Wednesday, May 7, 2014

Poor Business Climate

The liberal Brookings Institute has come out with a study that shows that in the last six years, for the first time in history, more businesses have gone belly up than have started up.

From the link:
Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech.

In short, we confirm that the previously documented declines in business dynamism in the U.S. overall are a pervasive force throughout the country geographically.

In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship-enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.
Okay, far be it from me to tell economists that they're being slightly disingenuous when they say that the reasons for the poor business performance are unknown, but maybe the onerous regulations on business, high taxes, and high costs of health care might be at least part of the reason more businesses fail than start up. The government's regulatory regime sets so many hurdles, presents entrepreneurs with so many hoops to jump through, and imposes so many costs, that it's very difficult for many of them to make a go of it.

Even liberals like those who run New York state believe this. Recently the state has been running radio advertisements encouraging businesses to start up in New York by offering temporary low tax rates as an incentive. And, of course, businesses are flocking to Texas because the tax climate there is so favorable to businesses and indivduals. Texas has no corporate income tax and no individual income tax, and it's thriving.

There should be a lesson in this for our politicians in Washington and elsewhere, but for some reason not enough of them seem to be able to grasp it.