As we near the one-year anniversary of our economic recession, we also appear to be approaching a crucial juncture and, of the two likely paths ahead, neither is cause for optimism.
History, economic indicators and the natural business cycle all suggest that we are transitioning out of the Crash of Late-2008 into either a "double-dip" downturn or a slow "jobless" recovery. In other words, our near-term prospects appear to be either catastrophic or merely dreary -- deflation-driven depression or inflation-driven recession, 1932 or 1976.
It's no wonder that the U.S. public, weary, fearful and looking at 10 percent unemployment and massive deficits into the indefinite future, is hunkered down, deferring purchases and growing increasingly cynical about Washington's ability to manage the economy (or anything else).
It's a depressing scenario. And yet, Americans are, by their nature, eternally optimistic. Given a way to improve their lot -- while retaining their freedom -- they will take it, and accept the risks and sacrifices to get there.
So, can we envision another path that will enable us to escape this pair of dire futures and restore us to prosperity? Well, certainly it would have to feature, first and foremost, massive job creation, of the magnitude we saw during the Reagan and Clinton years; and, second, the conversion of those jobs, through increased productivity and investment, into equally massive wealth creation. We're talking enough new, non-make-work jobs to push unemployment back down to less than 5 percent; and enough wealth to both pay off most of the debt we already have and preclude the jaw-dropping debt ($9 trillion at last count) we are about to assume.
But how do you create that much employment and wealth in a short time? Large corporations are unequalled at sustaining jobs but, as the past two decades have shown, not at creating them. They also accumulate revenues and profits, but rarely create truly new wealth. Governments can create jobs, largely by fiat, and money simply by printing it – but the jobs are comparatively unproductive and the inflated money creates only the illusion of wealth and further distortions in the economy.
In the end, we only know of one way to create and sustain new jobs and new wealth, as well as the increased productivity and prosperity that accompany them: through entrepreneurial start-ups and small businesses.
But, incredibly, that knowledge has not turned to action. On the contrary, if you were to design a program to systematically undermine, impede and, ultimately, crush new business creation in America, you couldn't do much better than the one begun by the Bush administration and taken into overdrive by the Obama administration. Sarbanes-Oxley has destroyed initial public offerings of new start-ups to the benefit of Big Business, accomplished little and has cost a quarter-trillion dollars (couldn't we use that money now!). It -- combined with rules on options expensing, director liability, the recent re-classification of investment firms as banks, and Candidate Obama's still pending promise to raise capital-gains tax rates -- has paralyzed the high-tech, venture capital industry.