Do you feel financially secure?

Or a small business owner.

 

What period are you talking about? Post WWII? A period when almost every other industrialized nation's economy was devastated? That boom period gave the US a major economic advantage. What did we do with it, say by about 1970?

I am not aware of a time when the US economy experienced any form of de-regulation. Regulations change. But our regulatory environment has grown more and more complex. If a little girl sets up a lemonade stand, she risks getting it shut down depending on the location. She could even be subject to prosecution for failure to collect and pay sales and income taxes. Not to mention the legal liability she can face for using sugar and potentially having obese people hold her negligent for their condition. Then I hope she is ADA complaint - people with disabilities may want lemonade too. Then she may have to deal with Obamacare and other fair labor standards if she like hired her little brother and a few other people to help.

Sorry, no facts being ignored by me.

 

It took about two years before my business became profitable - while I had my life savings at risk. There were periods when I would divide my income by my hours I made less than minimum wage. When the business cycle turns you can easily go from profits to losses. No employer medical. No employer pension. No paid vacation. No sick pay. Pay everyone else first. Big clients are slow to pay you. Your vendors want to be paid yesterday. Everyone is looking for a reason to file a lawsuit. Government thinks you have an unlimited access to resources. Regulators look for reasons to put you out of business because it makes them look good. You have no protection, you are alone. Etc. Etc. In hindsight, I would never recommend a person take the route of putting your own money at risk to be an active small business owner. If you start from zero (not using your savings/assets as seed money), perhaps. If you can use OPM (other people's money) and structure a salary for yourself in the deal, that is the only way I would suggest a person do it.

 

Investment banking is regulated. Commercial banking is regulated. If a commercial bank got involved with investment banking activity they faced virtually twice as much regulation. The problem in simple terms was a failure to properly report the risks being assumed by financial institutions engaged in both activities. There were reporting regulation and disclosure regulation. The SEC even has regulation on making sure investments are appropriate for targeted investors. Reporting agencies are regulated. Insider trading is regulated. Even financial reporters and analysts are regulated. If we total all this regulation, where is the reduction? My position is that it is clear, regulators may have good intentions but are often unaware of the environment in total and the untended consequences of their actions.

I understand how on the surface it appears that repealing a regulation can lead some to conclude that the net is de-regulation. I would argue the repeal of Glass-Stegall was not de-regulation. even from the cited article, they point out the following:

 

We are communicating in broad generalities. You use the word "most". I think there is a difference between a business owner using their life savings to fund or start a business, meaning to me the money has been used and is no longer available but is at risk in the business., and having the business and assets to lose. Just like most things there is a distribution, a normal distribution curve, where a percent are very successful, a majority in the middle, and a percent at the verge of failing. I would argue most small business owners are an incident or two away from going out of business. Most survive month to month or quarter to quarter similar to most American who are not business owners.

You sort of support my general view that we need a strong small business sector, because this is where job creation occurs. A strong, growing small business has resources to grow and hire people. This matches your experience. A weak or failing small business would not hire you.

 

On the positive side, Sarbanes-Oxley, enacted after the Enron, WorldCom, Tyco, etc. scandals, has effectively derailed these types of criminal accounting and other fraudulent financial practices in the corporate sector that left many workers losing everything.

A bill that passed with huge by-partisan support (423-3 in House, 99-0 in Senate) in 2002 and, if I recall from last year, every Republican candidate promised to repeal if elected.

 

A bit off point but I hear this a lot from you. As hard as I try, I fail to see the benefits in supporting a small business environment over a larger corporate environment in terms of job creation. Add to that, the fact that employees are almost guaranteed to take wage and benefit cuts moving from a larger corporation to a small business.

Your point is only valid in the current job market where larger corporations are not hiring to the extent they once were (won't last forever). From the point of view of an employee, I would prefer to see growth in the upper end rather than the lower.

I suppose I'm saying that de-regulation of small business would only be in the best interest of the economy and the workforce if in fact, a dominant small business environment was the preferable way to go. In a country the size of the US with wages/benefits already suffering from stagnation, that scenario doesn't thrill me.

 

First, there is the issue of cause and effect. I doubt Sarbanes-Oxley will prevent future accounting scandals. The new scandals will be based on attempts to circumvent the protections enacted in the legislation. The legislation is not addressing the real root cause of these scandals.

Second, what is the economic cost of Sarbanes-Oxley? In a stagnant economic environment was the timing of this legislation good or bad? How is this legislation impacting international companies based in the US?

I think you are old enough to remember the S&L crisis in the 80's - regulators caused that problem and we assumed it was fixed only for us to experience a new and bigger crisis in the 2000's. All the talk about too big to fail and now we have fewer financial institutions that are even bigger, and we have weaker state/local financial institutions including credit unions. My confidence in regulators is at an all time low. On a scale of 1 to 10 it is at about a 2. What is your confidence level, given what you have experienced in your lifetime?
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Growing businesses in growing industries are responsible for new jobs. Big businesses in mature industries generally consolidate or eliminate jobs. That premise is the basis of my point. If you disagree or won't accept the premise you won't agree with what follows from it.

It depends on the business, industry and timing. For example a person who goes to work at Facebook, leaving a job at Microsoft may in fact experience a cut in wages and benefits initially. I know this is an extreme example but people who connect with a small growing business at the right time will do well - and may have more fun along the way. The days of 30 years, a pension and a gold watch are over. Every day you have to work and do things in your best interest. always have your resume updated, always be prepared to move on to the next job. Always negotiate for the best terms and conditions of employment. Even as an employee treat yourself like a business. Your product is your labor, skills, intellect, experience. With that in mind going from a big business to a small one or small to a big one doesn't really matter.

That won't happen. Look at big mature companies and look at what they say about growth. They are growing internationally. Look at employment at GM over the years. Look at employment at GE. Look at employment at big banks - growth through consolidation. Look at the current list of big growing companies - mostly mid to low paying service industry jobs - Wal-mart, Starbucks, fast food, etc. High paying, secure jobs require higher education or specialty skills, like nursing, technology, engineering, etc. Outside of small business there is a definite gap between low income and high income with fewer and fewer in the middle. Small business includes trades like electricians, plumbers, mechanics, etc. all employed by small businesses - this is the middle class that is disappearing - average people are not getting hired in these trades. There is a reason and these issues can be addressed.

The evidence is out there. Our economy is in a slow growth phase due to the lack of marginal small business growth.

 

My recollection of the S&L crisis was that it was a result of lack of regulation and S&Ls being allowed to act as commercial banks but with little or none of the banking regulations...along with Fed policies.

Followed by the repeal of Glass-Steagall and the the so-called Financial Modernization Act tearing down of the wall between commercial and investment banking.

Both parties are to blame...Carter was responsible for the former and Clinton (and Phil Gramm in the Senate) for the latter.

Followed the accounting scandals and the corrective action of SOX that by most objective analysis ended such financial criminality.

My confidence in regulators is at about an 8 only because SOX and the more recent Dodd-Franks dont go far enough.

My confidence in any further deregulation is at about a -1.

 

Unstable? An interesting term to use. On one level it is obvious that the risk of failure for a business in its first year is high, and still high at the 3 and 5 year marks. There is also the issue of successful small businesses being acquired by other either other small businesses or big businesses. Some small businesses will stay small for multiple generations - but virtually every big business I have reviewed started small. When you use the term "unstable" I get the feeling you use the term in a negative judgmental manner. Is this your intent?

And...big business in mature industries tend to consolidate within the industry with a focus on cost cutting and lowering labor cost per output - using fewer employees to produce more - less employment. Do you agree with this part of the premise?

 

Small businesses don't consolidate or eliminate jobs? On what planet, Ace? Big businesses in mature industries are just as likely to hire in growth periods as small businesses. It's less of a hand to mouth activity with big businesses but the potential for hiring is always there. It's not a matter of simply agreeing or disagreeing. You're making an assertion based on a fallacious premise.

Accepting a position with a small business start up is risky for an employee and it's only fun if all other factors are favorable. If my product is my labor, skills, intellect and experience, I'm going to go with the company that offers me the best compensation. Generally, that is not the small business employer. Signing on as a sales rep with Ace Ventura's Magic Mushroom shop over accepting a similar job with a major retailer might be loads of fun but damn risky if I've got a family and a mortgage.

Then why is your primary solution more small businesses with lower paying positions offering less in the way of benefits? Why isn't at least part of the solution better access to higher education and training to lure the larger industries back to the US workforce? I'm not saying there is a one size fits all solution. The independent small business owner is definitely an option, especially in the trades (as it's always been) but it's not the option we should be pulling out all the stops to pursue on a grand scale while everything else is pushed off the table.

The cause is multi-faceted. Globalization and the loss of manufacturing jobs are high on the list. Leaving a low and unskilled labor force holding its balls. Small business can and has been taking up some of the slack, I agree, but I sincerely disagree with the idea that it is THE long term solution to economic growth, job stability, and the restoration of the middle class.

 

Savings and Loan bank traditionally focused on using the savings of their customers for local home loans. At the time home loans were typically 30 year fixed - the industry was regulated and stable operating in a stable real estate market. Loans were long term, payments on CD;s and savings accounts tended to be of much shorter duration and leveraged consistent with regulatory requirements. As the Fed drove up interest rates trying to manage inflation, S&L were put in the position of having to pay high interest rates while earning money on low interest rate loans. The crisis was created by conflicting regulatory goals. The result was a massive influx of hybrid loan products and basically the end of the S&L bank. After the crisis we ended up with variables loans, negative amortization loans, and other complex loan products so financial institutions could manage their risk - approved and regulated. It also contributed to consolidations, and bigger institutions attempting to diversify risks - approved and regulated. Nothing happen outside of what was regulated.

Glass-Steagall had nothing to do with the derivative insurance type products that were sliced and diced and sold as triple A investments when the were not. The excessive leverage that resulted from this false narrative is the root of the crisis. Many institutions did not take excessive risk or benefited insuring riskier substandard loans. And it was the Treasury Department that intervened and decided who should survive and who should not - surprise, surprise a former Goldman Sachs guy decides Goldman Sachs needed to be bailed out!

 

I agree that small companies must do the same, not just to profit, but to survive. And they do. The last company I worked for was a small metal plating business. Reducing the labor pool in response to a reduction of labor required (often month to month, occasionally day to day,) no benefits and low wages were the only way it managed to survive. Not ideal. Much better to go work for the large company moving it's production into the area to take advantage of tax breaks.

 

Depends on the industry and where the industry is within its life-cycle.

For example there is a dynamic 3D printing industry, that has been around for awhile, but about to explode in terms of growth due to the technology becoming more accessible. The current market is about $2 billion in the next five years depending on who you ask the industry may be a $10 billion dollar industry, not including industries that may be created from the access of the new affordable technology. There are currently two maybe three leading firms in the industry with a number of smaller specially players. The dominate companies are buying the smaller player at a fast pace, certainly some consolidation is occurring. However in this "new" industry jobs are not being eliminated. And for creative entrepreneurs the potential is great for new businesses addressing new and old problems with this new technology. This is exciting. A person with a long-term outlook may see opportunities and go into this industry and leave an old fabrication industry in a declining cycle.

Earth. Perhaps I am forward looking using the past for future application. Perhaps I am a visionary. Visionaries are often maligned because they are ahead of others. Good luck with your outlook.
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You describe a dying industry in the US. These kinds of companies find it impossible to compete - why? Excessive, costly regulation compared to what other nations can do. Pick a growing and dynamic industry.
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I agree.

You can not "cut costs" and grow. To grow you have to increase your costs. I agree that companies seek to be more efficient. But for a growing company employment costs have to go through a period of increasing costs per output - and this is necessary. Going from 1 employee to 10, 10 to 20, 20 to 40 - requires large up front investments that won't result in immediate efficiencies. On the other-hand a company in a mature industry will consolidate to have one CEO, not two - One HR department not two - one plant at 80% capacity rather than two at 40%. There is a difference.