Silliness About New Businesses

Folks in Washington policy circles are go really wild for silly fads: hula hoops, streaking, lava lamps, etc. Okay, I don't know if the policy wonks really got into any of these, but they do fall for silly intellectual fads.

The Washington Post showed this sort of infatuation by printing a column from Steve Case telling us that new businesses were responsible for all the new jobs created in the last three decades. Case concludes from this that we should have policies that foster the growth of new businesses.

This is classic silly logic. New businesses both gain and lose jobs, just as do existing businesses. There is no obvious reason to prefer jobs in new businesses than existing businesses. If we adjust the balance so that we favor new businesses to the detriment of existing businesses, there is no reason to assume that the additional job growth in new businesses will exceed the additional job loss in existing businesses. The fact the new job growth happened to all be in new businesses is irrelevant.

To see this, imagine that all the job growth in the United States over the last three decades had occurred in the South, with the rest of the country just holding its own. It does not follow that if we had tax incentives for businesses to locate in the South, which were paid for with tax increases on the rest of the country, that we would see more overall job growth.

This is the essence of the argument put forward by Case. It makes no sense on its face. Policies toward new business should not be affected by the fact that they are net job creators just as it doesn't make sense to favor a specific region because it is a net job creator.

When New Jobs Crowd Out Old Jobs It Causes Weimar Hyperinflation
written by izzatzo, January 23, 2012 5:54 AM

The fact the new job growth happened to all be in new businesses is irrelevant.

Exactly. The question is whether an additional job displaces an existing job with natural turnover and frictional unemployment or instead crowds it out as the two jobs compete with each other.

If it crowds it out the result is hyperinflation since net aggregate cyclical unemployment is a myth other than temporary buiness cycles that come and go in capitalist economies.

Stupid liberals.

-4

No matter how thin you slice it, it's still baloney.
written by diesel, January 23, 2012 6:38 AM

Dean, you never mention whether the new jobs attributed to small businesses are "real" or actually the result of economic gerrymandering in which former divisions of conglomerates were spun off only to resurface as "independent" subcontractors, franchises such as fast food joints or gas station/convenience stores are classified as entrepreneural ventures etc. Any numbers here? Andrew Dover?

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written by Kat, January 23, 2012 7:05 AM

That article was jam packed with wrongheaded notions.
Please keep up the pushback. Thank you.

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written by David F. Snyder, January 23, 2012 12:48 PM

New burger joints should replace old businesses in the grotesquely obese financial sector, with financiers repurposed as burger flippers. And R. Samuelson should be repurposed as a fertilizer shoveler, a logical career move for him.

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written by jay, January 23, 2012 1:10 PM

Good point Dean. Either a company has demand or it doesn't in order to increase employment. It doesn't matter whether it's new or old. In my opinion, the hardest thing as a small business owner is getting financing for capitalization to scale operations to serve consumers with low profit margins without a history or adequate cash flow to secure loans. That is a legitimate small business concern new or old. It said that 50% of small business fail within the 1st five years and the big culprit is usually capitalization. It kind of difficult to get low hanging fruit due to people's stagnant incomes without the ability to do high volume service work or sell things cheaply.

Who are the exalted ones again?
written by v98max, January 24, 2012 1:04 AM

Businesses create as many jobs as couch potatoes create plasma screen TV's They're the buyer in a two way transaction. People create their own jobs, often spending many years educating themselves and figuring out how to become a person who employers want to hire. To exalt the employer as a job creator, to whom every preference must be catered is nonsense.

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written by PeonInChief, January 24, 2012 8:53 AM

And what's so bad about hula hoops. There's a picture of me playing with one here http://home.comcast.net/~johnk...anc-3.html

Attila the Stockbroker was performing at the time.

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written by jamzo, January 24, 2012 1:02 PM

and how much of the "southern states job growth" involved "tax incentives for businesses to locate in the South"

Silliness About New Businesses

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