William Dunkelberg
Economic Strategist,
Boenning & Scattergood

Washington still doesn’t get it.

It pays lip service to the fact that small business generates half of private sector GDP and employs over two-thirds of private sector workers, but when it comes time to provide help, two failing car companies with a few thousand union employees get $80 billion and small business gets $30 billion IF banks decide to accept the funds to support loans and IF the owners can subsequently get a loan from a bank.

For all other firms, this dinky amount is of little help and is out of reach.

But this new aid is even more misdirected, since only 4 percent of small business owners cite “financing” as their top business problem but 34 percent cite “poor sales.”

“Stimulus” for this administration has not focused on supporting consumer spending nor been designed with a sense of urgency as central to policy formulation. A “jobs summit” was populated with large firm CEOs (who create no jobs) to provide advice on how to stimulate the small business sector.

Please!

The large lenders have no clue as to what a “small business” is. One of the largest lenders uses “Rooms to Go” (over 35 stores in 7 states) in its ad proclaiming its willingness to help small business, apparently unaware that 90 percent of all EMPLOYERS have fewer than 20 employees. Congress designs a health care bill that features crippling taxes and mandates for small firms, fully expecting to have it in place and implemented (10 years of taxes, 7 years of “reform”) by January this year with unemployment at 10 percent and expected by many to rise. And, it allows the minimum wage to rise by nearly 11 percent in July, 2009, catapulting teen job loss to over 500,000 and an unemployment rate of 27 percent in the second half even though the economy started growing. This was double the loss in the first half when GDP growth was plummeting. If the administration wants to count “jobs created and saved” it should also be accountable for “jobs destroyed or prevented”.

And Washington clings to the false notion that it is a lack of loans that is keeping small firms from hiring.

We are building less than half of the number of housing units normally constructed, putting a huge dent in mortgage and construction loan demand. We are buying two-thirds the number of cars normally purchased, so auto credit demand is way off.

Plans for capital expenditures and inventory investment among small firms are at 35 year lows. Even large bank CEOs now admit loan demand is weak!

So loans are not in short supply, but reasons to get loans certainly are.

This, along with a higher savings rate adding hundreds of billions to the pool of loanable funds explains why the Treasury could borrow over a trillion dollars with little upward pressure on interest rates. But with an equally large deficit predicted for 2010 and beyond, the stage is set for meaningful “crowding out” and slower growth.

What we have to fear is that Washington will then feel the need to “stimulate” us with even more spending and larger government (and taxes), the death knell for private sector vitality.

• Chadwick: Jobs, Jobs, Jobs—Will They Ever Come Back?
• CEO Blog: Temporary Jobs Will Begin the Job Boom
• CNBC Guest Blog - We Get The World Talking

___________________
William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.