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February 1, 2012

The Case of the Missing Job Generator

By

Small business always has been America’s primary “job generator,” but today’s Washington policymakers do not seem to “get” entrepreneurs.

Entrepreneurs are extraordinarily anxious about the future. Looming on the horizon are threats of higher taxes, more expensive and constrictive regulations and other policy-induced uncertainties that cloud the prospect of success. Those prospects discourage entrepreneurs from expanding operations or starting ventures. Without that impetus to economic growth, the recovery will continue to be painfully slow and anemic.

The abilities of innovators and entrepreneurs to spark the economy and improve our way of life are evident wherever you look. Imagine the state of computer software and hardware without Bill Gates or Steve Jobs. Think about the quality of life had Thomas Edison or Henry Ford or Jonas Salk or any other innovator of consequence decided on a career in the Postal Service instead. How many more of us would still be down on the farm, wondering whether we would live to see our 65th birthday?

Most people know they live better because of innovation, but entrepreneurs are especially valuable in the recovery phase of a recession. That is when affordable labor and capital resources are most available. Entrepreneurs, seeing what consumers want, can assemble these resources to deliver new goods and services at low costs and low prices.

Entrepreneurs, not government bureaucrats, have been the authors of past economic recoveries. Lawmakers typically have reduced tax and regulatory burdens to facilitate the entrepreneurial process. The sharp recovery from the awful recession of the early 1980s is a key example of these doctors at work.

While millions of Americans intuitively understand the importance of innovation and entrepreneurship to our economic well-being, this understanding does not run very deep in Washington. Nowhere else in this country will you find as many people who believe that government creates jobs and that innovation automatically occurs once government cuts a subsidy check.

When the latest recession struck, Washington decided not to enlist the army of innovators and entrepreneurs to lead us back to prosperity by making their economic lives easier. Instead, policymakers embraced a more than $1 trillion government-directed economic stimulus program.

How badly do we miss the economic healing arts of entrepreneurs? One indication of this is a failed economic promise of the stimulus plan. In 2009, President Obama assured Congress of millions of jobs and a low unemployment rate if it would pass his economic stimulus legislation. Congress obliged. However, unemployment continued to rise and millions more lost work. Today, 18 months after the official end of the Great Recession, the unemployment rate remains very high and the economy is producing barely enough jobs to keep up with population growth. If the current rate of job growth continues, the U.S. will not get back to full employment any time during this decade.

The big difference between what Washington tried this time and what has worked in the past is the virtual absence of any focus on entrepreneurs. Instead, Congress passed more regulatory legislation. The health care overhaul and financial regulations have increased the costs of business startups. Last year alone, federal agencies promulgated 32 major regulations that will drain the economy of $6.4 billion in one-time-only implementation costs and compliance costs of more than $13 billion annually.

Congress kept the corporate tax rate the highest in the world and did nothing to reduce the taxes that unincorporated entrepreneurs pay through the individual income tax. Instead of reducing public-sector borrowing to free more funds for private-sector investment, Washington did just the opposite.

Someone has to pay for all of this Washington-centric, top-down management of economic life. Who? That would be the millions of unemployed Americans who could be working today in startups, expanded businesses and other economic experiments, if only Washington had trusted the nation’s entrepreneurial spirit rather than the bureaucratic elite.

William W. Beach is the director of the Center for Data Analysis at the Heritage Foundation.

First appeared in The Washington Times

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