Thursday, October 2, 2008

For my socialist, liberal, and generally big-government friends

So, you think federal regulation is such a good thing? You may want to read the following (my emphasis).

No More Help, Please
By Stephen Fairfax ∙ LewRockwell.com ∙ October 1, 2008

While the Billionaire Bailout was narrowly defeated Monday, its certain there will be more attempts to saddle all Americans with the bad debts of people who paid themselves $40 billion annually in dividends, plus massive bonuses, stock options (now worthless) and huge salaries.

As small business owners, my wife and I are fascinated by the concern shown by our political leaders for us and our colleagues. The dire warnings of the past few days frequently include phrases like "small business owners need credit to grow their business, send their kids to college, and save for their retirement." How one saves for retirement by borrowing is never explained. Others claim that small businesses will not be able to pay their employees if they don’t have access to easy credit.

Nearly all of these pronouncements come from people who know little or nothing about running a small business. Few Washington politicians have earned a single free-market dollar in honest commerce, and if they did it was generally long ago. Self-appointed "business leaders" are in fact little more than well-paid lobbyists for very large businesses that use government regulations and laws to place small business owners at a disadvantage. They do not speak for us or any small business owner we know.

I don’t claim to speak for all small businesses. No one has elected me. Having owned a small business for 11 years, I’ve made a few friends and learned a few things.

Big business certainly depends on credit. One of the most lucrative sources of easy credit for big business is small business. It works like this: small business signs a contract with big business, on terms dictated entirely by big business. Small business provides the agreed-upon goods or services, and bills the big business. Big business sits on the invoice for 60, 90, 120 days or more. They get an interest-free loan at the expense of the small business.

This forced lending has been going on for as long as business and I don’t expect it to change. That source of easy credit will be available with or without the Billionaire Bailout. Big businesses also have access to credit facilities and financial markets that are not available to small businesses. Whether it is low-interest lines of credit, asset-backed commercial paper, or the ability to float their own bonds, big business gets and uses credit to gain a real advantage over small business.

None of the small business owners I know depend upon easy credit to make their payroll. When things get to the point where you need to borrow to pay your employees, the end is near. Most small businesses fail in the first few years, in large part because business is not easy, it is hard. Not everyone is good at it. But it is an essential part of free trade and the market economy that businesses fail, so that new, better ones can arise in their place.

Few small businesses depend upon easy credit. Banks are generally reluctant to lend to small businesses, with good reason. Most small businesses are funded by owner’s savings. Sometimes start-up money comes from loans by parents or friends. While I can understand that small businesses involved in building houses might profit from easy credit, the market is sending unmistakable signals that there are too many houses that are too expensive. Flooding the system with still more easy credit can’t be the cure, it is the problem.

There’s no denying that life is easier with easy credit, at least until the bill comes due. But there is an alternative: savings. Before my firm hires a new employee, we save enough to buy the equipment they will need, and to pay their salary for the weeks or months it will take to train them. Those savings come from our profits.

We don’t spend most of our profits, we save them. We would like to use them to create more jobs, but the government taxes profits heavily, then adds layer upon layer of regulation that makes every new hire a bet-the-business proposition. If we dare to grow beyond 10 people, a whole new set of regulations comes into force. More still at 15, 20, 35, 50, and so on. There is a "death zone" of regulation; our business would have to grow almost overnight from 10 to 25 employees in order to support the multiple full-time administrators we would need to comply with all the new regulations. Easy credit might fund such a leap, but I don’t think it would be very smart business to attempt such a quantum change. The burden of regulation is proportionately easier for big businesses, which routinely supports regulations that erect barriers to competition from small business.

It may be true that without the bailout, Americans will have trouble getting loans for new cars. They will have to save their money and/or buy used cars. Some small businesses may not grow as fast if they depend on savings rather than easy credit created from thin air, but that is precisely the cause of the boom and bust cycle that we are living through right now. America has been on a credit binge for decades, now the mood is shifting towards paying bills and savings. Small businesses must heed the desires of their customers, or they quickly fail.

My so-called representative voted for the Billionaire Bailout. It’s easy to understand why; he’s collected $732,629 from the Securities & Investment industry alone. My firm has paid far more than that in taxes, but taxes don’t buy congressional votes the way campaign contributions do. The 7 Massachusetts "representatives" who voted for the Billionaire Bailout have collectively gathered more than $11,785,000 from investment, banking, real estate, law, lobbying, and building industries. No wonder they support the Billionaire Bailout despite overwhelming public opposition.

Politicians and "business leaders" are forever talking about how they want to help small businesses, but they never propose removing the onerous taxes and burdensome regulations that give large businesses such huge advantages over small business. Instead, proposals like the Billionaire Bailout invariably involve taking more of our money.

Please, don’t help us any more. We can’t afford it.

Steve Fairfax [send him mail] is president of MTechnology, Inc., consulting engineers specializing in electric power engineering for the 21st century.

No comments:

Post a Comment