I was having a debate with a more-conservative (but not Trump-supporting) acquaintance. He claimed that the USA was in quite bad shape after Obama. I asked him what he meant. He said (among other things) that it’s gotten much harder (and, presumably, less common) to start a new business.
I googled up some stats, and found this page from the Bureau of Labor Statistics, with the key bits being chart 6 and chart 3 (which seem to show that the startup rate has been generally increasing since the GFC, and that business failure rates are generally constant). He responded with this very complicated bit of data from Kauffman (whoever that is). Scrolling down to Figure 1 on page 9, we see a rate that bottomed out in 2014 and only somewhat recovered in 2015, still far below the average for the past decades.
At this point, I’m way out of my depth. Can anyone explain what the difference is between the two graphs? Which one is more “right”? Are there other relevant data points that should enter into this discussion?
(And I guess, more generally, my not-at-all-expert opinion is that unemployment is going down, and the stock market is going up, and that means the economy is, basically, doing well. Right?)
The chart tells you why start-up rates declined. We were in a deep recession. Capital to start new businesses was very tight. As the recession ended, access to capital eased and more people were able to establish new businesses. You can also see how start-up activity nose-dived after the dot-com crash. Same reason.
But why does one graph show business creation bottoming out in 2010, and currently back close to historic highs, and the other one shows it bottoming out in 2014 and still far below average?
One possibility is hinted at in the Kauffman report. Consider a guy who starts 4 businesses in a year, all but one of which fail quickly. Should that count as 4 startups or one? Kauffman appears to count that as 4; note that this could lead to higher numbers in an unfavorable climate! (But that’s just one possibility. I’m afraid it would take much research and scrutiny to fully understand the curious inconsistencies between the two reports.)
It’s a little hard to figure out the components of the Kauffman Index, but according to Wikipedia, “The index uses monthly data from the current population survey (US) to calculate the percentage of the adult, non-business-owner population that starts a business each month.” It’s possible that many of the new startups in the BLS data are started by people who already own businesses.
It seems reasonable that experienced, successful business owners had better access to capital than non-business-owners, who were probably dissuaded from starting businesses if they had to use their own savings.
Aside from the increased risk of the Dodd-Frank encouraged consolidation outlined in the article, this would also help explain why credit has remained difficult to obtain for new firms even while banks can borrow at historically low rates.