PrintObamanomics: More businesses going under than are being created
For the first time in 3 decades, businesses are collapsing faster than they're being created. That's the concluisions of a study done by the Brooking Institution, which looked at business creation since 1978.
The American economy is less entrepreneurial now than at any point in the last three decades. That's the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978.
Not only that, but during the most recent three years of the study -- 2009, 2010 and 2011 -- businesses were collapsing faster than they were being formed, a first. Overall, new businesses creation (measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.
No, it's not entirely the fault of President Obama's policies, but given the slide in the last 3 years of the study, it's hard not to make a case that higher federal taxes and more regulation has stifled business creation and led to more business failings.
The authors don't mince words about the stakes here: If the decline persists, "it implies a continuation of slow growth for the indefinite future." This lack of economic dynamism, particularly the steep drop since 2006, may be one reason why our current recovery has felt like much less than a recovery. As Matt O'Brien noted on Wonkblog last week, annual job growth rates have stubbornly refused to budge above 2 percent for the duration of the recovery.
Surprisingly, state taxes appear to have very little to do with the the relative drop off in business creation:
No immediate pattern emerges from the state-level geography, but one thing is worth nothing. For kicks I tried to correlate the drops in new businesses in each state with the states' scores on the Tax Foundation's 2014 State Business Tax Climate Index. There was no significant relationship one way or the other. For example, New York, which showed the lowest decrease in new businesses, actually scored dead last in the Tax Foundation's ranking. Wyoming had one of the largest declines, even though it ranked first in the Tax Foundation's report.
Good infrastructure may have more to do with business creation than other factors like taxes. We don't know at this point.
But what we can be certain of is that unless there is a turnaround in those numbers, the US economy is going to be looking a lot more like France.
