Regulations burdening entrepreneurs even more than taxes

by Ryan Streeter on July 3, 2014. Follow Ryan on Twitter.

The new Thumbtack-Kauffman survey of small businesses is out, and once again it finds that regulatory burdens are a huge inhibitor to growth. Even more than taxes.

It’s important to remember this is a survey, so the results are based on impressions of business owners rather than an objective measure. But since perception matters a lot in business attraction and retention, this matters. When Thumbtack combines all the factors from ease of starting a business to taxes to regulations to licensing and so on, here’s how America looks overall (dark orange is best, dark blue worst):

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And since small businesses cite regulations as the chief barrier to growth, here is how America looks when rated by regulations alone:

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The seemingly unstoppable growth in federal regulations

by Ryan Streeter on June 28, 2014. Follow Ryan on Twitter.

Every administration says it plans to reduce unneeded regulations, and yet regulations grow anyway. Why?  For one thing, regulatory reform always sounds a little boring and is difficult to convert into a policy agenda that people want to rally around. Second, and probably more importantly, regulations are intertwined with entrenched interests that make change difficult.

Meanwhile, business owners will tell you that federal regulations are increasingly adding costs that discourage investment and hiring.

The relationship between decreased productivity, declining entrepreneurship, and growing regulations is a defining economic issue of our generation.

Here’s probably the best picture of the regulatory trend we’re talking about, courtesy of this Mercatus post:

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Declining output the product of declining startups

by Ryan Streeter on June 26, 2014. Follow Ryan on Twitter.

Edward Prescott and Lee Ohanian write today in the WSJ that output would be $1 trillion higher than it is currently if our economy was growing at the historical average. A major factor in this disquieting trend is the falling rate of new business creation.

The creation rate of new businesses, as well as new plants built by existing firms, was about 30% lower in 2011…compared with the annual average rate for the 1980s…The decline affected nearly all business sectors.

They continue:

Virtually every state has suffered a drop in startups, which suggests that this is a national, and not a regional or state, problem. It may not be surprising that states hit hard by the recession, such as Arizona, California and Nevada, have a 25% to 35% lower rate of startups. But the startup rate in such business-friendly states as Tennessee, Texas and Utah is also down substantially, and in some cases exceeds the declines in the states that suffered most during the recession. Even North Dakota, which has benefited enormously from oil and gas fracking, has a startup rate lower than in the 1980s.

And this matters because:

[T]he country cannot rely on existing companies to boost the economy. Businesses have a life cycle, in which even the largest and most successful reach a stage at which they stop expanding.

The authors go on to suggest policy changes to address this issue, all of which are plausible. The first step, though, is to elevate this issue in the public discussion, as policymakers and the general public are typically not aware of the important relationship between startups and accelerated growth.

Manufacturing growth in some surprising places

by Ryan Streeter on June 22, 2014. Follow Ryan on Twitter.

Sometimes a single data point sums up a multi-faceted trend so well. This excerpt, from the latest ranking of the best manufacturing cities by Joel Kotkin and Michael Shires, summarizes a range of policy, economic, technological, and demographic trends:

Houston, with 255,000 manufacturing jobs, is not yet the country’s largest industrial center; it still lags behind the longtime leaders Los Angeles, with 360,000 manufacturing jobs, and Chicago, home to 314,000. But it is clearly on a stronger trajectory. Since 2008, Houston’s manufacturing workforce has expanded 5% while Los Angeles has lost 13% of its industrial jobs and Chicago’s factory workforce has shrunk 11%.

There was a time when the heavy metal industry you find in Houston today would have seemed unthinkable. But a combination of factors rooted in technology, policy, talent, and capital have made Houston a manufacturing powerhouse.

Kotkin and Shires point out that some traditional midwestern manufacturing hubs have rebounded well, so growth is still quite possible in industrial areas hit hard over the past few decades. For instance

[A]rguably the strongest Rust Belt recovery has occurred in Elkhart-Goshen, Ind., third on our small cities list. Since 2008 Elkhart’s industrial employment — much of it in the recreational vehicle industry — has expanded 30%, one of the most dramatic employment turnarounds of any place in America. Unemployment has fallen to 5% from a recession high of 20.2%.

The authors also point out that the Pacific Northwest has had some surprising growth in manufacturing in some not-so-intuitive places such as the Bay Area and Portland.

Working and happiness go together

by Ryan Streeter on June 22, 2014. Follow Ryan on Twitter.

Arthur Brooks’ NYT op-ed last week on the importance of fathers in the future work lives of their children was a good read. It also included this important reminder about work and wellbeing, which is relevant as we all continue to try to figure out what is behind our troubled labor market numbers:

The University of Michigan’s Panel Study of Income Dynamics polls thousands of American families, and its 2009 results show that people who feel good about themselves work more than those who don’t. It asks how often the respondents felt so sad that nothing could cheer them up. My analysis of the study showed that people who felt that way “none of the time” worked 10 percent more hours per week than those who felt that way “most of the time.” This holds true when we eliminate people who worked zero hours, so it is not merely that unemployed people are miserable. This doesn’t prove that extra work hours chase away sadness, but it weakens any argument that the cure for the blues is a French workweek.

Texas is Australia, Indiana is Denmark, Wisconsin is Chile…

by Ryan Streeter on June 13, 2014. Follow Ryan on Twitter.

Mark Perry has updated the following map, which is always illuminating.

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Perry writes:

Overall, the US produced 22.7% of world GDP in 2013, with only about 4.4% of the world’s population. Three of America’s states (California, Texas and New York) – as separate countries – would rank in the world’s top 13 largest economies. And one of those states – California – produced more than $2 trillion in economic output in 2013 – and the other two (Texas and New York) produced more than $1.5 trillion and $1.3 trillion of GDP in 2013 respectively. The map and these statistics help remind us of the enormity of the economic powerhouse we live in. So let’s not lose sight of how ridiculously large and powerful the US economy is, and how much wealth and prosperity is being created all the time in the world’s largest economic engine.

What’s holding back start-ups?

by Ryan Streeter on June 3, 2014. Follow Ryan on Twitter.

John Dearie at e21 draws a connection between flagging productivity and flagging entrepreneurship:

Throughout modern economic history, entrepreneurs and the start-ups they launch have been the principal source of the innovation that drives productivity gains…Alarmingly, entrepreneurship in America is in trouble. In an important new paper released by the Brookings Institution on May 5th, economists Robert Litan and Ian Hathaway show that new business formation and businesses dynamism—the economically vital process by which firms continually launch, expand, contract, and fail—has been in persistent decline over the last few decades…

He cites the rise of regulations as a big part of the problem:

Last year more than 3,600 new regulations were finalized and an additional 2,600 were proposed. Nearly 90,000 new final regulations have been promulgated over the past 20 years—an average of more than 4,300 each year. [Wayne] Crews [of CEI] estimates the overall cost of regulatory compliance and its economic impact to be $1.9 trillion annually—equivalent to the tenth largest economy on Earth.

He goes on to say:

The stifling effect of over-regulation is particularly acute for fragile start-ups, which lack the resources and scale of large firms over which to absorb and amortize the cost of compliance. A 2010 study by the Small Business Administration found that regulatory compliance costs small businesses 36 percent more per employee than larger firms.

Independence more important than money for small business owners

by Ryan Streeter on May 26, 2014. Follow Ryan on Twitter.

According to the Wells Fargo/Gallup small business survey, more than 80 percent of small business owners say they would become a business owner all over again if given the choice. This percentage has been fairly constant over the past decade, unaffected by the recession.

Part of the reason the recession didn’t change that figure is likely because income, it turns out, is not nearly as important to small business owners as the independence owning a business brings. In fact it’s not even close:

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Only 5 of the top 30 fastest-growing occupations require a bachelor’s degree

by Ryan Streeter on May 26, 2014. Follow Ryan on Twitter.

Richard Vedder writes:

None of the 10 occupations with the largest projected job growth require bachelor’s degrees, and only one (registered nurses) requires a two-year associate’s degree. Six of the top 10 jobs require less than a high school diploma (personal care aides, retail salespersons, home health aides, food preparation and serving, janitors and cleaners, and construction laborers). Among the 30 jobs projected to have the greatest growth, only five require at least a bachelor’s degree (general and operations managers, elementary school teachers, accountants and auditors, software developers, and management analysts).

Student debt and getting ahead in America

by Ryan Streeter on May 20, 2014. Follow Ryan on Twitter.

This Pew survey shows that college graduates under 40 who have student debt have less household wealth than those without student debt. That is obvious, of course, but what might be surprising is the difference between the two groups.

College graduates without student debt have seven times the household wealth as those with student debt. In addition, people under 40 who did not graduate from college and have no school debt have more household wealth than college graduates with debt:

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