Quote of the Day 2011-08-25

Why even successful small businesses aren’t hiring.

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He refers not to wages, but to regulations. Specifically, that he has no way of knowing for certain what new regulations will go into effect when, or how existing regulations may change.

He tells me that it doesn’t much matter which party is in office. Every change of power means a whole new set of rules to which he and those like him must respond. ‘‘I don’t understand,” he continues, “why Washington won’t just get out of our way and let us hire.”

And why is the economy stagnating?

It isn’t just hiring that is too unpredictable, he says. He feels the same way about investing. He has never liked stock markets; he prefers to put cash directly into businesses he likes in return for a small stake, acting, in short, as a small- time venture capitalist.

“Can’t do that now,” he says. For people like him — people who aren’t filthy rich — it has become too hard to pick winners. But he doesn’t blame the great information advantages enjoyed by insiders. He blames Washington, once more, for creating a climate of uncertainty.

In an environment of political or regulatory uncertainty, business owners don’t invest – the risk is too great. An unanticipated change in laws or regulations can leave them bankrupt and destitute overnight. The same holds true in times of financial uncertainty. A sudden change in the value of the dollar, even a minor one, can bump costs over the point where profit – or even simply breaking even – is possible. When no one can predict what the dollar will do from one day to the next, business owners will wait to hire or invest until the situation stabilizes. Small business especially, even successful ones, tend to run with very tight margins – small changes can have a large effect on their success.

Government needs to step back and leave things alone. Let the economy stabilize on its own. Other forces, especially with current world events, are going to keep things in flux for a while, but the most the government can do is make things worse.


[Source: Bloomberg.com article by Stephen L. Carter, retrieved 2011-08-25]

(h/t Another Gun Blog)

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