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May 14, 2014

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There are several genres of entrepreneurship, and I don't see the benefit of combining them into one generalized FORCE FOR GOOD in the economy.
Folks who own rental property are entrepreneurs, but I can attest from personal experience that a single rental property is undercapitalized and difficult to renovate. Is that good for the economy?
In my inner-city neighborhood I see lots of non-chain stores, but their managers are immigrants and likely lack educational qualifications to work in other professions. I wonder, however, whether anyone in these stores is making much more than minimum wage. For instance, the 24-hour fruit stand on my block is run during the day by a woman who works six 12-hour shifts a week. I strongly doubt that she is earning overtime for 32 hours a week. Should we credit the "entrepreneur" who is employing her, or arrest him or her for violating FLSA?
And there are "entrepreneurs" like my dad, who basically used his business to sell personal services to multiple clients. I admire his efforts greatly, but I don't see him as growing the economy or being a "job creator."

Alright, a couple of things.

First, small businesses tended to be started with second mortgages and other security backed loans. Falling housing prices will, of course, influence the number of startup loans, and when housing prices are falling very hard, they tend to provoke sharp decreases in new businesses. Existing business exits seems to track overall business conditions and lead a decline in new business formation during the fizz part of the Minsky cycle in housing.

Second, the more recent post 2007 drop, besides falling housing prices, also saw dramatically lowered small business lending post crisis (as compared to larger organizations (who have alternative ways to raise money as well). Rebel A Cole does a good job documenting the dynamics, I think, in the 11/2012 paper I found--"How Did the Financial Crisis Affect Small Business Lending In the United States".

There are a couple other smaller things I would bring up. First, risk profiles has been going up on a consistent basis for anyone who's not specifically secure as part of some insider matrix. This tends to be reflected in the way liability per capita hasn't seriously corrected since the early 80s recessions except for maybe the late '90s boom. Health care and maybe debts not trimmed by inflation enough. Another factor, especially post 2001 recession, seems to be the dramatic growth of cash holding by the people who own capital.

Now, given what has occurred in Europe (as far as business conditions go), driven by the preferences of the ECB, my most sure guess is that deflation (aaaaaaaaaannnd disinflation as well) is a really, really, bad monster, and we should try to be all St. George about it. By giving people money, as Duncan Black reiterates. Changing regulations that give normal people more power would also help (like easy bankruptcy, and bankruptcy for school debt).

Isn't a large chunk of the income freeze due to rising health care costs? How do the figures change if you use total compensation, rather than dollar income?

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