While the Billionaire
Bailout was narrowly defeated Monday, its certain there will be
more attempts to saddle all Americans with the bad debts of people
who paid themselves $40
billion annually in dividends, plus massive bonuses, stock options
(now worthless) and huge
As small business
owners, my wife and I are fascinated by the concern shown by our
political leaders for us and our colleagues. The dire warnings of
the past few days frequently include phrases like "small business
owners need credit to grow their business, send their kids to college,
and save for their retirement." How one saves for retirement
by borrowing is never explained. Others claim that small businesses
will not be able to pay their employees if they don't have access
to easy credit.
of these pronouncements come from people who know little or nothing
about running a small business. Few Washington politicians have
earned a single free-market dollar in honest commerce, and if they
did it was generally long ago. Self-appointed "business leaders"
are in fact little more than well-paid lobbyists for very large
businesses that use government regulations and laws to place small
business owners at a disadvantage. They do not speak for us or any
small business owner we know.
I don't claim
to speak for all small businesses. No one has elected me. Having
owned a small business for 11 years, I've made a few friends and
learned a few things.
certainly depends on credit. One of the most lucrative sources of
easy credit for big business is small business. It works like this:
small business signs a contract with big business, on terms dictated
entirely by big business. Small business provides the agreed-upon
goods or services, and bills the big business. Big business sits
on the invoice for 60, 90, 120 days or more. They get an interest-free
loan at the expense of the small business.
lending has been going on for as long as business and I don't expect
it to change. That source of easy credit will be available with
or without the Billionaire Bailout. Big businesses also have access
to credit facilities and financial markets that are not available
to small businesses. Whether it is low-interest lines of credit,
asset-backed commercial paper, or the ability to float their own
bonds, big business gets and uses credit to gain a real advantage
over small business.
None of the
small business owners I know depend upon easy credit to make their
payroll. When things get to the point where you need to borrow to
pay your employees, the end is near. Most small businesses fail
in the first few years, in large part because business is not easy,
it is hard. Not everyone is good at it. But it is an essential part
of free trade and the market economy that businesses fail, so that
new, better ones can arise in their place.
Few small businesses
depend upon easy credit. Banks are generally reluctant to lend to
small businesses, with good reason. Most small businesses are funded
by owner's savings. Sometimes start-up money comes from loans by
parents or friends. While I can understand that small businesses
involved in building houses might profit from easy credit, the market
is sending unmistakable signals that there are too many houses that
are too expensive. Flooding the system with still more easy credit
can't be the cure, it is the problem.
denying that life is easier with easy credit, at least until the
bill comes due. But there is an alternative: savings. Before my
firm hires a new employee, we save enough to buy the equipment they
will need, and to pay their salary for the weeks or months it will
take to train them. Those savings come from our profits.
We don't spend
most of our profits, we save them. We would like to use them to
create more jobs, but the government taxes profits heavily, then
adds layer upon layer of regulation that makes every new hire a
bet-the-business proposition. If we dare to grow beyond 10 people,
a whole new set of regulations comes into force. More still at 15,
20, 35, 50, and so on. There is a "death zone" of regulation;
our business would have to grow almost overnight from 10 to 25 employees
in order to support the multiple full-time administrators we would
need to comply with all the new regulations. Easy credit might fund
such a leap, but I don't think it would be very smart business to
attempt such a quantum change. The burden of regulation is proportionately
easier for big businesses, which routinely supports regulations
that erect barriers to competition from small business.
It may be true
that without the bailout, Americans will have trouble getting loans
for new cars. They will have to save their money and/or buy used
cars. Some small businesses may not grow as fast if they depend
on savings rather than easy credit created from thin air, but that
is precisely the cause of the boom and bust cycle that we are living
through right now. America has been on a credit binge for decades,
now the mood is shifting towards paying bills and savings. Small
businesses must heed the desires of their customers, or they quickly
representative voted for the Billionaire Bailout. It's easy to understand
why; he's collected $732,629
from the Securities & Investment industry alone. My firm
has paid far more than that in taxes, but taxes don't buy congressional
votes the way campaign contributions do. The 7 Massachusetts "representatives"
who voted for the Billionaire Bailout have collectively gathered
more than $11,785,000 from investment, banking, real estate, law,
lobbying, and building industries. No wonder they support the Billionaire
Bailout despite overwhelming public opposition.
and "business leaders" are forever talking about how they
want to help small businesses, but they never propose removing the
onerous taxes and burdensome regulations that give large businesses
such huge advantages over small business. Instead, proposals like
the Billionaire Bailout invariably involve taking more of our money.
help us any more. We can't afford it.