June 4, 2015

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Joel Kotkin writes on the things that have made our economy unsafe for small business. 

For those of us who covered the great entrepreneurial explosion of the 1980s, it seemed that we were heading toward a new era of economic diversity and decentralization. In 1985, for example, technology guru John Seybold spoke of an emerging “entrepreneurial age” – driven by competition among young, people-centered companies. Similar pronouncements were issued by futurists ranging from John Naisbitt to more serious analysts like Alvin Toffler and Taichi Sakaiya.

Yet, a funny thing has happened to our entrepreneurial age. Instead of a growing presence of smaller, entrepreneurial firms, we are witnessing a resurgence of Big Business. Indeed, over the past two decades, the Fortune 500’s share of nominal gross domestic product has grown from 58 percent in 1994 to 73 percent in 2013. More revealing still, the fastest growth has taken place among the top 100 firms, which now represent 63 percent of all revenue, up from 57 percent in 1994.

At the same time, smaller firms clearly are struggling. The country’s rate of new business creation, which peaked about decade ago, notes the Kaufmann Foundation, plunged more than 30 percent during the economic collapse that started in 2008 and has been slow to bounce back following the recession. Indeed, in 2012-13, entrepreneurial activity actually declined. This is particularly troubling at a time when we are experiencing a rapid expansion of the ages 25-34 workforce, traditionally a harbinger of obstreperousness. But now, younger people, as a whole, seem either too stressed by tough circumstances or too lacking in assets – normally, a house – to get the critical loans they need to start a business.

The financial equation

The economic reasons for this vary, suggests FiveThirtyEight’s Andrew Flowers, including such things as globalization, merger mania and the success of firms such as Apple. But there may also be political factors at work, most particularly the confluence of large business interests and those of the ever-expanding regulatory regime. …



And William McGurn has more on the way to escape poverty in Baltimore – leave. He has some reference to the Joel Kotkin essay that started this week in May 31st Pickings.

Of all the “solutions” for post-riot Baltimore, the best—at least for African-Americans trapped in poverty—appears to be the one that attracts the least notice: Find a new town to call home.

The message comes via two new studies of upward mobility. The first is from Harvard’s The Equality of Opportunity Project. It finds that a poor child whose family leaves a bad neighborhood for a good one will have better long-term economic prospects.

The other, by Joel Kotkin’s Center for Opportunity Urbanism, measures (by median household income, self-employment, housing affordability and population growth) the best and worst cities for America’s racial minorities. Its finding puts self-styled progressives to shame: Of the top 15 cities for African-Americans today, 13 are in the former Confederacy.

Let’s not mince words. The Harvard study identifies Baltimore as the city where the odds are most stacked against a child’s escaping poverty. Mr. Kotkin says his center’s study underscores “the relative worthlessness of good intentions.”

It also underscores the worthlessness of most of the conversations about Baltimore’s future. These include President Obama’s urging more federal “investment” in the city. Or Mayor Stephanie Rawlings-Blake’s looking to the Federal Emergency Management Agency for $20 million to pay for the riot damage. Or former Baltimore Mayor Martin O’Malley’s run for president on the same government-first orthodoxies that help explain all those boarded up buildings that Americans saw during last month’s televised riots. …



A couple of our favorites have turned their attention to Bernie Sanders. Richard Epstein tries an economics lesson. Good luck washing away Bernie’s tiresome and appalling ignorance.

Senator Bernie Sanders’ quixotic presidential campaign received some unexpected attention for an off-the-cuff comment he made in Iowa this past week. The sentence that has raised some eyebrows is short and to the point: “You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.” For Sanders, the market economy that provides consumers with such choices is fundamentally at odds with society’s duty to take care of the vulnerable.

Fortunately, it is impossible to take Sanders’s pronouncement out of context. It was delivered in casual conversation as a stand-alone one-sentence indictment of what is wrong with America. Unpacking it helps expose Sanders’ profound misunderstanding of how a well-functioning market system operates. …

… it is instructive to ask, what should be done if in fact we conclude that 23 varieties of underarm deodorants and 18 types of sneakers aren’t necessary in a world with starving children? What next? It will surely not do to operate with no types of deodorants or sneakers. But if open markets generate too many alternatives for these and thousands of other market goods, just who is responsible for deciding what firms can offer what products at what prices, and why?

That problem solves itself in a market economy through the mechanism of decentralized consumer choice. …

… The socialist Sanders cannot take any comfort in these decentralized processes, but wishes to put in place cumbersome administrative processes to make those choices. It is there that the agony begins. …

… The history on this point is clear. I doubt very much that Bernie Sanders has any familiarity with the socialist calculation debate of the 1930s, which proved that no central planner has the information to make intelligent judgments on the question of which products should be sold and at what price. There are of course many things that government has to do to maintain competitive markets, but none of them rely on the heavy-handed forms of intervention that rolled effortlessly off Bernie Sanders’ lips. …



Matthew Continetti compares Sanders’ “fossil socialism” to the Clinton campaign.

… Bernie Sanders, for reasons of age and experience, is an old-school socialist, more concerned with quantitative justice than with the hierarchy of grievances. He didn’t mention Baltimore in his announcement speech because he thinks it’s just a symptom of economic breakdown. Or as an article on the World Socialist Website recently put it: “The fundamental division in Baltimore—as in American society as a whole—is class, not race.”

It’s fitting that Sanders’s opponent Hillary Clinton has decided on the opposite strategy. Petrified of once again losing the nomination unexpectedly, she’s pandering to the constituencies that reelected President Obama. So she’s called for an end to “mass incarceration,” she’s pledged to “go further” than Obama’s unconstitutional executive amnesty, she’s playing the gender card, and her aides deny she ever changed her position on same-sex marriage.

Meanwhile she’s coy on the Trans-Pacific Partnership, which the unions oppose, and on the Keystone Pipeline, which the unions support. Her 200 policy advisers haven’t come up with an economic plan as detailed or coherent as Sanders’s because she’s far less antagonistic to the market than he is, and she doesn’t see our social and political dysfunction as a reflection of material imbalances, like he does.

And how could she—she’s a millionaire many times over, a featured speaker at Goldman Sachs, a jet-setter who decided to run for president while vacationing at Oscar de la Renta’s villa in Punta Cana. She may have authorized a leak to the New York Times in which she fantasized about “toppling” the One Percent, but no one really believes her. …



No corner of the economy is free of government’s dead hand. The hand that Bernie Sanders likes. George Will tells us how they mess with raisin growers.

In oral arguments Wednesday, the Supreme Court will hear the government defend its kleptocratic behavior while administering an indefensible law. The Agricultural Marketing Agreement Act of 1937 is among the measures by which New Dealers tried and failed to regulate and mandate America back to prosperity. Seventy-eight years later, it is the government’s reason for stealing Marvin and Laura Horne’s raisins.

New Dealers had bushels of theories, including this: In an economic depression, prices fall, so a recovery will occur when government compels prices to stabilize above where a free market would put them. So Franklin Delano Roosevelt’s “brains trust” produced “price stabilization” programs by which the government would fine-tune the supply of and demand for various commodities. In 1949, this regulatory itch was institutionalized in the Raisin Administrative Committee (RAC). Today it wants the Hornes to ante up about $700,000. They could instead have turned over more than 1 million pounds of raisins — at least four years of their production. …