The Business Cycle
Few Americans, even business owners or entrepeneurs who have been schooled in basic economics, really understand the effect that “business cycles” have on our country and on history. The average American may have a fairly broad view of history and not understand the effect of economics on history. Conversely, many americans may have a good general knowledge of economics and not know the the part it has played in a broad historical context. It is my feeling that to understand business cycles and to place them in the proper position to their historical context is crucial to an understanding of our politcal system and our way of life.
The business cycle has been a fact of life for banking people and economists for decades. In the last 80 years business professionals have had to become familiar with these cycles to properly execute their business plans. Proper planning along with the ability to use short term and long term financing are crucial to maintaining a sound business.
Understanding these principles, creating a relationship with a good loan officer or financial executive at a lending institution is important, these principles are not something that you can learn from an economics professor at a college or university. A loan exec at a reputable financial institution will understand the concepts I’m talking about not an educator. You have to understand the context in which an educator is working, colleges and universities are fine places for getting an underpinning in the basics of business administration, however that is not the real world of the small businessman or women. University professors often color the training of young people with their own perspective of the world, which may or may not be based on anything except how they were brought up or how they were impressed by some other colleague. Many people today know that the education establishment has long been the stronghold of those who see the free-market economy as the enemy, not as the much needed economic salvation of the world. Most have never been in business or put into practice many of the concepts they are teaching.
Savvy small business people have to learn that this ecomony is huge and moves in a certain fashion, that movement is sure and certain, you just have to be able to understand and track that movement. After all small business creates the jobs in our economy, large corporations operate differently and in a different environment but small businesses ARE the backbone of our economy. They create the jobs, expand our capabilites as a country and generally are responsible for economic growth and stability. However, most fail because they are ignorant of the basic understanding of financing that I spoke of earlier. But enough of them survive to keep the economy growing, think about it, many fail, but even so this miracle of free-enterprise continues to work and move forward! If you don’t believe this then in the last 3 years lets say ( you can pick any number) what is the relative size of our economy now versus 3 years ago? small business total GDP in 2001 was nearly 9 trillion dollars this year it reached nearly 11 trillion dollars! From 1995 to 2000 the GDP grew from 7.3 trillion dollars to 9.8 trillion dollars, even in punitive regulatory and taxation times! However, this is key to remember, we were in a 5 year upcycle in the business cycle. From 2001 to 2003 the SMB GDP grew from 9.8 trillion to nearly 10.9 trillion in a 2 year downcycle WITH a tech sector bombshell being dropped and WITH the attack of Sept 11th!
October 2004, here we are again in the heat of another campaign season and the politicians and talking heads are at it again:
- “we need to have a government that creates more jobs”
- ” this administration is not creating jobs”
- “this administrations is costing us jobs”
- “my adminstation will create more jobs”
Preposterous! Governments and administrations don’t create permanent jobs that build our economy. On the contrary, jobs that are created by govenments generally become a drain on resources and the tax base. Bureaucracies that are created never seem to go away and take on a life of their own! Never the less. this doesn’t stop politicians from claiming to have the anwers to economic ills in our country, generally they have the wrong answers because just as the ignorant populace they are trying to convince to hire them, they too are ignorant or if they are not, they are being truely deceptive!
Stop and think about it, if these people understand that this is a 12-14 trillion dollar economy, you can’t move this gigantic economy by the means that many of them propose ie: raising taxes, income re-distribution (welfare) taking from income producers and giving to non income producers be they owners or employees of small businesses, this only serves to slow down economic growth and stifle competition. Not only that, it forces more and more businesses to avoid punitive taxation, thereby growing the “underground” economy. If the individual that is running for office is proposing this type of scenario and understands the “business cycle” and the movement of our economy, then that person is nothing more than a con man or women! Many of us know that there are these con men out there, but as we all get older and plan to retire or try to, we tend to become more or less insecure in our views (perfect targets for the con-men). If we ask ourselves why would someone who had this information and is proposing these tactics, we then have to ask “why”. The one reason I see is strictly for the pursuit of power.