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.