What’s holding back small business?
Catherine Rampell has a very useful graph, displayed here, and cited favorably by Krugman and also deLong. Karl Smith correlates sales complaints with high unemployment and complains about Arnold Kling.
Krugman wrote, for instance, "Businesses aren’t hiring because of poor sales, period, end of story".
I didn't read this graph the same way. I saw poor sales as a "biggest problem" for fifteen percent (or so) of small businesses in periods of full or near-full employment. I also see "poor sales" as a "biggest problem" for about thirty percent of small businesses today. That change — about fifteen percent of the total — struck me as relatively small and indeed puzzlingly small, if indeed we are in a liquidity trap and weak AD is the overwhelmingly dominant problem. (In fact I might expect an Austrian to cite such a number in support of their story.) I do think weak AD is an important problem to be addressed, I just don't think the absolute levels here imply "end of story." I look at that graph and think "this is a multi-factor problem."
I also note that larger businesses have fairly high levels of profit right now and that the pattern of unemployment — lots of permanance, and among the less educated — is not obviously correlated with where we would expect to find either most nominal wage stickiness or the greatest lack of spending.
I note as well that the most plausible sectoral shift stories also imply that businesses will complain about poor sales. Furthermore, many of the synthetic RBC-neo-Keynesian models — which long ago displaced the simple MC-driven RBC models of the early 80s — are consistent with these data as well.
A lot of the correlations in the diagram don't quite make sense, such as "inflation" becoming a much more serious problem in 2007, or how "insurance cost" changes. And might such a diagram ever imply that we should lower taxes on business? Russ Roberts comments:
In fact, if there had been one category called “Taxes and Government Regulations” it might have been seen as the biggest problem, listed by 36% of respondents, up from 29% in the year before and surpassing sales as the biggest problem.
One key question is how to get sustainably higher sales, most of all for wealth-elastic and income-elastic and credit-elastic goods and services. This diagram doesn't tell me how to fix that problem or where that problem comes from, but that is a critical issue, maybe the critical issue.
Overall, I look at that chart and I think the jury is still out, to say the least.