Economist

We Are Witnessing The Death Of Small Business In America

Historically, small businesses have been the primary engine of new job creation in the United States.  If the economy was getting healthy, we would expect to see the number of jobs at new businesses rise.  Instead, we are witnessing just the opposite.  We are told that the economy is supposed to be “recovering”, but the number of “startup jobs” at new businesses has fallen for five years in a row.  According to an analysis of U.S. Department of Labor data performed by economist Tim Kane, there were almost 12 startup jobs per 1000 Americans back in the year 2006.  By 2011, that figure had fallen to less than 8 startup jobs per 1000 Americans.  According to Kane, the number of jobs in the United States at businesses that are less than one year old has fallen from 4.1 million in 1994 to 2.5 million in 2010.  Overall, the number of “new entrepreneurs and business owners” has fallen by more than 50 percent as a percentage of the population since 1977.  The United States was once known as “the land of opportunity”, but now that is fundamentally changing.  At this point we truly do have a “crisis of entrepreneurship” in this country, and that is a huge reason why America is in decline.  We are witnessing the slow death of the small business in America, and that is incredibly bad news for all of us.

Unfortunately, the problems that small businesses are experiencing right now have been building up for decades.  The economic environment for small businesses in America has become incredibly toxic.  Sadly, we can see this in the numbers.  According to Kane, the following is how the decline in the number of startup jobs per 1000 Americans breaks down by presidential administration…

Bush Sr.: 11.3

Clinton: 11.2

Bush Jr.: 10.8

Obama: 7.8

Obviously, we are headed very much in the wrong direction.  Kane speculates about why this may be happening in his paper…

There is anecdotal evidence that the U.S. policy environment has become inadvertently hostile to entrepreneurial employment. At the federal level, high taxes and higher uncertainty about taxes are undoubtedly inhibiting entrepreneurship, but to what degree is unknown. The dominant factor may be new regulations on labor.  The passage of the Affordable Care Act is creating a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces, and it will be some time until those changes are understood by employers or scholars. Separately, there has been a federal crackdown since 2009 by the Internal Revenue Service on U.S. employers that hire U.S. workers as independent contractors rather than employees, raising the question of mandatory benefits. New firms tend to use part-time and contract staffing rather than full-time employees during the startup stage. According to Labor Department data, the typical American today only takes home 70 percent of compensation as pay, while the rest is absorbed by the spiraling cost of benefits (e.g., health insurance). The dilemma for U.S. policy is that an American entrepreneur has zero tax or regulatory burden when hiring a consultant/contractor who resides abroad. But that same employer is subject to paperwork, taxation, and possible IRS harassment if employing U.S.-based contractors. Finally, there has been a steady barrier erected to entrepreneurs at the local policy level. Brink Lindsey points out in his book Human Capitalism that the rise of occupational licensing is destroying startup opportunities for poor and middle class Americans.

Kane raises some very good points in his analysis.  Without a doubt, small businesses in the United States are being taxed into oblivion.  If you doubt this, just read this article.

And the regulatory environment for small businesses is more suffocating than it has ever been before.  Unfortunately, our politicians never seem to learn that lesson.  During his first term, Obama piled on mountains of new regulations, and now that he has won a second term he is preparing to unleash another massive wave of new regulations.

But many times the worst offenders are politicians on the state and local level.  There are some areas of the country (such as California) that have created absolutely nightmarish conditions for small businesses.  California had the worst “small business failure rate” in the country in 2010.  It was 69 percent higher than the national average.  And in 2011, the state of California ranked 50th out of all 50 states in new business creation.

Yet the politicians in California just continue to pile on even more regulations and even more taxes.

Sadly, this kind of thing is happening from coast to coast and it is killing off hordes of small businesses.  Just consider the following statistics…

-According to the U.S. Census Bureau, the U.S. economy lost more than 220,000 small businesses during the last recession.

-As a share of the population, the percentage of Americans that are self-employed fell by more than 20 percent between 1991 and 2010.

-As a share of the population, the percentage of “new entrepreneurs and business owners” dropped by a staggering 53 percent between 1977 and 2010.

-The average pay for self-employed Americans declined by $3,721 between 2006 and 2010.

So what needs to be done?

Well, first of all, the tax burden and the regulatory burden on small businesses both need to be greatly reduced.

Secondly, the balance of power in our nation needs to be dramatically shifted.  Conservatives run around talking about the need to reduce the power of government and liberals run around talking about the need to reduce the power of corporations, and actually both of them are right.

Our founding fathers intended to establish a Republic where power would never be concentrated in the hands of just a few.  That is why they tried to strictly limit the power of the federal government in the U.S. Constitution, and that is why they greatly restricted the size and scope of corporations in early America.  For much more on this, please see this article: “Corporatism Is Not Capitalism: 7 Things About The Monolithic Predator Corporations That Dominate Our Economy That Every American Should Know“.

Our founding fathers wanted to empower individual citizens and small businesses.  They never intended for us to have a system where big government and big corporations dominate everything and crush the “little guy” at every opportunity.

Even as we witness the death of the small business in America, corporations are absolutely thriving.  The following chart shows how corporate profits after tax have exploded to new record highs in recent years…

So has this been good for workers?  No, it has not translated into more jobs and higher wages.  In fact, wages and salaries as a percentage of GDP are now at an all-time low…

That is why it is imperative that we change “the rules of the game” so that the balance of power is shifted back in the direction of individual citizens and small businesses.  We desperately need to turn back to the principles that this nation was founded upon.

If nothing is done, these trends are going to get even worse.  Barack Obama certainly has no plans to reduce the size and the power of the government.  Since he was elected, an average of 101 new federal employees have been added to the government payroll every single day…

In the 1,420 days since he took the oath of office, the federal government has daily hired on average 101 new employees. Every day. Seven days a week. All 202 weeks. That makes 143,000 more federal workers than when Obama talked forever on that cold day in January of 2009.

And if nothing is done, the monolithic predator corporations that dominate our economy will just get even larger and even more powerful.  Meanwhile, hundreds of thousands more small businesses will close up shop all over the country.

Unfortunately, most Americans seem totally apathetic about these issues.  They seem content to wear “meggings“, watch “Honey Boo Boo” on television and let our government and corporate overlords run everything.  Most of them have even been brainwashed into believing that this is the American way of doing things.

So where do we go from here?

Well, this nation will probably continue to keep doing the same things that it has been doing, and it will continue to get the same results.

The death of small business in America is happening right in front of our eyes, and everybody can see it happening, but very few people are doing anything to stop it.

QE3: Helicopter Ben Bernanke Unleashes An All-Out Attack On The U.S. Dollar

You can’t accuse Federal Reserve Chairman Ben Bernanke of not living up to his nickname.  Back in 2002, Bernanke delivered a speech entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” in which he referenced a statement by economist Milton Friedman about fighting deflation by dropping money from a helicopter.  Well, it might be time for a new nickname for Bernanke because what he did today was a lot more than drop money from a helicopter.  Today the Federal Reserve announced that QE3 will begin on Friday, but it is going to be much different from QE1 and QE2.  Both of those rounds of quantitative easing were of limited duration.  This time, the quantitative easing is going to be open-ended.  The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop.  For those that get confused by terms like “quantitative easing” and “mortgage-backed securities”, what the Federal Reserve is essentially saying is this: “We’re going to print a bunch of money and buy stuff for as long as we feel it is necessary.”  In addition, the Federal Reserve has promised to keep interest rates at ultra-low levels all the way through mid-2015.  The course that the Federal Reserve has set us on is utter insanity.  Ben Bernanke can rain money down on us all he wants, but it is not going to do much at all to help the real economy.  However, it will definitely hasten the destruction of the U.S. dollar.

And the Federal Reserve is apparently very eager to get QE3 going.  Purchases of mortgage-backed securities are going to start on Friday.

In the coming months, hundreds of billions of dollars that the Federal Reserve has zapped into existence out of nothing will be injected into our financial system.

So what will happen to all of this new money?

If banks and financial institutions use that money to make loans then it could have somewhat of a positive impact on the economy in the short-term.

However, the truth is that it isn’t as if banks are hurting for cash to loan out.  In fact, right now banks are already sitting on $1.6 trillion in excess reserves.  Just like with the first two rounds of quantitative easing, a lot of the money from QE3 will likely end up being put on the shelf.

But the stock market loved the news because they know that the previous two rounds of quantitative easing have been great for the financial markets.  On Thursday, the stock market soared to levels not seen since December 2007.

There is much rejoicing on Wall Street right now.

And this stock market bounce is great for Bernanke’s good buddy Barack Obama.

Obama nominated Bernanke to a second term as Fed Chairman, and this might be Bernanke’s way of paying him back.

But of course the Fed is supposed to be “above politics” so that would never happen, right?

The Federal Reserve essentially “crossed the Rubicon” today.  No longer will quantitative easing be considered an “emergency measure”.  Rather, it will now be considered just another “tool” that the Fed uses in the normal course of business.

Considering how vulnerable the U.S. dollar already is, announcing an “open-ended” round of quantitative easing is utter foolishness.  According to the Fed, when you add the 40 billion dollars of new mortgage-backed security purchases per month to all of the other “easing” measures the Fed is continuing to do, the grand total is going to come to about 85 billion dollars a month.  The following is from the statement that the Fed released earlier today….

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

So what does all of this mean?

I really like how one analyst put it when he described this announcement as a “I’m gonna ease till your eyes bleed kinda statement“.

The Fed also promised to keep interest rates at “exceptionally low levels” until mid-2015….

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

It seems that whenever the U.S. economy gets into trouble, Bernanke and his friends at the Fed only have one prescription and it goes something like this….

“Print more money and promise to keep interest rates near zero even longer.”

Of course a lot of Republicans are quite disturbed that QE3 was announced with just a couple of months remaining in a very heated election battle.

Even big news organizations such as CNBC are commenting on this….

Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.

And without a doubt the mainstream media will be proclaiming this to be “good news” for the economy in the short-term.

But is QE3 really going to help the average person on the street?

Well, first let’s take a look at employment.  We are told that one of the primary reasons for QE3 is jobs.

But did QE1 and QE2 create jobs?

The answer is clearly no.

As you can see from the chart below, the percentage of working age Americans with a job fell dramatically during the last recession and has not bounced back since that time despite all of the quantitative easing that has been done already….

So why try the same thing again when it did not work the first two times?

But what more quantitative easing is likely to do is to pump up stock market values because a lot of the money from QE3 is going to end up being put into stocks and other investments.

This is going to help the wealthy get even wealthier, and it is going to make the “wealth gap” between the rich and the poor even larger in America.

QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did.

That means that you will be paying more for gasoline, food and other basic necessities.

So there may not be more jobs, but at least you will get the privilege of paying more for things.

The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees.

None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.

And the “exceptionally low interest rate” policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.

In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.

But what else would you expect from the Federal Reserve?

It is imperative that we educate the American people about the Federal Reserve and about how they are destroying our economy.  For much more on this, please see my previous article entitled “10 Things That Every American Should Know About The Federal Reserve“.

Perhaps the biggest danger from QE3 is that it could greatly hasten the day when the U.S. dollar ceases to be the reserve currency of the world.

The rest of the world is not stupid.  They see that the Federal Reserve is now firing up the printing presses whenever they feel like it.  They can see the games that we are playing with our currency.

Why should the rest of the world continue to use the U.S. dollar to trade with one another when the United States is constantly debasing it and playing games with its value?

As I wrote about the other day, China and Russia have been calling for a new reserve currency for the world for several years.  They have been leading the charge to conduct international trade in currencies other than the U.S. dollar, and I have documented many of the major international agreements to move away from the U.S. dollar that have been made in the last couple of years.

The status of the U.S. dollar in the world has already been steadily slipping, and now Helicopter Ben Bernanke pulls this kind of nonsense.

We are handing the rest of the world an excuse to abandon the U.S. dollar on a silver platter.

And when the rest of the globe rejects the U.S. dollar as a reserve currency, the dollar will crash, the cost of living will increase dramatically, our standard of living will go way down and we will never fully recover from it.

So if you think that things are “bad” now, just wait until that happens.

The U.S. dollar is one of the best things that the U.S. economy still has going for it, and Helicopter Ben Bernanke is doing his best to absolutely destroy that.

What is your opinion of QE3?  Please feel free to post a comment with your thoughts below….

35 Facts About The Gutting Of America’s Industrial Might That Should Make You Very Angry

Did you know that an average of 23 manufacturing facilities were shut down every single day in the United States last year?  As World War II ended, the United States emerged as the greatest industrial power that the world has ever seen.  But now America’s industrial might is being gutted like a fish and both political parties seem totally unconcerned.  Yes, we will always need trading relationships that are fair and balanced with other countries that have economic systems that are similar to our own.  However, the truth is that most of our trading relationships are neither “fair” nor balanced.  For example, China manipulates currency rates so that Chinese products are much cheaper than they should be, they brazenly steal our technology and we let them get away with it, they deeply subsidize their most important industries and they exploit their citizens by allowing them to be paid slave labor wages.  How in the world does that resemble the “free market” at work?  Predatory nations such as China do everything that they can to distort the free market.  So why in the world would any rational economist ever recommend that we should keep trading with other countries that are cheating us blind?  After you read the facts in this article about the gutting of America’s industrial might, hopefully you will get very angry.  We need the American people to start getting very upset about these very important issues.

Both major political parties promised us that globalization would be wonderful for the U.S. economy.  Well, in the first decade of this century less net jobs were created than in any other decade since the Great Depression.

The “free trade” polices of the globalists have been an abysmal failure.  Tens of thousands of factories, millions of jobs, and hundreds of billions of dollars of our national wealth have gone to countries that engage in predatory trade practices and that exploit slave labor pools.

How in the world are American workers supposed to compete against workers that make less than a dollar an hour (with no benefits) on the other side of the globe?

If you support the version of “free trade” that most of our politicians are promoting, then you are supporting the one world economic system that the global elite are trying to establish.  In this one world economic system, American workers will increasingly be forced to compete for jobs with the cheapest labor on the planet.  This will continue to force the standard of living of American workers way, way down and it will continue to absolutely destroy the middle class.

The following are 35 facts about the gutting of America’s industrial might that should make you very angry….

#1 According to U.S. Representative Betty Sutton, America has lost an average of 15 manufacturing facilities a day over the last 10 years.

#2 Sadly, it looks like this trend is picking up momentum.  During 2010, an average of 23 manufacturing facilities a day were shut down in the United States.

#3 Since 2001, the U.S. has lost a total of more than 56,000 manufacturing facilities.

#4 According to the Economic Policy Institute, the U.S. economy loses approximately 9,000 jobs for every $1 billion of goods that are imported from overseas.

#5 The United States has had a negative trade balance every single year since 1976, and since that time the United States has run a total trade deficit of more than 7.5 trillion dollars with the rest of the world.

#6 Back in 1979, there were 19.5 million manufacturing jobs in the United States.  Today, there are 11.6 million.  That represents a decline of 40 percent during a time period when our overall population experienced tremendous growth.

#7 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.

#8 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of all jobs in the United States are manufacturing jobs.

#9 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

#10 The Economic Policy Institute says that since 2001 America has lost approximately 2.8 million jobs due to our trade deficit with China alone.

#11 All over the United States, road and bridge projects are being outsourced to Chinese firms.  Just check out the following excerpt from a recent ABC News article….

In New York there is a $400 million renovation project on the Alexander Hamilton Bridge.

In California, there is a $7.2 billion project to rebuild the Bay Bridge connecting San Francisco and Oakland.

In Alaska, there is a proposal for a $190 million bridge project.

These projects sound like steps in the right direction, but much of the work is going to Chinese government-owned firms.

“When we subsidize jobs in China, we’re not creating any wealth in the United States,” said Scott Paul, executive director for the Alliance for American Manufacturing.

#12 If you can believe it, the United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#13 The U.S. trade deficit with China rose to an all-time record of 273.1 billion dollars in 2010.  This is the largest trade deficit that one nation has had with another nation in the history of the world.

#14 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

#15 The new World Trade Center tower is going to be made with imported glass from China and imported steel from Germany.

#16 The new MLK memorial on the National Mall was made in China.

#17 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe?  Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.

#18 In 2010, South Korea exported 12 times as many automobiles, trucks and parts to us as we exported to them.

#19 Even in high technology products we are being destroyed.  In 2002, the United States had a trade deficit in “advanced technology products” of $16 billion with the rest of the world.  In 2010, that number skyrocketed to $82 billion.

#20 China has now become the world’s largest exporter of high technology products.

#21 Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

#22 Manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.

#23 In 2008, 1.2 billion cellphones were sold worldwide.  So how many of them were manufactured inside the United States?  Zero.

#24 The United States now has 10 percent fewer “middle class jobs” than it did just ten years ago.

#25 Today, American workers are bringing home a much smaller share of economic pie.  Over the past decade, the ratio of wages to GDP has been declining very steadily.

#26 Now that millions of our jobs have been exported, there aren’t nearly enough jobs left for all of us.  Right now, the average amount of time that a worker stays unemployed in the United States is approximately 39 weeks.

#27 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#28 If you gathered together all of the workers that are “officially” unemployed in the United States today, they would constitute the 68th largest country in the world.

#29 According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 dropped by 27 percent after you account for inflation.

#30 As the number of good paying jobs declines, America’s middle class is rapidly shrinking.  In 1970, 65 percent of all Americans lived in “middle class neighborhoods”.  By 2007, only 44 percent of all Americans lived in “middle class neighborhoods”.

#31 In the United States today, corporate profits are at a record high, and yet employment numbers have still not rebounded.  Obviously something is structurally wrong.

#32 The Obama administration says that there are certain things that “we don’t want to make in America” anymore.  If you don’t believe this, just check out what U.S. Trade Representative Ron Kirk recently told Tim Robertson of the Huffington Post about the Obama administration’s attitude toward keeping manufacturing jobs in America….

Let’s increase our competitiveness… the reality is about half of our imports, our trade deficit is because of how much oil [we import], so you take that out of the equation, you look at what percentage of it are things that frankly, we don’t want to make in America, you know, cheaper products, low-skill jobs that frankly college kids that are graduating from, you know, UC Cal and Hastings [don’t want], but what we do want is to capture those next generation jobs and build on our investments in our young people, our education infrastructure.

#33 Jeffrey Immelt, the head of Barack Obama’s highly touted “Jobs Council”, has shipped tens of thousands of good jobs out of the United States.

#34 According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades.

#35 One recent poll found that 41 percent of all Americans believe that “the American Dream has been lost”.

Yes, it is fun to go out and fill up our shopping carts with “cheap products” from the other side of the world, but when we do that it destroys our jobs, our businesses and our communities.

Our addiction to cheap foreign products is incredibly self-destructive.  Essentially what we are doing is that we are ripping apart pieces of our own home and throwing them into the fire in an attempt to keep it going.  Eventually we will cannibalize our entire home.

And we never really think about what it is like for the slave laborers that make all these cheap products for us.  The following is from an article in the Telegraph about what conditions at one major Chinese manufacturing facility are like….

So far, at least 16 people have jumped from high buildings at the factory so far this year, with 12 deaths. A further 20 people were stopped by the company before they could attempt to kill themselves.

The hysteria at Longhua, where between 300,000 and 400,000 employees eat, work and sleep, has grown to such a pitch that workers have twisted Foxconn’s Chinese name so that it now sounds like: “Run to your Death”.

If we stay on this current path, even more of our formerly great manufacturing cities will turn into post-industrial hellholes.

Once upon a time, I also bought the “free trade” propaganda hook, line and sinker.  But then I opened up my mind and I learned the truth.

This nation is losing jobs, factories and wealth at a pace that is almost unbelievable.

Something desperately needs to be done.

Is there anyone out there that is willing to defend the emerging one world economic system that is stealing our jobs and killing the middle class?

If so, I challenge you to take your best shot.  Leave a comment below and explain to the rest of us why we are wrong.

We need to debate these issues because the myth of “free trade” is absolutely killing us.

Please wake up and get angry about these issues America.