2015 April 01 Wednesday
In USA Since 2008 More Businesses Destroyed Than Created

Thomas Edsall covers the reasons why. Daron Acemoglu at MIT tells him a horrible reason why:

Itís becoming more and more difficult to run a successful business in the United States without doing lobbying, campaign contributions and other deals with politicians. This I think is the most dangerous, I would even say nefarious, trend for the creativity of American business in general, and young and new businesses which we badly need in particular.

I used to mainly worry about tax and spend levels. But I'm increasingly concerned more about the rest of what the government does. I read news stories about how many times top tech companies visit the White House and think small companies are at a huge disadvantage in the political arena. Then I read about colleges appointing diversity deans, sexual harassment officers, and the like and see Washington DC all over it pushing up the cost of college via demands from the Department of Education and probably DOJ as well.

One thing that a regulatory state has going for its continued growth: all the people who work on compliance rise up in the ranks with responsibilities that were created by government. The regulatory compliance officers in corporations and universities have government regulatory agencies to thank for their jobs. At the same time they would take major risks for their firm if they severely criticized the regulators.

The problem with a complex regulatory environment is that while a large company can hire experts to guide compliance at a cost which is a fairly lower percentage of total cost the small companies can't. If you want to start up in some area with really complex regulations then you are out of luck unless you have deep pocket backing.

The NY Times article gets partially derailed on immigration as somehow a fix. In reality we've had large scale immigration during the entire span of years during which business firm creation has been trending downward. How about addressing root causes?

My guess is that it is not possible to scale back the regulatory state. It has too many stake holders. A large successful nation gradually creates the conditions for its own decline.

Share |      By Randall Parker at 2015 April 01 09:01 PM 

Wolf-Dog said at April 1, 2015 11:38 PM:

The real cause of the destruction of businesses in the United States is the labor arbitrage which ships millions of middle class jobs to other countries, for the sake of short term profits. One way to measure this labor arbitrage quantitatively is to look at the annual trade deficit, especially in goods and services without taking into account the oil imports. In 2014 the US foreign trade deficit with China was $342 billion, with Japan $66 billion, and with the European Union $141 billion. Thus in 2014, our trade deficit against the latter three trading rivals was $549 billion. And since the GDP of the US was approximately $17 trillion in 2014, the trade deficit against China, Japan and EU was 3.2 % of the GDP. In addition,almost no economist has any illusions that the non-oil trade deficit will improve in the future.

Labor arbitrage doesn't just close US businesses and cause the income of the middle class to decline, it also causes Americans to lose their know-how and their skills. Look at what happened to Spain: the most talented Spanish engineers started to move to richer European countries like Germany, and the remaining long term unemployed skilled Spanish people started to lose their skills and they are becoming obsolete already. The latter kind of loss of know-how is the real danger to the US, and it is about to happen if we don't reign in the labor arbitrage.

As for the tax and spend solution that the government is trying, this, too, is due to the labor arbitrage that decimated the income of the middle class; it's not Obama, even Bush started a deficit spending program to survive the catastrophe.

IncredibleFartingRobot said at April 3, 2015 12:41 PM:

I suspect that a better economy will come from more and more people escaping the current economic system as much as possible. Its over extended, bloated, parasitic and being crushed by its own weight. Fortunately more and more technologies are providing avenues for decentralization of power (internet, crypto currencies, 3d printing, solar, etc.). Learn to grow your own food, fix your own house and car, avoid debt and holding/using debt based currencies. Strip the system of its power by escaping as much as possible.


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