[su_dropcap style=”flat”]S[/su_dropcap]OME EIGHT YEARS AGO the US economy fell into the ditch and has been struggling to claw it’s way out ever since. Why is it so hard?
In stressful economic times it is natural that both individuals and companies pull back to more conservative and safer positions. Banks tighten their lending policies, companies hold off on expanding or upgrading equipment, venture capitalists snug up their purse strings, and government issues more and more policies to improve the economy, most of which do nothing or worse. Individuals cling to their present jobs and move their personal capital to more conservative investments like bonds, certificates of deposit, and cash.
Small business and potential entrepreneurs are the beneficiaries of most of that negative action. Potential entrepreneurs are particularly hurt by the conditions, being unable to raise capital or borrow money. That is particularly true for women and minorities. Recent studies show that of the new money flowing to entrepreneurs only 4% goes to females and 1% to minorities.
The courses of action become a self-fulfilling cycle. The less all sources invest, lend, and spend the more the economy sinks, and the more it sinks, the more people and companies tighten their purses. It is interesting that the source of 2/3 of new jobs, small businesses, are the least likely to be supported by traditional lending and capital sources. Entrepreneurial ventures, being high risk under the best of economic times, are virtually shut down.
Of course government tried to fix the problem by printing and borrowing trillions of dollars and funneling that into banks in the expectation that the money would flow into the economy and everything would get back to normal (whatever they thought that was). Of course it didn’t happen that way, in part because the banks simply stashed most of the cash in their vaults and it never got into the economic stream.Then the government went on a spending spree to pump up the economy. The end result was a huge debt and devalued currency.
So how do we fix all that? It is clear from the recent political debates that most of the “traditional” political candidates don’t have a clue. They debate everything from income and wealth disparity to minimum wage issues. They wring their hands over the tax laws and the negative impact of illegal (sorry…undocumented) immigrants. Some bemoan the huge national debt and the spending binge of our government, but offer no workable plan to fix either. A few argue in favor of a flat tax, and one even proposes that we should increase taxes, perhaps to 57% so that government can give a way more free stuff.
So, back to the original question of “why is it so hard?”. In my opinion it is so hard because we are led by those that have little or no personal experience in business. They are academicians, attorneys, theorists, or professional political hacks. We currently have the fewest number of business people in the federal government in our history. Lets get some people who understand a free economy and have the courage to take the appropriate actions to let it work.