Uncertainty from Washington is a Bane to Business Startups

The internet is awash with information these days. If you’re like me, you tend to sift through the morass of stories by focusing on particular authors you can count on to provide keen insight, certain news organizations that are reliably informative and a few aggregators, like RealClearPolitics or Drudge, that can keep you abreast on the news of the day.

But every once in a while you find yourself far afield of your normal sources, reading something you can’t believe got published. At those moments the first thing I do is to scroll down to the bottom of the story to see if there is blurb about the author. If it’s an economics article I want to know that the writer is an economist, has some experience studying economics, or has at least reported regularly on the subject. The same goes for any topic: If you’re going to hold yourself out as an authority, you better actually be an authority.

That’s why I had trouble with a recent article by Sean McElwee for Salon titled “Republicans have no clue how businesses work.” In it, McElwee argues that the “common trope” that government intervention hurts entrepreneurship “is all backward.”

Entrepreneurs need two things,” he writes, “1) demand for their product and 2) a suitable safety net if they fail. Questions about complexity, healthcare for employees, taxes, etc., are those that badger relatively successful businesses.”

A quick glance at his bio tells me that McElwee is predominantly a writer, not a businessman or entrepreneur. And the lack of experience in job creation is plain to see. For while it is true that consumer demand is no doubt the key ingredient for business startups and that the presence of a safety net subtly encourages riskier economic behavior, that is by no means a comprehensive list. For instance, an entrepreneur needs startup capital, which the GOP made easier by passing the Jumpstart Our Business Startups (JOBS) Act last year. There’s also a bevy of other needs including a good product, an educated workforce and a sustainable balance sheet.

With an understanding of his background, or his simple desire to cheerlead for Democrats, it’s easy to see that it is McElwee who “is all backward.”

You seen, any economist worth his salt will tell you that it is big business who often comes to revel in the creation of new regulation because they have the manpower (lawyers, accountants and staff), the lobbying force, and the money to be able to work the rules to their liking. And in return for a modest increase in compliance expense, the new regulations create a sizable barrier to entry for entrepreneurs who lack the capital to overcome the new regulatory hurdle. For all their groaning at the start, big businesses often become big fans of big regulations.

What McElwee is likely seeing in the data is that the recession was a boon for business startups. But correlation does not equal causation. Entrepreneurial activity generally increases in recessions out of necessity as workers in medium or large firms suddenly find themselves with lots of skills and no job to apply them in. Rather that toil away sending resumes for jobs that aren’t there, they simply started their own company.

A closer look at the data reveals that everything wasn’t always rosy for many of these “reluctant entrepreneurs.” Even as the number of startups rose, the number of people employed by them plummeted, suggesting that many of these were one-man operations. Likewise, the recession caused venture capital funds to dry up, meaning many entrepreneurs may have had to dip deep into their savings to afford rolling the dice on their new undertaking.

The bottom line is that things are tough out there in the Obama economy. Regulatory uncertainty is stifling many would-be entrepreneurs, and things aren’t much better for big businesses, who are dealing with a different form of uncertainty.

“Last year our budgeting process occurred about November…and then we got hit with a tax increase,” Chris Lewis, the CFO of a manufacturing firm told Fox News. Other members of the company’s leadership team shared the sentiment. “We’re day to day – we don’t know what tomorrow’s going to bring,” said VP of operations, Bart Lewis. And, “We need to have a sense of direction. It’s better than the other [option], which is floundering,” agreed CEO Bill Lewis.

Three-business types all singing the same tune. Now there’s some people with opinion’s worth listening to. If only our friends on the Left were apt to hear them.