The Recession Spectator

The Small Business Canard

Obama's Laputan economy benefits corporations and little else.

By 10.26.12

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If you ever want to force yourself to stop wasting time online, go to a transcript from one of the recent presidential debates. Press Control + F, and type in "small business." If your computer is as antiquated as mine, your browser will either freeze or crash.

Much of the economic discussion between Barack Obama and Mitt Romney centers on small businesses. This makes political sense. It allows the candidates to discuss the economy and their plans for growth without uttering the toxic C-word: corporations.

But it's become grating to hear President Obama talking about how his tax credits have helped small companies or lecturing Romney on business development in Massachusetts. On Obama's watch, small businesses haven't just been hurting. Thanks to his policies, the entire economy has shifted in favor of corporations and the government, leaving the small-town entrepreneur shaking his head.

Salim Furth recently published a brief showing just how sticky things have become for new businesses. Employment at start-up companies, as Furth shows, is at an all-time low. In Obama's economy, hiring by start-ups fell from 15 of every thousand working-age adults to 10 of every thousand. And since most new jobs come from the rough-and-tumble world of small-business risk-takers, the effect on employment is devastating. Furth quotes economist Tim Kane who shows that stalled start-up companies cost the economy 2 million net jobs in 2010 and 2011.

And it's not just that new firms aren't hiring. Even starting a business is becoming rarer. In 2011, a measly 3.3% of unemployed Americans started a company. That's down from 4.7% in 2010 and 8.6% in 2009, according to a study by Challenger, Gray & Christmas. And it's far removed from the 9.6% of job-seekers starting businesses in 2002 that helped pull us out of the early-2000s economic dip.

Part of this is a natural consequence of the recession. Small businesses, lacking the insulation of massive infrastructure or huge money reserves, always get hit harder.

But most recessions run their course, winding through low points on the growth graph before the economy mends and entrepreneurs go back to work. Not this time. As the overall economy improves slightly, small business startups are withering. The entrepreneurial fire at the heart of the economy is being extinguished.

Why? Because the entry costs of starting a business -- to say nothing of hiring on top of that -- are too high. Government regulations, on top of the sluggish economy, are making the risk just not worth it.

Take health care. The president's Obamacare law, on top of a whirlwind of other regulations, is driving up the cost of health insurance, which employers must provide. Premiums continue to shoot up. And worse are the compliance costs. Obamacare is expected to cost a total of 80 million man hours every year. That means more work, more employees… none of which generates any growth for a company.

As Charles Hugh Smith wrote, "The healthcare insurance for an employee with a family can easily exceed $1,000 per month, and more if the worker is over 50. Add in workers comp insurance, disability and unemployment insurance, and the employer's share of Social Security and Medicare (7.65%) and the 'overhead' costs for hiring a new worker can equal or exceed the employee's salary." Why hire anyone when you pay out more than you get back?

It's not just health care. The president's other signature accomplishment, the Dodd-Frank financial regulation-palooza, will cost businesses another 24 million man hours every year. State and local governments are using small companies as piggy banks to pay down their debts. And of course the president's threat of a tax increase on the wealthiest Americans, which includes many businesses filed as individuals, swings menacingly over everything.

To save money, companies are increasingly using independent contractors and freelancers rather than take the risk of hiring a full-time employee. They pay a flat salary for a temporary job without having to wrangle with crushing employment costs.

This is quite the recovery Obama's got here, isn't it? Lethargic small businesses, independent contractors, and strangling red tape.

The left loves to bang the class warfare cymbal, pitting the middle-class against blackhearted corporations. But under President Obama, it's the corporations that are cleaning up. Big business is flush with record profits right now. Corporations can afford the fixed costs of the Obama economy and trim them further by outsourcing work to more competitive countries.

They're also reaping the rewards of the president's policies. The Pharmaceutical Research and Manufacturers of America (PhRMA), the lobbying group of the big drug companies, not only supported Obamacare but worked hand-in-glove with the White House to sell it to the public. Why? Big Pharma can handle the compliance costs and knew it could work the bill to its benefit.

It's why so many corporate CEOs initially tried to work with the White House. If there's a regulatory wave coming, you'd better get out front and ride it.

In Jonathan Swift's masterpiece Gulliver's Travels, Gulliver discovers an island that floats above the earth called Laputa populated by an educated class and their servants. Barack Obama is presiding over a Laputan economy, where corporate businessmen and government bureaucrats levitate above everything, living high and enjoying each other's enlightened company, shielded from the little guy who can't climb up. ("La puta," fittingly enough, means "the whore" in Spanish.)

President Obama talks a big game about helping the average American. But his policies have effectively stalled small businesses, the engine of growth for the middle class. These days it's not the thrifty entrepreneur who gets ahead. It's the corporate businessman with the deep pockets, the sprawling investments, and the "Washington man," as Ayn Rand derisively called lobbyists.

That's a dangerous shift for a country built on the average man's enterprise. And it's one that a President Romney must stop.

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About the Author

Matt Purple is an editor at Rare.us.