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A (Really) Small Business Index of the Economy

October 6, 2008

One almost-compulsive habit I have is asking “how is business going?” whenever I have occasion to talk to the owner of a small business. These opportunities are frequent. Almost all of us run into small business owners several times a week as we shop, eat lunch and go about our daily lives. I could spin an academic story about why I frequently ask this question, but the real answer is that I grew up in a family that owned some small businesses and just find small business owners interesting people to talk to. An added benefit, though, is that you often get a faster and better sense of what is going on in the economy than the often-significantly-lagged government statistics suggest.  Alan Greenspan was well known for talking incessantly with business people, trying to figure out the next risk on the economic horizon. But he was talking to the CEO’s of the Goldman Sachs and General Electrics of the world. I am more likely to talk to the owner of a local Chinese restaurant. In fact, during the last ten days I have asked my compulsive question to the owners of

  1. a Chinese restaurant
  2. a dealership that sells mostly Vespa scooters
  3. a not-too-small (20 people) software developer
  4. a company that makes and markets some art and design products made of cardboard 

All reported a recent decrease in sales.  So, I am not waiting for the government statistics to tell me the economy is contracting.  While four small businesses each reporting that their sales are decreasing could be a fluke, I doubt it.  The economy is already contracting.

History suggests that increases in the rate of savings should soon follow. Now is a great time for public policy to focus on developing the infrastructure that helps savings become a habit. A sensible place to start is with small businesses and allowing their employees access to the same types of tax deferred retirement savings vehicles that the employees of large companies have. Acting now can help ensure that when the economy does come storming back, and most certainly it will, this new found thrift does not go the way of the dinosaur.

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3 comments

  1. this information is usefull to us


  2. What about the double whammy of the cap gains taxes we’ll need to pay for all those mutual funds which have sold…sold…sold??? The govv’t should consider holding off on ST/LT cap gains taxes generated from mutual funds at the end of this year, which will inevidably be high.

    This, and suspending mandatory IRA withdrawals for 70 1/2 and above , as McCaine has recommended.


  3. There need to ne more incentives to save. If we’re going to allow interest to be written off as an expense, we need to decrease taxes on interest earned. In addition, I hesitate to put more money into a 401K because I view it is a big bullseye down the road. I can already hear a class warrior pushing legislation in 2023 that puts a 10% annual tax on any 401K with over one million dollars in it, never mind the fact that years before that they will likely disallow social security benefits for anyone with over 500K in a 401K. These moves will be done in the name of economic “fairness” or “justice”.



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