×

Busch: It’s the Small Business, Stupid

The optics on the US jobless claims data are terrible and will generate a renewed negative newsflow leading up to the US employment data on September 3rd. It is clear new jobs are not being created. It is clear that whatever economic prescription policy makers have attempted is past its "Sell By" date. It is clear that the policy direction forward for the US economy must focus on the creating the best conditions for small to medium sized firms. Remember, companies that are 5 years and younger generated over 90% of new hires between 1997 and 2007. These firms are the engine for new job growth in the United States, not General Motors or AIG.

Ostensibly, the main D.C. focus over the last 18 months has been on stabilizing the economy and re-regulation. The stabilization was successful, but laid the fiscal groundwork for uncertainty over deficits and taxes. The potential for increases in dividend, capital gains and personal income taxes all weigh on small firms to varying degrees. In my view, it is not so much the amount of the change, but that the change is unknown.

The re-regulation aspect is the major hurdle for small firms. When the government changes the rules for over 25% of a $14 trillion economy, it requires major shifts in strategies for all firms impacted. Large firms have the resources to plan and execute strategies dealing with the changes. Small firms do not. This is where most miss the mark in their analysis.

It's like an eco-disaster: The smallest creatures are the most sensitive and die-off the fastest. They simply can't adapt to the pollution that is now in the system. By increasing the incremental costs of hiring employees, this discourages small firms from adding that additional worker.

A policy shift is already forming and will most likely manifest itself after the mid-term elections. The markets will likely anticipate this shift starting between now and mid-September.

  • CNBC Guest Blogs: Great People-Great Ideas
  • ________________________
    Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.