Want Jobs? Focus on Optimism

By James Chessen

“I don’t believe you can love jobs and hate business at the exact same time. It does not work.” These words, from Atlanta Mayor Kasim Reed, have stuck with me ever since he made the comments in his State of the City address more than three years ago. I thought about it again recently as I continue to hear from bankers that “things are better but something is still missing.”

To me, it’s a lack of confidence by businesses. It’s no surprise that the Great Recession set businesses back. In the first quarter of 2009, there were 64,000 more business “deaths” than there were business “births.” From the end of 2007 until 2011, business deaths exceeded births by more than 350,000—a 4.5 percent decline in all business establishments. In the three years since, we have only created about 200,000 new firms. Something is still missing.

In the two decades prior to the financial crisis, business confidence went up and down reflecting the economic cycle but didn’t vary too much from the long-term average (see the nearby chart from the National Federation of Independent Businesses. Recessions—such as in the early 1990s and 2000s—knocked confidence back, but it quickly regained momentum. Contrast these 20 years prior to the Great Recession with the last eight. Business confidence has been in the dumps for years now and has only recently climbed its way back toward historical averages.

The lack of confidence translates into hesitancy to take risks and expand the business. Since 2008, only 8 percent of businesses felt like it was a “good time to expand” compared to the historical average over 17 percent. Certainly, an improving economy has brightened the outlook, but even today only 12 percent feel the time is right to expand. The demand for loans is a victim in this unhealthy cycle.

There are obviously many factors that can explain the malaise of confidence, and it’s always dangerous to oversimplify. Consider, though, the responses to NFIB’s survey question asking businesses what was their single most important problem. Taxes, no surprise, always rank high. But that jumped from 18.5 percent who rated it first in 2008 to 23 percent in March 2015. More telling was that government regulation and red tape jumped dramatically as the number one problem, rising from 8.6 percent in 2008 to 22 percent today. Heightened regulation has been painfully obvious to bankers, but it appears that it is painfully obvious to businesses everywhere. Is it a surprise that when businesses are demonized and regulation piled on, that economic growth is slower and jobs are fewer?

The market is slowly adjusting to a new equilibrium. But it will always be less than it could be in an environment where businesses are viewed as the problem and not the solution. We need jobs, and it’s the businesses that create them—often supported by loans and financial services from the local bank.

About James Chessen

James Chessen
James Chessen is ABA's chief economist.
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