Angels and Demons

What’s stopping small businesses from forming?

Some say it’s uncertainty. There’s so much volatility around health care reform, fiscal policy, or regulation that entrepreneurs are worried that policy uncertainty is undermining the economy. If things were more certain, they claim, business confidence would soar and a thousand flowers would bloom.

I liken this to the “angels and demons” explanation. If we could exorcise the uncertainty demons, the confidence angels could take over, lifting our economy out of its Slough of Despond and up to the rising heights of assurance. Others have called this “confidence pixie dust.” In other words, all we need to do is sprinkle a little confidence pixie dust onto our muddling economy to allow it to fly to Never Never Land.

But pixie dust isn’t real, and angels and demons, according to C.S. Lewis, have more weighty matters to concern themselves with. Nothing is certain. The fault with our economy lies not in our stars, but in our selves. It’s incentives, not celestial beings, that matter to start ups.

Business taxes are high in the US–so it’s hard to start one. Regulators want banks to hold more capital–so it’s hard to get a loan. The securitization market is moribund–so alternative funding is scarce. What’s needed is regulatory discretion and a restructuring of the tax code to level the playing field and stop discrimination against new firms.

Most jobs are created by young, small enterprises. They need encouragement, not pixie dust. Politicians should save that for their own campaigns.

Douglas R. Tengdin, CFA
Chief Investment Officer
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