and access to capital. Suckling up to the government teat is a very dangerous game, one that is long term unstable, and generally ill advised as a primary business strategy for an entity which wishes to be profitable someday.

    Public infrastructure as a mechanism to fund business is a very very bad idea. That spending will end. This is little more than a handout, no capital formation occurs.

    Unfortunately you and I are on vastly different sides of the political spectrum, I can see with your comment on “inheritors”. So suffice it to say, we disagree. I did see another set of articles on the impact of high regulation and high tax vs low regulation and low tax on the health of the economy. I’ll post them when I can. For now, this article will suffice (linked from Drudgereport)

  3. The WSJ article you cited doesn’t actually support your thesis about government barriers.

    The whole article talks about how it’s tough to find funding. There’s one paragraph that might be construed as other barriers. And there the complaint is that someone cannot determine the cost of health care. And this from someone who is actually starting a company: so much for “they stop trying”.

    The thing that’s stopping investment is not health care cost or lazy workers. It’s lack of demand for products. It makes no sense for most companies to invest in increasing production when there’s no demand. This economy is not a supply-side problem, it’s a demand-side problem.

  4. Hmmm … they stopped trying to hire people.

    Lazy workers aren’t an impediment to most startups, they are spotted and quickly removed. In a state which mandates union labor, you may have no choice in the matter, and it would be cheaper to start up in a state without this extra burden. We’ve seen egregious examples of this … I’ve personally experienced a number of them, which definitely impeded growth, and significantly changed the way people planned and executed work, specifically to lower costs.

    Speak to the small business folks (as I have), and you will hear the litany of complaints about the barriers. In Michigan, we have this nice MBT which used to be the SBT. This tax didn’t rise a few percent for us last year, I am not grumbling at that. It rose more than 450%. This is a high wage high value employees salary for 4 months that I am not giving to an employee. Other small business folks I’ve spoken to in the last few weeks have similar complaints, and a fair number are closing down because they can no longer afford the tax burden.

    At the end of the process, anything that removes capital from a small business and their decision what to do with it is not a good thing. What many fail to realize is that this is all a zero sum game to the small business. Higher taxes and higher costs = less money to pay workers. Lower revenues and higher taxes = much less money to pay workers. Lower revenues, uncertain costs and fines for health care, and higher taxes = much much less money to pay workers. So which of these aren’t barriers?

    Yes, we need demand to jump start. To do that, we need to get workers with income in their pockets. Anything we do to stop that is not in our self interest.

    Trickle-down, tinkle-up don’t matter. Creating demand for products and getting customers to buy said products, and increasing revenue (while a microeconomic effort) could have macro effects if replicated many times, and in some degree of coordination. Getting out of the way of that replication, by stopping increasing uncertainty over tax costs, and (debt) capital access is a good way to start.

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