Small Business Dies for Customers, Not Obamanomics

Small, Honest, Businessmen

We are at the beginning of 2012 and the political climate is heating up. Once the Republicans pick a candidate to face President Obama, the argument will center around economic issues. We can sum up the Republican positions as follows: that Obama has done nothing to improve economic conditions and has in fact made them worse via indecisiveness, increased spending, and his basic evilness.  The antidote to all things Obama is generally such broad generalities as "freedom," "empowering small business," and creating the type of economic certainty that up until now Republicans have been content to sabotage.

The biggest mantra is that Obama's policies have hurt employment, and small employers have been frozen in uncertainty and fear, and battered by regulations and rising taxes. It's a false mantra by all means, but you can repeat anything long enough and and it becomes certified doctrine, sanctified by God.

And as we say here... nonsense. The New York Times begins a profile of five small businesses (and their failures) with this factoid:

"One in four, according to the National Federation of Independent Business, believes thevbiggest problem is weak sales. No matter what other challenges they face, said William Dunkelberg, the federation’s chief economist, “the key to everything is cash coming in the front door.”

(N.Y. Times)

We have always known that people like to blame someone, especially someone they don't like, for their problems. We do it all the time. The convenient doctrine is to say that Obama regulation, or Obama healthcare reform (largely not in full effect) or Obama income tax hikes (non-existent), or Obama inspired uncertainty (Republican obstinacy ignored) is the cause of our current unemployment rate.

Meanwhile in their focus on deficits and spending, Republicans have raced to cut jobs across government levels, opting to have the pain concentrated in those fired, as opposed to a lesser pain spread across the population via any sort of tax. So while the private sector now creates jobs, and GDP is positive, states on the back-end are dumping workers into the streets, depressing the economy.

All due to the sudden Republican and Tea Party inspired wisdom that the best time to deal with the long term problem of high national debt is during a short term disaster financial collapse. It's like deciding to remodel your house while on sick leave from work and in the hospital. Idiocy.

Our economy functions on demand, on people spending. Fire enough people and spending falls and small business gets crushed. They got tax cuts from Obama. They got no major regulations that would affect their books. What they didn't get was a steady supply of customers with ready cash to spend.

Because the uncertainty is all around who will get laid off next via Republican inspired cuts to budgets.

Going back to the article, let's take a look at two of these entrepreneurs.

The first business was a bed and breakfast. They refinanced their mortgage in 2007 with a 10 year interest only loan that ballooned their mortgage payment by $1700, and just as customers began to slack off and the economy began to tank.  The refinancing was to redo their kitchen. So they took a ridiculously structured loan in the middle of a housing bubble.

Now what part of that is Obama's fault? Yea zero part.

Another business sold crown molding, one of the non-necessities when it comes to home upgrades. They also decided to incur the legal and liability costs of franchising, again, right before a recession kicked in. As late at 2010 sales were up 20%, which tells you that it was not the economy that actually did them in (since the economy has only improved since then). It was their franchising apparatus eating up cash. Further, they were in a mortgage related business which, of course, was the business that collapsed and caused the 2008 financial crisis. Who in the housing business, worldwide, did not suffer?

Now what part of that is Obama's fault?

The other three businesses are hardly worth mentioning--frozen dog food sold to pet stores without refrigeration--because the underlying business principles were not well conceived to begin with.

The point, is that during this election cycle we will hear a lot of attempts to pin every conceivable failure to Obama with false cause and effect assertions. We will hear that just cutting taxes and regulation will get the economy going, despite the Republican pushed tax cuts of 2010 that did not spur a sudden boom and boon to the economy. We won't hear about the impact of job cuts at the state level that have depressed economies across the country, working at odds from the hiring and profits in the private sector.

Don't be snookered into believing false cause and effect arguments that will leave most problems unsolved and the middle class hurting.