Why the "recovery" is jobless

Small and medium sized businesses are the dynamo of the U. S. Economy.  They are the engines of creativity, innovation, and job growth.

They are also, and more importantly, people.

These small and medium sized companies are most often private.  They don’t answer to a board of directors or stock holders, but to their actual owners, who usually run the day to day operations.

They aren’t hiring.

Carter: Economic Stagnation Explained, at 30,000 Feet

By
Stephen L. Carter Bloomburg view May 26, 2011 12:23 PM PT

The man in the aisle seat is trying
to tell me why he refuses to hire anybody. His business is
successful, he says, as the 737 cruises smoothly eastward.
Demand for his product is up. But he still won’t hire.

“Why not?”

“Because I don’t know how much it will cost,” he
explains. “How can I hire new workers today, when I don’t know
how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no
way of telling what new rules will go into effect when. His
business, although it covers several states, operates on low
margins. He can’t afford to take the chance of losing what
little profit there is to the next round of regulatory changes.
And so he’s hiring nobody until he has some certainty about
cost.

That is a rational and sound business response to regulatory uncertainty.  If this business owner guesses wrong about future regulation, new employees could rapidly become a financial liability eating into the company’s narrow profit margin.  A small shift, on a narrow margin, can convert a profitable business into a bankrupt former company.

It’s a little odd to be having this conversation as the
news media keep insisting that private employment is picking up.
But as economists have pointed out to all who will listen, the
only real change is that the rate of layoffs has slowed. Fewer
than one of six small businesses added jobs last year, and not
many more expect to do so this year. The private sector is
creating no more new jobs than it was a year ago; the man in the
aisle seat is trying to tell me why.

Nor is it just the LSM who are insisting on facts which are no such thing.  The unemployment rate as reported by the Government makes adjustment for the presumed rate of small and medium company growth and new startups.  Those rates were last adjusted during the boom of the previous administration, and have not taken notice of the dramatic reduction in new startups and small to medium business growth during and “following” the recession.

It isn’t just hiring that is too unpredictable, he says. He
feels the same way about investing. He has never liked stock
markets; he prefers to put cash directly into businesses he
likes in return for a small stake, acting, in short, as a small-
time venture capitalist.

“Can’t do that now,” he says. For people like him —
people who aren’t filthy rich — it has become too hard to pick
winners. But he doesn’t blame the great information advantages
enjoyed by insiders. He blames Washington, once more, for
creating a climate of uncertainty.

He’s right.

The transparent government hoped for has changed into the most opaque in recent memory.  New regulations, and whole new regulatory agencies, are on the rise.  This trend generates further uncertainty, which further discourages small to medium companies from expanding.

On the way to my connection, I ponder. As an academic with
an interest in policy, I tend to see businesses as abstractions,
fitting into a theory or a data set. Most policy makers do the
same. We rarely encounter the simple human face of the less-
than-giant businesses we constantly extol. And when they refuse
to hire, we would often rather go on television and call them
greedy than sit and talk to them about their challenges.

Indeed.  Most who are setting the regulatory environment, and most who are reporting on the Government and the Economy, have not been small to medium business owners, nor have they worked in such businesses.  Small and medium business are, for them, an unknown land inhabited by denizens they do not understand, yet feel qualified to judge.

Our credentialed political class has a very narrow experiential base, and the arrogance of self declared elitism.  They need to be separated from the levers of power.

Hat Tip: Instapundit