Behold, the power of Obamanomics. More businesses are failing now than are being created, a first for the American economy since the Carter era, according to a new study by the Brookings Institution. That has become even more true during the Obama “recovery” than during the Great Recession:
Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.
But recent research shows that dynamism is slowing down. 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. …
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.
The reasons can’t be that unknown. Since the 1970s, the federal regulatory environment has grown exponentially, with its power amplified by the federal courts. Even short eras of regulatory reduction resulted in only moderate reversals of that decline, which quickly disappeared. Look, for instance, at the period between 1983-88 during the heyday of Reaganomics and deregulation, and the shallower gains during the George W. Bush administration.
Note too that this isn’t so much of a sharp increase in business failures but a lack of business creation. The steep drop came during the Great Recession, but that continued well into the supposed recovery, too. What happened during that period? Massive top-down regulation via ObamaCare and Dodd-Frank, and massive amounts of gimmicky Keynesian economics with short-term incentives and crowd-out “investments” in areas like solar energy. Instead of freeing capital for entrepreneurial purposes, the regulatory and tax policies of the Obama administration have choked off entrepreneurship.
In order to reverse this trend, we do indeed need the “virtue of entrepreneurship enhancing policies,” which begin with valuing job creation over regulation and the use of capital over the punishing of it. Instead of celebrating job-killing policies as an end to “wage slavery,” we need to rid ourselves of job-killing policies and command-economy regimes. Mostly, though, we need a change in leadership from the current economy-killing administration and some semblance of sanity in the reach of the federal government.
Update: A good catch from Scott Lincicome:
@EdMorrissey Another nugget in that Brookings paper: "older and larger businesses are doing better relative to younger and smaller ones"
— Scott Lincicome (@scottlincicome) May 6, 2014
Well, an investment in crony capitalism pays off better these days than in entrepreneurship, obviously, and for the same reasons I stated above.