The Secret Weapon to Growing Our Economy

by Kevin D. Freeman on February 9, 2013

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Last Spring, we wrote a Post titled “Misplaced Regulation.” It contrasted efforts to shut down Lemonade Stands with regulatory red tape while allowing truly dangerous things such as Credit Default Swaps to be exempt from regulation. The whole system is upside down. Since then, things have gotten worse. They banned 32 ounce sodas in New York while considering legalizing marijuana, for example.

Here are excerpts from the original post:

Misplaced Regulation

by KEVIN D. FREEMAN on MAY 17, 2012

SHOULD CHILDRENS LEMONADE STANDS BE ILLEGAL?In our many briefings, we have warned against the secret weapons that can, have been, and are being used against our economy. We discuss things like Credit Default Swaps (CDS) and naked short selling as just a couple of examples. We point out that Credit Default Swaps were specifically exempted from ANY regulation until the recent Dodd-Frank law. And, Dodd-Frank regs haven’t really been written or enforced. Even when they are in place, many doubt the regs are properly aimed or can be effective.

Let’s not forget that George Soros himself said that short selling and Credit Default Swaps are what tanked Lehman and this is what tanked the economy. Warren Buffett called Credit Swaps “financial weapons of mass destruction.” They were not alone in the criticism. Yet, Credit Default Swaps were completely exempted from ANY regulation. Does that seem right? But it was. Read this:

“It’s legalized gambling. It was illegal gambling. And we made it legal gambling…with absolutely no regulatory controls. Zero, as far as I can tell,” from the New York Insurance Commissioner.

“Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure,” Cox told the Senate Banking Committee today at a hearing on the government’s $700 billion financial rescue plan. Lawmakers should provide the authority “to enhance investor protection and ensure the operation of fair and orderly markets,” he said.     from the former head of the SEC.

For those who are unsure exactly why CDS are a problem, let me ask a simple question. Would you be comfortable learning that lots of people you don’t know are taking out life insurance on your life? And if they could, wouldn’t you want someone….anyone to regulate it?

Now, contrast the fact that these financial WMDs were left unregulated. But, at the same time we have been busy over-regulating things like kid’s lemonade stands, bake sales, ice cream parlors and farm-fresh food. A few links to stories that make the point are shown below. When you read them, keep in mind that we oppose the ridiculous “nanny state” rules. But, we do believe that maybe a little bit of regulation of financial WMDs capable of causing a new Great Depression might just make a little bit of sense.

Feds cracking down on lemonade stands

Utah School Fined $15,000 for Accidentally Selling Soda During Lunch

Ice Cream spot shut down by environmental police

Feds shut down Amish farm for selling fresh milk

Food safety paranoia hits Nevada farm-to-table event

I Tried to Open a Lemonade Stand

Today, a voice of reason stands out, actually in favor of Lemonade Stands! It is none other than Jim Clifton Chairman and CEO of Gallup. He is also the author of The Coming Jobs War (Gallup Press, 2011). Here are his comments from a powerful Blog post:

The Secret Weapon That Will Save U.S. Entrepreneurship

Jim Clifton  Jim Clifton  February 05, 2013

January’s Wells Fargo/Gallup Small Business Index survey has me more frightened than ever about America’s future.

I already knew that our GDP was stalling, if not falling. The Department of Commerce reported recently that GDP declined in the fourth quarter of last year, at an annualized rate of 0.1%. Meanwhile a minimum GDP of 2.5% is required just to tread water economically, in my view, though I think we really need GDP growth of about 4.5% to get the economy humming again.

And I already knew that unemployment was stuck at right around 8%; when you add in those who are “underemployed,” according to Gallup data, it jumps to 17%. These figures tell the story of what was a prosperous and stable democracy that’s now going nowhere.

But the Wells Fargo/Gallup Small Business Index survey reveals the biggest nightmare metric of all: 30% of small-business owners are worried they may not be in business in 12 months. I am also worried because new business startups have fallen below 400,000 per year, and the country needs a bare minimum of 1 million new startups annually, in my estimate, to keep the economy running. We cannot, on top of this, have existing companies going out of business.

These findings are so alarming because the total number of U.S. employees within small businesses is significantly larger than in big business. The fact is, new business startups mean everything to America, because without them, our GDP cannot grow and unemployment will continue to rise. The miracle of economic life in the United States begins with one business starting up — that moment of conception, if you will.

Now, the most important question America must ask is: Does that miracle happen as the result of government policies and regulations, or does it grow out of a spirit of entrepreneurship and free enterprise? The answer is crucial. Get it wrong and the country’s GDP shrinks — and we lose jobs and global standing. Get it right, and America roars back — and becomes a powerhouse again.

The right answer is that the miracle springs from a spirit of free enterprise, a will. It springs from risk takers’ insatiable demand for independence and success. America must understand, encourage, and renew this spirit, or it’s game over for the country.

I wish I could be more optimistic right now, but this story explains why I’m not: A group of college seniors stopped by my office recently in Washington, D.C., and I asked them how many want to start their own business. Just two seniors raised their hands. I asked how many want to work for the government; nine raised their hands. When I asked why the government, every single person said “security.” This is a perfect example of the absence of free-enterprise spirit. When the desire in young people for the security of a government job overwhelms the demand to take an entrepreneurial risk, America sinks.

Sorry about the depressing observations. But there’s a fix that’s simple and doable — and it doesn’t cost much.

We should give every American kid in grades K-12 an opportunity to experience the miracle of free enterprise. Great nonprofits are doing this already. Lemonade Day is teaching kids how to start businesses, and Operation HOPE’s Business in a Box program mentors kids in business and finance. These organizations are inspiring future miracles, because they’re creating moments in which young people feel the thrill of enterprise. Other nonprofits, schools, and public-private partnerships could do the same.

If and when we overwhelm the more than 50 million kids in grades K-12 with the magical experience of entrepreneurship, we’ll create a bright economic future for America and leave behind our current debilitating problems. These young risk-takers will grow up to start small businesses, many of which will shoot up and boom, and the economy will thrive again. America will rebound because our young people will bring the spirit back.

We AGREE 100% with Jim Chilton. In this economic war, one of America’s Secret Weapons is entrepreneurship. We must use it or we will lose it. Our future is at stake!

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