The Great Start-Up Stagnation

by on December 14, 2011 at 3:51 am in Economics | Permalink

You see a long-term slowdown in start-ups:

The numbers are sobering. From the mid-1980s to the mid-2000s, 450,000-550,000 new businesses with at least one employee were created in the US each year. In 2009, the latest year for which records are available, there were just 400,000. More recent numbers suggest that the climate has not improved: the number of incorporated self-employed people, a measure of the health of small businesses, was 5.06m in November, down from 5.37m in November 2009, official figures say.

A slowdown would be expected in a downturn, but the start of the decline predates the start of the recession at the end of 2007; the peak year for business starts was 2006.

The dwindling birth rate for new businesses matters because young companies are disproportionately responsible for job creation. Indeed, companies less than five years old have generated all of the net jobs in the US economy since the 1970s, according to research published by the Kauffman Foundation.

Weak job creation remains at the heart of America’s unemployment problem.  Accepting this hypothesis does not require the rejection of Keynesian economics; for instance you can think of weak job and start-up creation as one reason why AD is not recovering so well on its own, with causation running both ways of course.  Remember — monetary velocity is endogenous to perceived gains from trade.

By the way, here is a profile of me and TGS from The Washington Diplomat.  It is very good, and the journalist understands TGS quite well.

prior_approval December 14, 2011 at 4:17 am

One word for you – restaurants.

Well, two, no, three, no actually, four words – restaurants, building industry subcontractors

Plus realtors (do I need the appropriate symbol or can we just accept the fact I learned the term before the great stagnation in whatever it is that is stagnating?)

Andrew' December 14, 2011 at 7:03 am

It’s a very blunt instrument, but it is still down.

prior_approval December 14, 2011 at 8:23 am

Lots of indicators are down – which is what happens after one of the greatest speculative booms in human history, wrapped around many seemingly individual ones – the PC tech boom, the Internet tech boom, the real estate boom (1980s edition), the real estate boom (21st century edition), and an incredible flood of credit to cover the actual drying up of income growth in the U.S.

As for the net jobs being all small business? Talk about an almost amusingly cooked statistical statement – Walmart likely increased its payroll by something on the order of 500,000 – 750,000 American employees since the 1970s (leaving aside any discussion of what Walmart’s growth in employment means). Of course, any number of other large companies cut their number of employees (in part by outsourcing them to people who did the same work either as a ‘small business’ or hired by a ‘small business’ – IBM likely no longer has its own janitorial staff, but does have arrangments with any number of small janitorial subcontractors – or sub-subcontractors – most likely heavily dependent on IBM for their entire revenue stream), but I have a very difficult time imagining that the churn in small business employment is so easily reduced to the statement ‘all net growth.’

jarcher December 14, 2011 at 4:44 am

It would be interesting to see the how the median age of first-time entrepreneurs has changed over the past decade. With student loan debt increasing, I would think many would- be newly minted business owners no longer can afford the risk of a failed business and so look toward more steady employment in an established firm. From anecdotal evidence of me at 27, the only friends I have who have attempted a for-profit start up either didn’t go to college, used their tuition money to instead start a business, or paid for their college tuition with the income they were earning from their already established software firm.

Dan Dostal December 14, 2011 at 4:21 pm

I’m with you. My current career path is focused on paying off debt so that someday I can start my own business. I had the business plan laid out and was getting all excited until I began planning the financials. It was ugly. I was going to have to ask for $500,000 from somewhere with no colateral, no executive experience, and plenty of existing debt. It was going to be a sell on changing local business practices in a place that fears change and their faith in my own ability to get the job done. I almost immediately began looking into continuing my career path somewhere else when this smacked me in the face.

joshua December 14, 2011 at 5:59 am

The libertarian-ish narrative is that increasing government intervention has increased the cost of starting a new business and reduced competition in favor of established business… Thoughts?

Sol December 14, 2011 at 10:00 am

Perhaps my brain is too libertarian-ish, but I’m having a hard time seeing how it could be anything else? After all, I’d think that in an environment with high unemployment you’d tend to see more start-ups created, not fewer.

Unless the article’s statistics are not counting start-ups that fail quickly?

Sol December 14, 2011 at 10:03 am

PS I see some good suggestions in other posts — no loans available and older population both sound like pretty reasonable (partial?) explanations.

CBBB December 14, 2011 at 12:51 pm

But if entrepreneurs feel there’s going to be no demand for their new products they won’t create new businesses. There’s only so many of the dwindling number of prosperous people who can soak up all the new iPads, etc.

Silas Barta December 14, 2011 at 12:57 pm

I have it on good authority that entrepreneurs focus specifically on those fields where they have identified unmet demand.

Silas Barta December 14, 2011 at 1:00 pm

To clarify my previous, your point seems to carry the assumptions that start-ups just go a-starting-up in random fields, unrelated to what people want, but can possibly be helped if someone just jacks up overall product-buying.

That is stupid. You identify the market, then you create the product and sell it. Not the other way around.

Unless your a big bank that can just lobby the government to make people use your product or something.

CBBB December 14, 2011 at 1:03 pm

Sure but if there’s just fewer unmet demands then there’s going to be fewer startups.

Silas Barta December 14, 2011 at 1:52 pm

There are infinite unmet demands. There is always opportunity to increase the value of available offerings.

Right Wing-nut December 14, 2011 at 2:09 pm

I’m told that the smart money sells & then builds… :D

Dan Dostal December 14, 2011 at 4:29 pm

Every 6-year old that wants a pink unicorn has an unmet demand. Talking about infinite unmet demands taxes us all and leaves us nowhere useful. Let’s stick to realistic value-add that can overcome barriers to entry. And given TGS and the Great Recession, overcoming barriers to entry (primarily the inertia of consumers and hard money) is a real problem preventing entrepreneurs from entering many markets.

mjw149 December 14, 2011 at 3:46 pm

Because we’ve intervened less and less and let monopolies control more markets? Unless by ‘intervention’ you mean ‘pro-business’ tax cuts?

Dan Dostal December 14, 2011 at 4:37 pm

Make sure to decipher between abusive monopoly and a single player out-performing the competition. They often look the same to consumers, and sadly with large companies can co-mingle in the same institution. But we only need to prevent the former and let the markets reward the latter.

JWatts December 15, 2011 at 3:23 am

Specifically, what markets are monopoly controlled?

James Oswald December 16, 2011 at 4:32 pm
gabe December 14, 2011 at 10:57 am

It seems many of the people who support establishment democrat and republicans(non-libertarians) often forget
about an important way that big government and big corporartions that are cheerleaders(partners) of
big government (think GE, Goldman Sachs, Merck, GSK and Lockheed martin) have succesfully engaged in regulatory capture in order to set up barriers to competition(not just entry) that help the big companies at the expense of the less politically powerful and smaller up and comers.

This also affects the growth in small business in general…not just the direct and obvious “costs” of starting a new business…but the costs and expenses of growing into a company that takes market share away from GE, Merck or Goldman Sachs.

The problem will only get worse as long as democrats and republicans pretend that something like Sarbanes Oxley or more spending for the SEC will be used to regulate big business and keep corporations in check…in fact these things only empower the biggest corporations to limit new competitive destruction. Especially since the feedback loop is pointing the wrong way as long as democrats,republicans are in control(excepting for ron paul).

WBob December 14, 2011 at 11:17 am

Starting a company requires risk taking and a possiblity of getting customers that will pay you for value. Customers are hard to find these days so no one starts businesses and people minimizes perceived risks by trying to find work at some established place.

Tim December 15, 2011 at 10:41 pm

Considering government regulation decreased during the time period. Seems unlikely. Could it be that ultimately billionaires are more risk averse than millionaires? So we’d be better off with 1000 millionaires than 1 billionaire? Or realistically 1000 people making 100k year than 1 person making $1 million/year? It’s frequently called class warfare, but there’s a practical aspect of having the focus to invest in startups that it seems the $100k person might have over the $1million. The $100k person hasn’t made that first million yet, what exactly motivates the person who’s finanically set to go out and look for great new investments. My guess is that the fact things are not worse than they are is that most of the people in that range are business people whose hobbies (startups) line up with their real jobs.

The “too much regulation” trope reminds me of the traffic congestion problem. We are completely convinced as a society that building wider roads will ease traffic congestion. Hasn’t worked yet, but for some reason we are absolutely convinced that at some point it WILL work. There are specific regulations that have stifled markets and certain markets that are drowned out by mega-corps *cough* telecom *cough*. But ultimately the free market says that if people want the product it should be possible to provide it regardless of how onerous the regulation. In the free market the one guy who jumps that high bar reaps a very large reward.

Danny December 14, 2011 at 7:03 am

I think Jarcher and Joshua are both correct. The terms of student loans (we will follow you to your grave to get our money) make it very hard for people to take risks like that. I know I didn’t…I have paid for about half of my college expenses with small businesses that I started, so I’m definitely not risk averse…but graduating with a mere $30k in student loans made me take the least risky option I had, so now I am working at a fortune 500.

But also the fixed costs…especially regulations and other bureaucratic nightmares. I felt a huge difference moving from Idaho to Ohio in terms of the fixed costs of running your own business. I see a monumental difference in the number of people who are self employed. I can’t help but think those are linked.

Ted Craig December 14, 2011 at 7:10 am

One factor in recent years – the collapse of home values. Many entrepreneurs have used home equity and second mortgages to start their businesses.

rpl December 14, 2011 at 7:25 am

So, the peak for small business formation was in 2006. Are we now arguing that the “great stagnation” has been going on for only 5 years now? I thought TGS was supposed to have been a longer-term trend than that, and if so, then how can you use a five-year long trend as evidence for a great stagnation that has supposedly been going on for a few decades?

The same objection applies to the bureaucracy and college loan explanations for the decline in startups. Those trends have been going on for a lot longer than 5 years, so if you want to invoke them as an explanation for the decline in startups, you have to assume those trends reached some sort of tipping point in 2006, which seems unlikely.

Right Wing-nut December 14, 2011 at 3:19 pm

First, the TGS hypothesis (which I don’t fully support) is talking about a society shift and effectively predicts a slowdown in entrepreneurship. We’re discussion proximate causes of the slowdown.

Second, there are a great number of issues contributing to the current slowdown. There is no validity to claiming that there is only one, and I suspect even those who argue about a particular reason will agree.

Having said that, tipping points are real. When I started college in 1983, my $2500 student loan pretty well covered my entire cost of living for the nine months. Tuitiion, books, parking sticker, room, board, entertainment. (I’m not a drinker). Four years of that totals $10k. Median household income in 1987 was $26k. In 2010, $49k what does four years of college living cost today? When exactly does that debt become a killer? Remember, the $13k/year gift exemption was $10k in 1987. In other words, a relative could pay off your loan to help you get started (& you could “gift” them back later) in 1987 tax free. So really, this is certainly having an effect that it did not 25 years ago.

Regulations. Does anyone claim that the on of the effects of regulation is to limit new entrants? Does anyone claim that we have not been steadily increasing regulations?

I sold & bought a house in the first months of 2006. The brokers I had on the phone were insane. If I had been thinking about getting in business at that time, it would have warned me off. By 2005, the economy was seriously out of whack, and if you were paying attention, you were nervous. As the years continued, more people figured that out. No way would I have started a business before Q2 of ’09.

The recession (AD, to use a term I learned here). That’s a real concern. You gotta sell your stuff, and folks have a different attitude now than before.

I say it all adds up–TGS or no.

Patrick L December 14, 2011 at 7:26 am

” this hypothesis does not require the rejection of Keynesian economics”

Merely a rejection of the Keynesian solution, and therefore a rejection of its most important part. Government spending favors large businesses over small ones and start ups. Scale, Reliability, and Union favoritism are both major concerns that push towards bigger firms. If we increase government spending by say, buying more military jets, the government will buy those jets from Boeing or Raytheon. In fact, those companies are likely to eat up the labor and projects of smaller firms in response to government spending – thus we can expect a real decrease in total employment growth over that period since in the long run large companies are net employee drains.

CBBB December 14, 2011 at 12:57 pm

No the Keynesian solution definitely applies. There’s absolutely tonnes of qualified workers out there for startups to hire – should they sit around idle another 2,4,6 years waiting? I think not. If the workers get hired up by the larger players or government that’s a sad day for the entrepreneurs but they had ample time to hire up people if they really had a good idea.

Right Wing-nut December 14, 2011 at 2:14 pm

Sorry, it ain’t necessarily true. Startups (at least in technology) require highly skilled workers, or else they will fail. My employer has only been able to hire three people over the last fifteen months to work as developers, and only seen five that we would have wanted to hire.

CBBB December 14, 2011 at 6:43 pm

Well that’s your employer’s problem. I don’t think the unemployed should be forced to sit around because your employer is absurdly picky.

Right Wing-nut December 14, 2011 at 8:05 pm

I was in the interviews. These people couldn’t program their way out of a paper bag.

JWatts December 15, 2011 at 3:29 am

“Well that’s your employer’s problem. I don’t think the unemployed should be forced to sit around because your employer is absurdly picky.”

-1

Dan Dostal December 17, 2011 at 12:13 am

Don’t give us incompetent co-workers. That’s what gets us into this mess in the first place. I just came from a job that was full of people that required me to do their job for them. No thank you. The boss had no incentive to give me what I was worth for various reasons, so I and the rest of the talent fled. I’ve found an employer with intelligent people at the helm, hard-workers surround me, and no one complains about the pay. Don’t ruin that.

neil December 14, 2011 at 8:03 am

All the bloggers I read who are still fierce Keynesians say weak job creation lies at the heart of America’s economic problems. What is the point of stimulus if not to create jobs? Hire a million people to dig holes and a million more people to fill them up, and you’ll finally goose demand and get real businesses hiring again.

Cliff December 14, 2011 at 8:58 am

Would anyone even agree to take a job digging holes? Too hard, I think.

The Anti-Gnostic December 14, 2011 at 10:40 am

The Keynesian doom loop: Government Pork Hole Digging & Filling Company exists solely due to involuntary transfer of existing capital or worse, false capital ginned up out of thin air. When the money runs out, the reality is that there was no demand for hole-digging and hole-filling save to soak up transfer payments and/or fiat dollars. The nominal gains that showed up due to the stimulus are wiped out. Gone. Government Pork goes out of business and Paul Krugman wrings his hands and says we didn’t tax and spend enough. Meanwhile, factors of production have been distorted to supply the artificial demand and remain unavailable for genuinely remunerative activities until the pool of real savings is replenished. The recession stubbornly persists. Government announces a new stimulus package designed to get all those unemployed hole diggers/fillers back to work.

Lather, rinse, repeat.

gabe December 14, 2011 at 11:30 am

“factors of production have shifted”= we have just trained factors of production to hone their skills at bribing the government to get profitable contracts.

Who is already good at this game? Halliburton,Bechtel,GE,GS…guess who benefits and strengthens their grip on regulatory apparatus?

Then as the economy worsens again guess what the useful idiots clamor for? “MO BIGGA Government…to stop the corporations!!”

Chris December 15, 2011 at 11:53 am

Broken… window… fallacy…

ezra abrams December 14, 2011 at 9:07 am

I thought this was a well written, clear post, till I got to this sentance:
Remember — monetary velocity is endogenous to perceived gains from trade.
I have no idea what it means, but I suspect that if I did, I would be able to write it in a manner comprehensible to more then 0.1% of the US population

Silas Barta December 14, 2011 at 3:00 pm

I think it just means that the more benefits people perceive to trade, the more often they’ll trade, and so the more often a given dollar will change hands.

I agree with your frustration about the terminology. I don’t get the obsession with using “endogenous” and “exogenous”. You could just as well say “monetary velocity is an exogenous factor determined by perceived gains from trade”.

You could scrap the fancy terms altogether and just say, “monetary velocity is mostly determined by perceived gains from trade”.

ezra abrams December 14, 2011 at 9:10 am

Adjustment for age of population (old people don’t do startups)
Adjustment for loss of large company related small company jobs (Big Co ABC used to hire lots of people to do stuff, now outsourced to China);
?Changes in Tax code
What % small firms related to housing ?

Mort Dubois December 14, 2011 at 9:27 am

More useful than the number who start is the number who survive to year 2. When I started my business, in 1985, good information about the risks involved was hard to find. By 2006 a prospective entrepreneur had a huge amount of information available, instantly. Maybe the missing businesses are the ones that would have failed anyway, but that never commenced because the owner had better ways of evaluating viability, and didn’t throw their money down the rat hole.

Also, correlate the higher numbers with the Baby Boomer bulge – lots of small businesses are hobbyish in nature. Number of establishments is a pretty worthless statistic. It would be far more useful to have a measure of the aggregate revenues of the small business sector (preferably granulated to take account of micro-businesses as well.) That would give you a much better idea of whether there is stagnation.

NAME REDACTED December 14, 2011 at 9:36 am

two words:
Sarbanes Oxley

Steve Olson December 14, 2011 at 9:40 am

My wife and I started a storefront business to compliment our online business this year (2011). Our #1 barrier was government at all levels – City, County, State, and Federal. Sign regulations, zoning, permits, property taxes on retail space, inspections, employment law, payroll regulations, etc. If we decide to deal in any used merchandise we have a whole new level of regulation to comply with. I estimate that 30% of the cost of starting our business has been government. That said, with a whole lot of work, we have been able to hire a couple of people and turn a small profit. However, the government makes far more from our business than we do. Some days I think the government is trying to prevent businesses from becoming successful.

Tummler December 14, 2011 at 9:51 am

Has anyone here tried to get a SBA loan during the last couple of years? I have, and it was comical. My wife and I started a small retail concern, and we obtained an SBA loan for start-up costs. We didn’t think we would have much trouble since we could pledge collateral of 1.5 times the loan amount of approximately $100,000, plus we qualified for the full SBA guarantee. We applied for a loan through 12 banks and were turned down by 11, and the only reason we got the loan through the one bank is because an executive with the bank was personally familiar with our past business endeavors, was confident we would succeed, and fought for us within his bank. From my discussions with others, I do not believe my experience is in any way unique.

Tummler December 14, 2011 at 9:53 am

Oh, I forgot to mention that, with the exception of approximately $10,000 in student loans, we had no liabilities.

JWatts December 15, 2011 at 3:34 am

Since you qualified for the SBA guarantee, then the banks would have little or no exposure, correct? If so, why were they denying the loans? Too much paperwork for little return? Or, Villainous black hats? What are your thoughts?

Anonymous December 14, 2011 at 9:53 am

Name a US-based startup from the last 50 years that is now a global powerhouse. Easy…. Intel, AMD, Walmart, Microsoft, Google, eBay, facebook, Apple.

Name a European-based startup from the last 50 years that is now a global powerhouse. 60 years? 70 years? A-ha! Ikea, founded in the middle of WW2, with Nazis to the left, Russians on the right…so let’s start a furniture business! Those crazy Swedes, I love them.

USA become more like Europe every day.

Tom December 14, 2011 at 10:16 am

I was thinking Nokia, but it urns out to be 150 yrs old.

prior_approval December 14, 2011 at 2:24 pm

SAP comes to mind – but then, who cares about being the world’s largest ERP company?

Tetra Pak also comes to mind – though Swedish, admittedly.

And then there is the entire German framework of ‘hidden champions’ in the Mittelstand, often family owned companies – companies that absolutely dominate their market at a global level, but who no one has ever heard of (who here knows what company made the machine which cuts the gears in the transmission of the automobile parked outside?)- though again, in many cases, while their products are innovative, the company has a history stretching back generations.

Popeye December 14, 2011 at 2:53 pm

Let’s also not forget that the French lack a word for entrepreneurship.

JWatts December 15, 2011 at 3:37 am

SAP was founded in 1972, so it fits into the 50 year time frame.
Tetra Pak was founded in 1951, so no it doesn’t.

And the “entire German framework of ‘hidden champions’ in the Mittelstand” do not qualify as global powerhouses.

Thomas December 14, 2011 at 10:29 am

If I had a great new software idea–and I do!–I wouldn’t hire a single employee to help me develop it. I’d contract the work out. And I’d have an easy time finding people who are in the business of doing contract work.

TallDave December 14, 2011 at 10:54 am

Yeah, contract software work is great, I’ve been doing it for years. Nice way to make a lot of extra money. Trying to get my wife into it now, so she can work from home and stay with the kids.

Right Wing-nut December 14, 2011 at 2:27 pm

Yep, and at $10/hr they would be really cheap, too. Call me when you fail. My rate is $200/hr.

TallDave December 14, 2011 at 10:49 am

I’m guessing China will continue to gradually dissolve into chaos over the next 5-10 years, and lose their mfg advantage, which should help the U.S. job market.

http://www.telegraph.co.uk/news/worldnews/asia/china/8954315/Inside-Wukan-the-Chinese-village-that-fought-back.html

CBBB December 14, 2011 at 12:45 pm

Maybe but I doubt it. Uprisings are DEFIANTLY nothing new in Chinese history, even during the normal course of the various dynasties there were unending peasant uprisings.

JWatts December 15, 2011 at 3:39 am

People with access to the internet, cars and cell phones are no longer peasants.

JWatts December 15, 2011 at 3:41 am

Correction, I didn’t consider access to fire arms, which the Chinese government , in typical statist fashion, heavy control. That may be the determining factor. The Arab populace, by and large, had ready access to weapons, I don’t think the same applies to the Chinese populace.

Tom December 14, 2011 at 11:51 am

Tyler,

From your profile – “”I think what they did with the ceiling was terrible, harmful, destructive. It’s yielded no gain. I’m a fiscal conservative but I think it’s yielded no gain.”"

What harm was done? I think, if nothing else, it showed that someone is paying attention to the situation, and probably made us look more credible to our creditors. Even if that did not have much of an effect, what actual harm was done?

JWatts December 15, 2011 at 3:44 am

The US credit rating was lowered, so some harm was done. Personally, I think that the rating downgrade was bound to happen anyway and the harm was mild compared to complaining about the debt, but not doing anything about it, which has been the status quo from both parties for the previous decade.

Adam December 14, 2011 at 12:08 pm

It would be nice to see how the composition of start-ups has changed in the last few decades. My impression pre-bust was that a whole lot of Curves franchises and hundreds of different types of yogurt shops were opening up all over the place. Post-bust, that’s no longer happening, but those weren’t necessarily great ideas to begin with, just cheap and easy to start with your inflated house to borrow against, covering up losses in businesses that ever got from the small to mid-size phase until the housing crash uncovered it all. How many North American businesses started in the last ten years other than web 2.0 firms went public and succeeded? Lululemon? They’re not even American. It seems like the best measure of success for most start-ups now is to be purchased by an existing large, public firm for your proprietary ideas and customer database, not for your labor.

What labor-intensive industries out there are still growing? Energy and healthcare? There’s pretty massive barrier to entry in both. You need specialized skills. This isn’t the old days when you could sell barely-differentiated consumer non-durables to a middle-class willing to spend more than it earned on the promise of cheap credit and infinitely rising home prices.

Katherine Johnson December 14, 2011 at 1:27 pm

The rise of health insurance costs over this timeframe contributes to the hesitancy to start a business. It is perceived as a greater risk because of the loss of access to healthcare that can’t price you out if you make claims.

Tom West December 14, 2011 at 2:40 pm

I blame the internet.

No, seriously.

Most small start-ups were retail operations whose value was the service they provided – they could better meet local needs, etc. (If they were lucky, they grew from there).

Now, any person looking at the business environment for even a moment realizes that they’ll provide the service and Internet retailers will make the sale. (Internet retailing is a very good business to be in while there’s a local business providing the service end for free – it’ll be interesting to see where the market goes once they’ve finished off the local retailers.)

Anyway, I think Internet retailers are at least a contributing factor to the dearth of local new businesses – they’ve certainly put paid to a number of established local businesses. (That, and the number of people who can start up an internet business is perhaps 1% of those who could start a local retail business)

Silas Barta December 14, 2011 at 2:57 pm

I’ve long suspected that we’ll see some kind of model develop where you pay (perhaps as part of a club) to go try out stuff at a local place, get advice, and then buy from the cheapest provider online.

Tom West December 14, 2011 at 8:47 pm

I wish it were so, but I don’t think people will be willing to pay for that sort of service. Over the years I’ve watched a number of service that people value simply die off because they cannot be monetized effectively, despite the value people put on it *as long as it’s attached to something else*.

The most obvious experience. Many years ago we sold software. People would *not* pay more than $20 for the CD (and groused about it). They would also not pay more than $35 for the manual (you want *how much* for just a book?). But if we bundled the manual and CD together, then it was “real software” and they were willing to pay $80 (and happily).

That was when I realized that any economic model that didn’t model the culture of the participants wasn’t going to be worth a whole lot.

Bill December 14, 2011 at 8:09 pm

Tom, I think you are right. I would also add that the start ups in the 80′s related to personal computing and routinizing the workplace–database software, invoicing, etc. Personal computing and the internet are enabling technologies that permit small groups of workers to create new products with limited resources.

Unfortunately, today, what is the new, low scale, low cost of entry business for the entrepreneur?

DJD December 14, 2011 at 3:53 pm

Healthcare costs. Who in their right mind would start a business given the cost of insuring yourself and your employees? We’ve made it easier to work for big corporations that have pricing power in the insurance markets.

JWatts December 15, 2011 at 3:48 am

What’s the difference in cost between insurance per employee for a small company (say 5 people) and a medium company of (say 50 people)? I’m thinking the cost of having an HR person is a bigger cost than the actual difference in the insurance costs.

mph December 15, 2011 at 9:26 am

It is quite simple, really. Banks stopped loaning money to small businesses. If you are a bank, why risk your money with private enterprises when the Feds are giving you money to buy T-bills with? The same hammer is about to hit Europe, now that they are embarking on their own version of QED.

mph December 15, 2011 at 9:36 am

http://www.bloomberg.com/news/2010-09-16/small-business-can-t-get-loans-from-banks-bailed-out-by-taxpayers-in-u-s-.html

A record 41 percent of small business owners say they can’t get adequate financing, up from 22 percent two years ago, according to a July report by the National Small Business Association, a 150,000-member advocacy group founded in 1937 that has surveyed entrepreneurs since 1992. New small-business loans fell 33 percent last year from 2008 to $191.6 billion, the lowest total since 2000, according to the Federal Financial Institutions Examination Council.

…..

Banks, which can borrow at the overnight rate of about 0.20 percent, can get safe yields of more than 2.5 percent buying 10- year Treasury bonds and other almost risk-free U.S. obligations, Rosenberg said.

Banks held a record $1.597 trillion of Treasury and government agency securities on Sept. 1, according to the Fed, 44 percent more than at the start of the recession in December 2007. The 10-year Treasury yield was 2.72 percent yesterday.

The Anti-Gnostic December 16, 2011 at 3:01 pm

Yes. The world’s central banks are fueling the latest and greatest bubble of them all: the Sovereign Debt Bubble.

When that one pops, things will sure get interesting.

Comments on this entry are closed.

Previous post:

Next post: