Comment on an Op-Ed piece from David Brooks.

I read yesterday's Op-Ed piece from Conservative David Brooks.  In it, he tried to provide a moderate voice - his usual style - of a contemporaneous issue: federal debt.  To support his position, he paints those who use data, as somehow disconnected from reality, and relied on anecdotal evidence and opinion polls.

He argued that austerity is what drives confidence, or specifically, that a growing debt creates anxiety among the entrepreneurs, and that people with "high IQ's" (presumably on the opposite end of entrepreneurs) rely too much on their theories, entirely lacking a pragmatist's insights.

The bottom line to Brooks: Small businesses are concerned about federal debt and as a result, tax increases.

I don't think so.  I strongly believe that small businesses are wary of expanding for four reasons, none of which has to do with the federal debt or tax increases.

1. First, let me describe how I've seen this process work.  The opinions of Wall Street gets filtered down to small business owners through a variety of routes, including emails, breakfast presentations by local representatives, the media, and opinions of like-minded colleagues.  If Wall Street's opinion is that, there is uncertainty in the future for a variety of reasons, that translates down to the small business owner that there is uncertainty in the future, and the entrepreneur is wary of expanding too fast.  I've seen the exact same arguments being issued from Wall Street's media outlets (professional opinions), and how that is reflected by the banker who then says the same thing to small business owners in emails about the economic outlook.
   
2. Second, the easiest way to expand business after a serious contraction, is to simply increase productivity by increasing work hours.  No need to hire new people, when you can remove that 32 hour work-week restriction, and get your workers up to full capacity 40 hour work weeks, right?  Think about that...which one is cheaper for a business owner?  And you know what?  The data in fact shows this.
   
3. Third, if a bank says credit is tight and you only have so much revolving credit and lending is being limited, what choice does a small business have?  You simply cannot expand, and the core market that has been devastated by this housing bubble, is construction.
   
4. Fourth, yes, small businesses are concerned about uncertainty about future taxes, and obviously they are waiting on the sidelines as they determine how to manage their businesses to navigate the (presumed tax changes).  But let's not fool ourselves.  Local taxes are what drives uncertainty.  Look at the budget shortfall of the states, not the federal debt.  Are you really going to be concerned about federal debt, when you know that, in fact, your state and city may be raising taxes faster than you can expand income?  I understand, that small businesses are concerned about inflation, but I think this plays a very small concern right now, given the historically low interest rates, and the unbelievably low US bond rates.  If there was any doubt that people were afraid of the US economy, again, look to how low the US bond rates are!  Where's the lack of confidence in the US economy?
   

Of course, Brooks always strikes a middle tone, so here's his proposal, which I think people should take note:

First, extend unemployment insurance; that’s a foolish place to begin budget-balancing. Second, you need to mitigate the pain caused by the state governments that are slashing spending. You need a program modeled on Race to the Top. You will provide federal money now to states that pass responsible long-term budget plans that will reduce spending and pension commitments. That would save public-sector jobs and ease contractionary pressures without throwing the country into a fiscal-debt spiral.

Now you tell me, doesn't Brooks sound like a Democrat?