Small Business Affects the Economy

If you want an idea of where the economy is heading and what the chances are for a brightening in the picture for more jobs, you will want to observe small business optimism.

                     

The National Federation of Independent Business periodically issues its Small Business Optimism Index. That, better than any political pronouncement, will tell you how small business folk are prepared to speculate with their hard-earned money, to create needed jobs that the government can only gab about. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.

Government Attempts at Job Creation

                 

The administration would love to improve the job picture. but continues to overlook how job creation really works.

                     

It does not work by handing out one-time tax credits or benefits. It does help by improving the psychology for hiring. That means providing a clear understanding of the ground rules for business. And those ground rules must be pro-business.

                     

Enterprise requires less cost of doing business. Not future prospects of a choking increase in taxes. Nor higher minimum wages for unskilled labor, and ever-increasing burdens such as government-mandated expensive health care.

                     

Inasmuch as government bureaucrats and most politicians have never operated a pushcart, how are they to know the psychology of creating private enterprise jobs? (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Usage of College Bait and Switch

               

Over 4,000 colleges and universities enroll over 17 million students. College has obviously become a huge growth industry. The industry has also mutated negatively, with far too little oversight of quality.

                     

Colleges appear to be primarily in the business of acquiring students, differing to a degree, only in their approach to marketing.

                     

Some do so as research centers. They may boast professors with science awards and Nobel Prizes which are very appealing marketing devices. Such esteemed faculty also attract more grants and endowments.

                                        

But few undergraduate students have these celebrity professors. They often are taught by graduate students.

                     

Parents and taxpayers pay billions of dollars to colleges and universities. Schools make money whether students learn or not, whether students graduate or not, or are prepared to get good jobs after leaving school, or not.

                     

Colleges and universities thus engage in "bait and switch;" conferring what are actually deficient degrees, and engage in other practices that would bring legal sanctions in any other business. (See the Earl J. Weinreb NewsHole® comments.)

Pareto Optimality-- Efficiency Concept

              

Pareto efficiency, or Pareto optimality, is a concept in economics. Named after Vilfredo Pareto, the term is used in engineering, game theory, and social sciences.

                     

Pareto used his theory in studies of economic efficiency and income distribution. He claimed that a change from one allocation to another could make one individual better off, without making another worse off. This is referred to as a Pareto improvement. The allocation is called Pareto efficient or Pareto optimal.

                     

The 80/20 Efficiency concept, so often used in management, is his reasoning. For example, 20% of your sales force may contribute 80% of your sales.

                     

The political left would do well to reconsider some of their anti-business tirades when trying to create jobs, contemplating the Pareto principles. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Temporary Tax Cuts

                           

Business psychology is not a political  strong suit. From time to time the Administration, for example, has offered tax cuts when under pressure. But only as temporary measures.

                     

Such temporary, half-hearted tax reductions have little effect because business people plan for years ahead. Temporary cuts are not only meaningless, they are traps.

                     

For instance, a cut in payroll taxes for a short time is another version of failed Keynesian economics. It adds some money to the economy for a time and sounds good because it appears it will add to consumer spending. But experience shows it has no business multiplier effect for producing jobs. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Comparing Apples and Oranges Mixed Student Careers

                    

Education marketers compare apples and oranges when making earnings comparisons about the financial advantage of attending formal college. That skews career choices of too many kids.

                     

Numbers thrown out by what I call college administration snake oil salesmen, are usually off-the-mark. They often include janitor jobs, in comparison with high tech. Their figures are prejudiced with regard to higher-paying, non- college trades, such as electricians, plumbers, or computer techies.

                     

You are successful because of your skills and enterprise. not a framed piece of paper from a college. Get a marketable ability. Whether it comes from a college or a technical school. Many technical school graduates earn far more than college grads. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Franchises and their Financing

                

I am not an advocate of franchising, both for a franchiser, and someone seeking to buy a franchise.

                     

The franchisee usually finds it difficult to get financing, so any help from a franchiser is welcome. But, I find it dangerous for a franchiser to offer financing to a franchisee unless there is firm collateral. Despite the rosy marketing and promotional material. A franchise is, after all, small business, and that entails risk.

                     

The only type of financing that makes sense is account receivables financing. It actually ties the franchisee more closely to the franchiser. Construction, real estate and general financing does nothing that applies equally to both parties. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Taxes and Government Regulation

          

Over-regulation of the U.S. economy is estimated to total $2 trillion in extra costs that taxpayers will pay in one form or another. These costs come in varying disguises: Windmills, solar panels. battery operated cars, and so on.

All of which are worthy goals. But they belong in research labs where they can be studied more deeply before being made commercial, and not subsidized by taxpayers as they are today.

Any product that is commercially viable will be brought to market by an entrepreneur seeking profit. Only Big Government believes in the principle of losing money with taxpayer assistance.

                     

Also, in order to save taxpayer funds, do we need an Energy Department or Education Dept, when their functions are state and local matters? Do we need subsidies for sugar farmers and ethanol production? All are just ruses for more, larger government. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Controversial Bank Accounting

            

I have been saying, going back to 2007, there was no reason to bail out banks. Credit guarantees, and/or takeovers, and in worst cases, conventional bankruptcies would have cleared up the financial mess without the lingering financial doldrum we now have.

                     

Just one example of pure idiocy in the past: Accounting rules relating to assets, including mortgage-backed securities, required that they be marked-to-market, if held for trading, or held "available for sale." Most banks hold such assets in one of these two accounts. Mark-to- market rules unfortunately applied.

                     

Daily pricing of bank assets based on limited markets saw to it that bank net worth disappeared literally overnight. Short sellers legitimately took advantage of the fact and the downward market result became even more exaggerated.

                     

In short: Much of the banking problems we have had could have been avoided with clearer thinking by the “experts.”

                     

The financial meltdown that brought on this deep recession could have been self-corrected by simple market-place principles and no mark-to market accounting. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Poor Schooling Results

            

My comments criticize colleges and college student deficiencies. But never overlook the  job of the American public school system, and its poor kindergarten to 12th grade education record.

                     

Dollars spent have more than doubled in the past forty years as teachers’ unions have gotten stronger. The number of teachers have increased by more than one third. Still, less than 40% of students who graduate are ready for college level. And, of course, do not measure up to international standards.

                     

A solution is possible, in the form of charter schools where union rules are somewhat relaxed and also use of school vouchers. Here funds allocated to public education are set aside for parents to use for private school tuition. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Corporate Regulation

          

Companies with interests in an industry, may have the greatest financial stake in the regulatory activity of that regulatory agency. They are more likely to attempt to influence that body than would individual consumers. The term applied to the possible outcome is called “regulatory capture.”

                     

Members of the consuming public would have little incentive to try to influence the regulators. We would therefore expect that when regulators assign experts to help review and decide policy, this will lead to opinions of former industry members in contact with that industry.

                     

I feel there are some agencies where industry input is essential. High tech and medical are examples. But it is important that independence be truly and consciously maintained.

                     

This regulatory capture syndrome extends beyond political agencies and organizations into business, media, and popular culture.

                     

The concept of regulatory capture is one of government failure. Yet, the media  constantly attacks the problem as one of a free market shortcoming. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Licensing Requirements can be Arbitrary

                  

Spotlights are often trained on the various local and state licensing requirements, now that many unemployed are seeking to enter their own small business operations.

                     

Often, such licensing is used as a means to restrain trade, done to keep competition out of established trades. Like old guilds and trade organizations.

In many instances, licensing has little to do with standards or community protection; they’re a means of reducing competition. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Corporate Consultants-- Necessary or Not?

                    

Corporations with experienced staff, having experts with years of background in their business, still hire consultants, whose staffs are replete with youngsters just out of business school.

                     

Companies already have their own experts who know their business intimately. They study their operations from every angle, on an ongoing basis. So why the consultants?

                     

My conclusion has always been that these often newly- minted consultants have always been a form of business insurance. Even though their ”fresh look” often is amateurish.

                     

It’s much the way investment bankers are called upon for advice. They, too, are often relatively inexperienced.

                                    

The rationale? When confronted by plaintiff lawyers, you can say you tried correct management. You have taken adequate precautions in your duties as a manager by using consultants. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)