Even small business is bigger in Texas

At CNN Money, the reasons to move a small business to, or start one in, Texas.

What if we never run out of oil?

The cover story of this month's Atlantic, only recently available online without a subscription, will be one of the most interesting articles you read all week regardless of your politics. Much more worth your time than reading the umpteenth revelation from Scandal Week in Washington.

Vegas, bebeh

We did some mixing of business and pleasure this week in Las Vegas, bolting on a weekend in front of the Bank of American Health Care Conference. There were a couple of pictures in my phone perhaps worth passing along.

("The Bellagio," May 12, 2013, Las Vegas)

("Tulips", at The Encore, May 12, 2013, Las Vegas)

One can buy "Tulips" for a no doubt princely sum, if one has a space sufficiently large for the piece.

Underground

According to CNBC, the economy is growing, but underground:

The growing underground economy may be helping to prevent the real economy from sinking further, according to analysts.

The shadow economy is a system composed of those who can't find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

The article cites claims that the size of the underground economy in the United States has doubled since 2009. This is good news, in the sense that more economic activity is better than less. It does, however, inspire some unavoidable questions. For example, why are so many jobs going underground, a condition more commonly associated with corrupt economies "like Brazil or in southern Europe"? One reason is the rising costs of the welfare state:

"There's a lot of uncertainly about immigration changes and who will be legal, and about paying for Obamacare," she said, adding that most workers in the shadow economy are in the country illegally. "Government rules are keeping businesses from hiring."

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers' hours to less than 30 a week to avoid having to offer health benefits through Obamacare (or pay a fine).

"This type of regulation could put more people out of work and into an underground economy," McHenry said.

The question is, what are the consequences? There are the obvious: The government does not collect taxes on the income of such workers. Because otherwise legitimate businesses can and indeed must pay "informal" workers in cash and therefore cannot deduct those wages as expense, we imagine most owners are, er, qualifying their own reported income. Also, we cannot count off-the-books workers, so government figures probably understate employment and economic growth, which might result in poorly-reasoned fiscal policy (in the alternative universe where actual economic conditions drive the political decision to increase or decrease the size of government).

But there is this, too, which concerns us far more than even hundreds of billions in lost tax revenue: When with regulation and taxation we drive the legitimate economy in to the shadows, we turn otherwise honest people who are only trying to earn a living in to dishonest people. Just as broken windows, litter, and graffiti beget more serious crime, underground business corrupts the soul, and makes people more likely to take or pay bribes, evade taxes, or otherwise break the law more comprehensively. Increasing quotidian dishonesty is a symptom of a culture in decline, and we ignore its consequences for posterity at the peril of our children.

Shakedown watch: Twisting arms to fund Obamacare

When the Secretary of Health and Human Services, who has vast powers under the Affordable Care Act ("Obamacare"), asks for "contributions" from the companies over whom she wields vast regulatory and economic power, how is that functionally different than a tax that has not been duly enacted?

[T]he industry official who had knowledge of the calls but did not participate directly in them said there was a clear insinuation by the administration that the insurers should give financially to the nonprofits.

This administration has no shame whatsoever.

From the archives

Adirondack road.

(July 11, 2010, near Tupper Lake, New York)

The GOP is good for bidness

The Chief Executive Magazine ranking of the top ten states for business...

WWND?*

There are few cliches on the libertarian right more shopworn than "the power to tax is the power to destroy." Nobody who is not a feverish conspiracy theorist (or perhaps merely took Barack Obama at face value) thought that this extended to the bureaucratic mechanisms of the IRS, which we now know were deployed -- passive voice intentional -- in the service of the president's re-election. The question is, who gave the orders?

__________________________________________________

^*What Would Nixon Do?

A small businessman tells the Census Bureau to take a hike

One of the many little ways our government tortures the small business owner. A useful example for people who have never run a business. And don't miss the bit about hypocritical free-market economists!

Bitcoin: The empire strikes back

You knew this was coming: The Commodities Futures Trading Commission is worried about Bitcoins, and considering regulation of them.

Introduction to Bitcoins here.

Kids today...

"Kids today." Adults almost always grumble about the work ethic of the younger generation -- it will not surprise my children that I've been doing it since I was 30, when the 25 year-old newbies just out of law school were shocked and appalled that they had to work over Labor Day weekend because, well, the hearing was on Tuesday. Insufficient commitment and and what's to come of this and that all that jazz. Well, perhaps I was wrong then but now I'm right! According to the story at the link, actual data show that today's "kids today" are both more materialistic and less willing to work for their, er, stuff.

The fantasy gap

Compared to Baby Boomers graduating from high school in the 1970s, recent high school students are more materialistic — 62 percent of students surveyed in 2005-07 think it’s important to have a lot of money, while just 48 percent had the same belief in 1976-78.

Sixty-nine percent of recent high school graduates thought it was important to own a home, compared to just 55 percent in 1976-78. Materialism peaked in the 80s and 90s with Generation X and has continued to stay high.

As for work ethic, 39 percent of students surveyed in 2005-07 admitted they didn’t want to work hard, compared to only 25 percent in 1976-78.

I knew it!

The study purports to show a link between materialism among young people and the extent of advertising spending during their formative years. No doubt there is a correlation, but parents -- including those of my children -- made choices as well. The ugly truth is that those of us who are affluent, or perhaps only pretended to be, did our children no favors by indulging in that affluence before they were out of the house.

These things tend to be self-correcting, usually in some way that is painful for the generation that needs to learn the lesson. The smarter ones will resent their parents when they figure it out, sad to say.

CWCID: Regular reader "Jungle Trader".

Where are the start-ups?

Glenn Reynolds links his own column, "Where are the start-ups?" It quite eloquently echoes most of the now longstanding themes of this blog, to wit:

[T]he latest data indicate that start-ups are becoming rarer, not more common. A new report from JPMorgan economist Mike Feroli indicates that employment in start-ups is plunging. New jobs in the economy tend to come from new businesses, but we're getting fewer new businesses. That doesn't bode well.

In fact, it is yet another sign of a United States that is looking more like Europe: A society in which big businesses have cozy relationships with big government, while unemployment remains comparatively high. If you're fortunate enough to have a job at one of those government-connected businesses, GE, for example, your situation is pretty good. If you're a recent college graduate looking for work, your situation is not so great. If you're a low-skilled worker, your situation is dreadful.

So what's to blame for this change? A lot of things, probably. One reason, I suspect, for a job market that looks more like Europe is a regulatory and legal environment that looks more like Europe's. High regulatory loads -- the product of ObamaCare and numerous other laws -- systematically harm small businesses, which can't afford the personnel needed for compliance, to the benefit of large corporations, which can.

Word. And this bit speaks to us, as any regular reader knows:

But I wonder if the biggest problem isn't cultural. Since 2008, this country hasn't celebrated achievement or entrepreneurialism. Instead, we've heard talk about the evils of the "1%" " about the rapaciousness of capitalism, and the importance of spreading the wealth around. We've even heard that work in the public sector is somehow nobler than work in the private sector.

Countries where those attitudes prevail tend not to produce as much entrepreneurialism, so it's perhaps no surprise that as those attitudes have gained ascendance among America's political class and media elite, we've seen less entrepreneurialism here.

We hear a lot about the role of financial capital in economic development. But just as important -- perhaps even more important -- is the role of moral and intellectual capital. A country that celebrates achievement and risk-taking is likely to see more economic success than one that does not. And while the economy was lousy under Carter, there was less of this sort of anti-entrepreneurial talk.

Correct. Entrepreneurs need positive reinforcement as anybody else does, so celebration of their ambition and achievement is important, and that is why we do it here and hope our readers do the same.

The White House obviously wants to avoid the blame for the start-up drought, which has been getting more publicity in the last few months. The president is descending on Austin this week, all part of his "Middle Class Jobs and Opportunity Tour." Yes, we expect the "tour" t-shirt will be cool, but mostly we wonder whether President Obama is coming to Austin to listen, or to lecture. If the former, there is a great deal he can learn in this liberal Texas city which, left as it is in its cultural values, loves nothing more than a start-up and celebrates business to a far greater extent than college towns on the coasts. We hope he exceeds our expectations, but we expect to be disappointed.

There is rich, and then there is Al Gore rich

A revealing and surprisingly balanced story about how Al Gore has gotten "Romney rich" in the last decade. My question for your consideration: Setting everything else equal, in the pantheon of rich politicians, do you prefer those who made their money before they entered politics, or after?

Is America's entrepreneurial culture dying?

More than one economist is worried that America's entrepreneurial culture is dying -- statistics and other indicators here, including some damning differences in the creation of "start-up" jobs between the United States administered by Barack Obama and that of his predecessors.

There is an argument over the causes and consequences. From the linked post:

Hudson’s possible suspects for the slowdown: a) higher business taxes, b) Obamacare, c) an IRS crackdown on US employers that hire U.S. workers as independent contractors rather than employees, and d) a steady barrier erected to entrepreneurs at the local policy level. But whatever the cause of the entrepreneurial decline, two possible impacts: 1) A less productive and innovative economy, and 2) higher profits for big business thanks to fewer upstart competitors on the horizon.

The consequences seem probable to the point of being obvious, to which we would add a poorer future for our posterity and less opportunity and joy from the innovations to come (cue Brad Paisley). To the Hudson Institute's list of causes, however, we would add several more:

The end of the IPO exit for venture investors, which, obviously, means a lot less venture capital. Some of the cause is merely the market at work -- so many investors lost money when the "Dot Com" bubble burst, there are fewer individuals and professional money managers willing to buy shares in "pre revenue" IPOs. But some of it is regulation. Sarbanes-Oxley not only massively increased the costs of going public, but the requirement for an "internal controls" audit can and does hurt the ability of small public companies to capitalize on their main advantage, which is their own entrepreneurial culture.

There has been under President Obama a huge increase in heavy-handed regulation in three of our most dynamic industries -- finance, energy, and health care. There is a reason for each with which one might agree or disagree (the financial crisis, climate change, and the Obama Administration's belief that the FDA was not adequately safeguarding the public health), but there is no denying that both the overhead burdens and the sheer regulatory uncertainty has increased in all three of these sectors, which combined account for more than 30% of GDP.

Finally, the current administration, in a thousand ways large and small, reminds prospective entrepreneurs that it neither understands their challenges nor appreciates their accomplishments. We see this in new regulations to increase the leverage of employees over employers, the now-abandoned effort in the face of a terrible job market to eliminate the secret ballot in unionization votes, the huge increase in approval times to bring new regulated products to market (such as in the medical device industry), taxes on revenues instead of profits (which by definition are brutal for start-ups), subsidies for politically-connected businesses ("green tech" boondoggles) that cannot raise money in the private sector, and the constant political attacks on the "rich" (all entrepreneurs being, in their own mind, aspiring rich people). To name but the smallest fraction of such offenses.

All is not lost. Cultural change does not happen in just a few years. We can recover our inner animal spirits we start celebrating enterprise, and elect politicians who understand that they cannot live their redistributionist dreams if they also do not care for the golden goose. This is something that Bill Clinton understood, and Barack Obama manifestly does not.

Barack Obama to visit Austin to talk about the economy

Barack Obama is coming to Austin, home of more or less the hottest job market in the country right now, "to talk about the economy." My question: Is he going to listen, or lecture?

Blackrock to hire 300 lawyers

The financial firm BlackRock is hiring another 300 lawyers to contend with new regulation around the world. An example, however boneheaded, of the government's capacity to "create jobs." Dead-weight jobs that displace other employment and will create no actual new wealth or raise our standard of living and that of our children, but jobs nonetheless.

Sheesh.

The wages of sanctimony: Disney increases Bangladesh's suffering

The Walt Disney Company is all afeared that the professionally sanctimonious will hammer on it for sourcing its clothing in Bangladesh, where a factory just collapsed and crushed several hundred people.

This is transnational progressivism reverberating in to a perverse, but perfectly understandable, business decision: Better to go the full Pontius Pilate so the liberals will stop clucking than to keep doing business there. Never mind that we condemn that sad country to further poverty, which will defer instead of hasten the day when it can afford buildings that will not collapse.

Beware of ICE!

Once again, the Department of Homeland Security is using otherwise innocent employers to do its dirty work, at no small risk to the job-creators:

The Department of Homeland Security has issued new and revised I-9 Forms that employers must begin using on May 7 for all new hires. Failure to properly complete and retain the new forms can result in substantial fines and penalties. With immigration being a hot issue in Washington, we should expect that Immigration and Customs Enforcement (ICE) will be vigilant in conducting audits to enforce the I-9 requirements. Beware of ICE!

ICE will continue to focus its resources on the criminal prosecution of employers that knowingly hire illegal workers. Audits of employers for compliance with I-9 requirements is the principal tool for ICE to identify and prosecute violators. Unfortunately, those audits often result not in prosecution for hiring illegals, but in the imposition of substantial fines for paperwork and retention mistakes even where such mistakes have nothing to do with the employment of illegal aliens. Under the matrix used for calculating fines, ICE punishes employers based on the percentage of Forms handled improperly, which means that an employer could be fined more than $1,000 per Form if it makes the same mistake in completing or maintaining the Forms for each new hire, even if there are no illegal employees and the mistakes are merely inadvertent or negligent errors.

Responsibility-shifting, revenue-raising, and transporting ineffectiveness -- what's not to love?

And people wonder why employment growth is so sluggish.

Leno on how to close Gitmo

Jay Leno on the means by which President Obama ought to close the jihadi jail at Gitmo: "He should do what he always does: declare it a small business and tax it out of existence".

No doubt he would, if he weren't worried that would open him to the charge of "shipping good jobs overseas."

Crony Watch: Gutting the STOCK act

If only this were even remotely surprising.

Sending innovation elsewhere

More on how our government's policies are stifling innovation in medical technology, or pushing it overseas. Laugh-but-cry 'graph:

A spokesperson from the FDA said the agency is aware of these concerns.

“We’re reaching out to venture capitalists and entrepreneurs to include them in our discussions and have used the feedback to develop smart regulations that balance patient safety and innovation,” an FDA spokesperson noted in an email interview, and provided a link to a new program where entrepreneurs work in concert with FDA employees.

(Note: It took the FDA took two weeks to assign a spokesperson, and cancelled interviews on multiple occasions, after VentureBeat requested comments — indirectly confirming criticisms about its glacial pace.)

A bit unfair to the FDA -- yes, we actually wrote that -- in a confusing passage, but the broader point of the article obtains. Delay lowers the value of future earnings. Setting all future earnings equal, delay means that certain new ideas will have lower returns than otherwise, and those at the margin will not be funded and therefore will never reach market. What if one of those lower-return ideas would make your life more comfortable, or even save it?

Jet

Last night, as I was stuck on the tarmac in Austin on account of a hail storm...

Voyeur

This little fellow was caught peering in to our bathroom this afternoon...

(April 28, 2013, Austin, Texas)

An idea so obvious...

Sometimes, one stumbles across a business so obvious that one kicks oneself for not thinking of it. For example:

(Austin, Texas, April 27, 2013)

The Harvard Business Review "Explainer": How cronyism is killing American innovation

Take a few minutes to scroll through this nifty little slide show about how cronyism -- "corruption" in the terms of the presentation -- is killing American innovation.

The implication, of course, is that money in politics is the problem. It is, but only because we have expanded the powers of our originally limited government to a degree that allows for all this opportunity for politicians and regulators to pick winners and losers. If government at all levels were more constrained by objective rules, far fewer people would be interested in participating in its process.

There is another problem, though. There are popular disruptive companies -- those named in the slideshow, for example -- and unpopular ones. All over the country, small businesses enlisted local political power to oppose the expansion of Wal-Mart, which was enormously disruptive and equally unpopular. If you oppose cronyism and support disruption in the vein of Netflix and Uber, it becomes much harder to complain about the impact of Wal-Mart, which has been nothing but innovative over a very long period of time.

Business destruction watch: The Feds want to move your cheese

All in the interests of protecting you from risks so minor that otherwise safety-conscious European people are willing to assume them, the Feds propose to cut the cheese. Yes, the government needs to protect us from eating natural food in the form of raw cheese. The risks are so small, one is forced to wonder whether these regulators step outside their front door:

Using that data, she calculated in an email to me that the chances of a person in a high-risk group (e.g., a pregnant woman) being sickened by pasteurized cheese are the same as the likelihood of someone from the general population being sickened by unpasteurized cheese—in both cases a scant 1 in 55 million.

Erber notes that means "1/6 of the entire country could eat camembert at the same time and ONE person would get really sick."

Those microscopic odds are also reflected in real-world numbers.

Erber points out the report notes just “725 reported illnesses in the entire world over a 25 year period,” a startlingly small number given worldwide cheese consumption.

You would think locavore liberals would be up in arms, but since Barack Obama is in office only those nettlesome libertarians are, er, raising a stink.

Setting aside the joy that this will suck out of American gastronomic life -- and why on earth would we set aside joy? -- how many little businesses will go under because of this latest "public health" initiative? How many businesses will not be started for fear that the unelected regulatory state will identify a microscopic risk and shut them down?

There would be far less regulation, and the regulation we have would be far more intelligent, if more voters understood probability.

Crony Watch: At least we're not Chinese

If you worry that money and politics are too closely linked in the United States, you can comfort yourself that our leaders take a vow of poverty compared to the People's Republic of China's:

The market economy has not been good for Communism, but it has been awesome for your average top commie. Of course, even with its police state and still endemic brutality, China is in many important respects a far freer place today than than at any time during the second half of the 20th century. Perhaps some looting at the top is a small price to pay for that fair wind.

Old school business

When was the last time you saw a sign that said this?

(April 25, 2013, Austin, Texas)

Why sales taxes on internet transactions will hurt small business

Megan McArdle explains why taxes on the internet sales of small businesses that do not otherwise have a "nexus" in a particular state will hurt them. She is right -- this is just another example of regulation that will burden small businesses far out of proportion to large ones. Why? Because the overhead required to pay taxes in hundreds of jurisdictions is no little matter, even for pretty significant companies. Only large companies can easily absorb the infrastructure to do it accurately. Small businesses trying to sell t-shirts or cupcakes or logo umbrellas over the internet cannot afford the people necessary to pay taxes in hundreds of jurisdictions, even if the taxes themselves are a small percentage of sales.

There is another question, a point of principle, that warrants at least passing discussion. Beyond the utilitarian anti-small business considerations, why are we (as opposed to the governing class) better off if the federal government enforces the unrealistic and outmoded tax laws of the states? States can fund themselves in any number of ways, and chose the sales tax generations ago because it was relatively easy to audit retail transactions. Now that the internet has driven retail in to the cloud and manifestly across state lines, perhaps states should consider reforming the means by which they raise revenue to take, you know, reality in to account.

On the question of bosses demanding Facebook passwords

Certain corners of the press are irritated that an otherwise horrible law, CISPA, does not prevent employers from demanding that employees turn over their Facebook passwords. Two things might be said about this.

First, the main reason that employers want access to the "personal" lives of their employees is that courts have extended the liability of employers to the activities of employees. The way to kill off employer interest in such things is to clearly declare that the personal web musings of employees (such as this blog, or Facebook) cannot be admitted as evidence of an employer's wrongdoing. We note, for instance, that this blog post was cited in support of a claim that the large public company in which the blogger was an executive was racist. As long as the courts tolerate such allegations, employers will have a legitimate interest in the online activities of employees.

Second, any employer who routinely demands the Facebook passwords of its employees is a moron, and will be punished by the labor market accordingly. The remedy is online ridicule on employee kvetching sites like Glassdoor, no legislation required.