What Obama Hears: Words from his Economic Advisor
This past Monday (March 21, 2011), I attended a ‘town hall’ meeting of sorts with Dr. Austan Goolsbee who is the Chairman of President Obama’s Council of Economic Advisers. The meeting took place at the Stockholm School of Economics and was mediated by Matthew Barzun, the U.S. Ambassador to Sweden.
I wanted to share with you 2 important topics Dr. Goolsbee discussed during the meeting to give you an idea of what President Obama and other politicians are
concerned/focused on.
Small Business
Over the past 20 years (1988-2008), smalls businesses have hired and fired a lot of people. If you were to net out the hires and fires, small businesses have created a positive 40,000,000 new jobs!!! That is an incredible statistic when you think about it!! With the U.S. population around 320,000,000, small businesses have employed 12.5% of the total population. Doing at bit more math, if the average life expectancy in the U.S. is 75, and if the average person works from the age 18 to 65, leaving 47 years of working, then 62.67% (47/75) of the total population are “working”. Therefore, 62.67% multiplied by 320,000,000 equals 200,533,333 “working” citizens. If we now take the 40 mil in new jobs divided by the 200+ mil working citizens, we arrive at that small businesses have employed a net positive of 20% of the working population! I hope my averaging and equally distributed age population did not spoil the numbers for you.
Moving on to the point. . . . . . . .
Typically what happens when there is a recession is that small businesses take a major dive, more than the large businesses. No surprise there. The data has also shown that when the economy turns around, small businesses have the fastest recovery, in essence a V-shaped recovery. However, that is not what we have seen with the latest SUPER recession. Small businesses haven’t recovered as quickly, they are painfully struggling. But why. . . ?
Dr. Goolsbee gives his explanation:
Small businesses have faced a double-edge sword in the most recent recession. Access to credit, and credit at reasonable rates has all but disappeared as well as the value of ‘collateral’ small businesses typically use. Can you think of an asset that has that has massively decreased in value in the past 3-4 years?! HOUSING!!! With banks unwilling to lend and with individuals providing a double-dipping asset as there collateral (if there is even any equity in the home left), it’s no wonder small businesses are feeling the gut wrenching pain!
GDP Growth
As painful as reality is, it is only until we accept it that we can then make a change.
From the end of the Dot-com crash until 2008, the U.S. GDP has been ‘subsidized’ by growing our bank’s balance sheets, in particular the asset side of the B/S. For a bank, a liability is a deposit, and an asset is a loan. With the U.S. savings rate at 0, in some cases a negative number, our ‘consumption’ in products and services had fueled an impressive growth rate of our GDP and a hell of a bull market in stocks. But the model was unsustainable. It is now that the U.S. is trying to refocus our resources on a sustainable model. Building up exports, providing services, and increasing efficiency are some of the examples. How about staying competitive by improving education!? However, this transition from consumption to creation is slow and murderous. No V-shaped recovery there!
It’s nice to know the perspective and angles that our political leaders are instituting.