Articles Economy
Small Businesses Are Being Regulated Out Of Existence
December 3, 2015

One of the main points that stood out at the last GOP debate was the fact that more government involvement in business creates more challenges for business and this extra regulation often leads to smaller business having to merge in order to survive. A few candidates took it much further to say that more government regulation leads to bigger companies as a result of mergers, and they have the financial means to hire lobbyists for their special interests.  I must most impressed with Carly Fiorina who presented this case very well.

Government involvement and regulation hurts small business in America. In the USA there are 10 million small businesses with under 500 employees. All together they employ 40 million people. Unfortunately, small business in America  is in decline. This is mainly due to government involvement, because smaller companies must become larger in order to survive government red tape.

Overall revenues of Fortune 500 companies have risen from 58% in 1994 to 73% today, while small business start-ups have declined about 50% since the 1980s. Start-up businesses for young people under 30 are at their lowest levels ever. This lack of growth in small business has contributed to the lowest labor participation rate in four decades.

As I said earlier, the welfare state of America has expanded dramatically. We are not the America that we were and we are swiftly moving towards a collective society much more similar to Canada.

It is easy for me to prove that big government is not working and that its practices are backfiring on its intention to help the middle class. Democrats may regularly trumpet their message that they are helping the middle class, but the reality of our current economy is that the largest corporations and super rich are actually benefiting the most from the bank bailouts, super low interest rates and their growing clout in politics. I know it sounds funny to say, but Obama’s policies are the best thing to happen to American billionaires in years.

Think about this, over the past few years, significantly more money was made from stock market paper gains than from creating jobs in small businesses. This is no surprise when, according to the Small Business Administration, federal regulations cost firms with fewer than 20 employees over $10,000 each year per employee.

We all complain about banks and the abuse of the financial industry, but the reality is that this new regulatory environment has created huge barriers to any potential competitors and places smaller firms at a distinct disadvantage. If fact, the CEO of Goldman Sachs, one of the firms held in the highest distain by Americans in general, brags that it is a huge beneficiary of government regulations that effectively eliminate competition.

Since regulations have spread like a virus throughout our economy, and this a short newsletter, I will comment on one aspect of this game-changing environment, namely how regulations have impacted small community banks.

Regulations have caused a rapid decline in the number of community banks, which is down by half since 1990.  These closures hurt small businesses that depend on loans from these local institutions and puts sustained downward pressure on small businesses, preventing them from expanding or even opening their doors.

Take this fact a few steps further down the line and we see that when small businesses can’t thrive, they can’t hire, and when people can’t get jobs they don’t have wages to spend, and when they don’t have money to spend in their communities, it becomes even tougher for small businesses to keep their doors open.

It is a wicked conundrum. We need businesses to thrive and create new jobs for the economy to experience any real growth, yet regulations make it nearly impossible for businesses to expand or even start up.

It is heart breaking to realize that we taxpayers have funded the same big banks that caused the financial crisis in the first place. And maddening to learn that the government’s belated response to the financial meltdown has been to create so much regulatory red tape that no new competitors can be created.

I know I am not the only one concerned that there were no criminal prosecutions of any executives from the large banks. This is mostly due to their strong force of lobbyists that influence all political decisions through their donations. No wonder Trump is so popular as the anti-establishment candidate!!

I have grave concerns about the likelihood of Trump being the chosen candidate, but I do understand the anti-establishment attitude and message he delivers so clearly. On the other hand, I believe Mainstreet views Hillary Clinton and Jeb Bush as dueling oligarchies.

Yes, I know I am talking more about politics than I am about the economy and investing in this newsletter. But these things are so completely intertwined and the timing is such that we need to really understand how what we are seeing in the economy is a result of policy decisions made by the Powers-That-Be in our government.

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Mike Lathingee

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