October 16, 2009

You are doing it wrong.

Story: Obama says he's looking at any way to create jobs

Barry I hate to tell you this but you are doing it all wrong. The reason unemployment is so high is because job recovery has never in the history of our country been from the top down, it has been from the bottom up.   If jobs are to increase it has to start with small business, not from the government. 

Things are crappy for small business's. Manny are holding on by a thread, those that are doing well can't get loans to expand, upgrade, or employ, and the upstart finds it difficult to get financing.  Small business are being smothered. 

First we have to know who and how a small business starts and works.  Most times an entrepreneur will consolidate capital from himself and often from family friends and investors.  Generally this will come out of the equity in a home.  The ability to get this capital is the essential and driving factor for economic growth.

The sub-prime loaning and subsequent crash  has caused the banks to "Pull back" and become totally miserly thus stifling growth. Additionally real estate prices are, well who knows, In flux?

A scenario:
Gus is a small machine shop owner who wants to buy a couple new CNC milling machines, cut costs and shorten the production time for the specialized parts he uses.  He wants to use the equity that was in his house but cant.  His house is still there, it was worth 350K last year and he had 100K in equity then, but now the bank says its worth much less because the two houses down the street were foreclosed on the market changed.  Sorry you cant get the loan. Gus decides to ride it out and see what next year will be like.

What was lost?
The order for the new the machinery was never placed.
The operators were never hired.
The concrete guy never got to pour the floor in the new shop area.
The electrician never got to hook up the machinery.
The shops production remained slow, costs high, and less able to meet customer demands.
The excavator on the "Shovel ready" stimulus project sits idle and broken as the mechanic calls around the country looking for an "In stock"  replacement part that just happens to be manufactured by Gus.

Jobs follow wealth.  (Money is just the currency we use to represent wealth) If Gus was able to increase his wealth by making hydraulic valve bodies quicker and cheaper, it would have increased the wealth of many others.  Not only those mentioned above but even the part supply house.  They may have been able to keep several in stock and available if the parts were cheaper, made a sale and thus increased their wealth.  The construction crew would be more productive.  The roadway they are building open sooner with less congestion, resulting in less fuel used, lesser emissions, and time wasted sitting in traffic.  The result is more wealth for those that use the road.

If the president wants to reduce unemployment he must first figure out how get the small business going again. 

No comments:

Post a Comment