I don’t think yesterday’s GDP report matters. Historically, cyclical movements in GDP are just blips. It is the long-run trend of productivity that matters.
This news from Scott Shane might be disturbing.
The self-employment rate is now below pre-recession levels. Moreover, those self-employed who have managed to remain in business have had to reduce their work hours.
In fact, an increasing number of small business owners would shift back to working for someone else if they could. The Discover Card Small Business Watch, a survey of small business owners, indicates an increase from 2007 to 2009 in the number of business owners who would discontinue their business operations if offered a high-paying job.
If that were a temporary phenomenon, I would not be worried. But one cannot rule out the possibility that Welsey Mouch is now running the economy, with long-term adverse consequences for entrepreneurship.
In any event, if you’re trying to keep score on the economy, I think that small business formation is a much more important indicator than GDP.
[UPDATE] Scott Sumner is priceless.
The 3rd quarter was another huge disappointment. NGDP [nominal GDP, which includes (very little) inflation] grew at a 4.2% pace. Not only was it too slow to return us to trend, but we fell even further behind… Yes, we got some real growth for a change, but only because wage cuts are shifting SRAS [short-run aggregate supply] to the right. You econ teachers out there might want to think about this fact: You know when you teach the options for recovering from a recession? One option is for the government to do nothing, just wait for SRAS to shift right. The self-correcting mechanism. Well that is what is happening now
READER COMMENTS
Zdeno
Oct 30 2009 at 11:17am
Would “priceless” not be construed as a slur, uttered by one economist about another?
Contra Kling, I find Sumner to be insightful and entertaining – I hereby declare my reservation price for reading his blog to be approx. $20/month.
kebko
Oct 30 2009 at 11:20am
I am selling my business, partly because it’s just a small operation, and dealing with regulatory hassles for just 1 or 2 employees makes it hard to grow out of this size. Also, my main product are building identification signs, which are expensive & limited in design due to ADA regulations. And, now, with LEED (environmental) certification on a lot of building projects, you have to track a bunch of arbitrary things like if your product was manufactured near the installation site or how much was recycled.
Computers have transformed my industry in every way. In fact most of what I do, I can’t imagine doing without them. But, we’ve replaced many of those productivity gains with regulatory nonsense.
Doc Merlin
Oct 30 2009 at 1:03pm
“But, we’ve replaced many of those productivity gains with regulatory nonsense.”
That is fairly standard. Gains made with technology are frequently lost due to regulation and taxes. The trick is to accelerate your technological growth curve faster than politicians and bureaucrats can understand it. This is what allowed the tech boom in the 90’s. SarOx pretty much put a damper on that model though.
Matthew C.
Oct 30 2009 at 8:23pm
Yes, Mouch is Large and In Charge. Notice that the only area of the country with no recession is Washington DC. As a sign of the times, two of my younger sibs now work in the Capital in the government-regulatory complex (one for a non-profit, the other as an attorney), while the youngest two are directly in the pay of the Federales via the US Army.
Meanwhile my self-employed wife has seen her after-expenses income from a part-time therapy practice drop from $50K to 0 over the past 2 years. I guess we need to move to DC where incomes never go down, only up. . .
Ryan Vann
Oct 30 2009 at 10:50pm
“Contra Kling, I find Sumner to be insightful and entertaining – I hereby declare my reservation price for reading his blog to be approx. $20/month.”
I didn’t detect a pejorative tone in Kling’s post, but I do agree with you (I guess that means I disagree with Klings position as you understand it.) Scott is a great addition to the Econoblogosphere.
Scott Sumner
Oct 31 2009 at 4:01pm
Thanks zdeno and Ryan, I should think of some way to start charging for my blog.
I also couldn’t tell what Kling meant by priceless. I assume that it was of either zero or infinite value. And no matter how much I like my own stuff, I can’t conceive of any of my statements having infinite value.
Jacob Oost
Oct 31 2009 at 5:07pm
And you call yourselves econ nerds? If something has no price, it doesn’t mean it costs zero, as zero is still a price. It means the elasticity of demand is such that no price can get high enough to reach equilibrium.
Doc Merlin
Nov 1 2009 at 11:22pm
I suggest google advertisements, Scott. They don’t make a ton of money, but hey, every bit helps.
guthrie
Nov 2 2009 at 11:24am
I think it might be a good-natured dig, because his quote reads similarly to ‘recalculation theory’…
USEconomy09
Nov 21 2009 at 1:07am
I agree that small business formation is much more important than GDP. Small businesses are what makes our economy strong. Unfortunately lending has tightend, and it is very difficult for small businesses to get the capital they need to stay in business. Small businesses rely on borrowed funds, i.e. line of credits, credit cards, etc…, and credit companies have reduced credit lines, raised interest rates, and raised fees. Couple that with the fact that the consumer spending has tightened, and you have a receipe for going out of business.
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