Behold, the power of Obamanomics

More businesses are failing now than are being created, a first for the American economy since the Carter era, according to a new study by the Brookings Institution. That has become even more true during the Obama “recovery” than during the Great Recession:

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.

But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech. …

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.

More details HERE.

The Nevada County Economics Resource Council has identified weak entrepreneurship in Nevada County as an impediment to economic development.  Our schools do not teach entrepreneurship, but even if they did, the layering on of more and more regulations at the state and national level, make business formation a higher and higher hurdle.

About Russ Steele

Freelance writer and climate change blogger. Russ spent twenty years in the Air Force as a navigator specializing in electronics warfare and digital systems. After his service he was employed for sixteen years as concept developer for TRW, an aerospace and automotive company, and then was CEO of a non-profit Internet provider for 18 months. Russ's articles have appeared in Comstock's Business, Capitol Journal, Trailer Life, Monitoring Times, and Idaho Magazine.
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2 Responses to Behold, the power of Obamanomics

  1. Russ Steele says:

    Coyote Blog has some insight in to the lack of business formation:

    One other reason business formation may have dropped is the crash of the housing market and specifically in the equity many have in their homes.

    Home equity has historically been an important source of capital for small business formation. My first large investment in my company was funded with a loan that was secured by the equity in my home. What outsiders may not realize about small business banking nowadays is that it is nothing like how banking is taught in high school civics. In that model, the small business person goes to her local banker and presents a business plan, which the banker may fund if they think it is a good risk.

    In the real world, trying to get such an unsecured loan from a bank as a small business will at best result in laughter. My company is no longer what many would call “small” — we will do millions in revenue this year. But there is no way in the world that my banker of over 10 years will lend to my business unsecured — they will demand some asset they can put a lien on. So we can get financing of equipment purchases (as a capital lease on the equipment) and on factored receivables and inventory. But without any of that stuff, a new business that just needs cash for startup cash flow is out of luck — unless the owner has a personal asset, typically a house, on which the banker can place a lien.

    So, without home equity, one of the two top sources of capital for small business formation disappears (the other top source is loans from friends and family, which one might also expect to dry up in a tough economy).


  2. stevefrisch says:

    I believe that this is an area where people of good will regardless of ideology can work together to make progress. We need to teach, encourage, and reward entrepreneurship. We need to invest in preparing people for new job markets by investing in STEM education and vocational training. We need to invest in the backbone infrastructure that enables entrepreneurship and business growth. These things are non-partisan in nature and should be almost universally supported in Nevada County.


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