Business start ups at all time low

Ronald Bailey:

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The Kauffman Foundation, which has been tracking the rate of business startups since 1980, reports they have hit an all time low. Its new study, "Where Have All the Young Firms Gone?" finds that “Building on a long-term trend, the nation's business startup rate fell below 8 percent for the first time in 2010, marking the lowest point on record for new firm births.” The study adds, “New firms as a percentage of all firms continued a steady downward trend in 2010—going from a high of 13 percent (as a percentage of all firms) in the 1980s to just under 11 percent in 2006 before making a steep decline to the 8 percent in 2010.” 

This decline is critical to job creation. A July 2010 study, "The Importance of Startups in Job Creation and Job Destruction," by Kauffman senior fellow Tim Kane found that since the 1980s, new startups “create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year.” Kane came to the astonishing conclusion, “Startups aren’t everything when it comes to job growth. They are the only thing.” 

The 2012 study found that while new business startups created 2.3 million jobs between March 2009 and March 2010, the net job creation from all U.S. private sector firms was minus 1.8 million jobs. The U.S. unemployment rate was then 9.7 percent. The number of business startups has dropped from 554,109 in 1987 to 394,632 in 2010. The 2012 Kaufmann report notes that the share of job creation from young firms has fallen from more than 40 percent in the 1980s to 30 percent now. While acknowledging that the severity of the Great Recession no doubt contributes to this decline in entrepreneurial activity, it is important to note that startups were a major factor in lifting the U.S. economy out of previous economic downturns. Why is new firm creation lagging now? Perhaps it has something to do with the Obama administration’s idea of governance. 

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There is much more including a discussion of how the regulatory burden imposes direct and indirect cost on business.  I think another important factor in the reduction of start ups is tied to the collapse of housing prices in several markets.  Home equity was a major source of start up investment cash.

Tighter lending requirements have probably also effected people's ability to use home equity since the crash caused by Democrat housing policies that forced banks to lend to people who were not qualified for loans on houses they could not afford.  Incredibly, Obama is still pushing this policy despite all of the Dodd-Frank measures that were supposed to address the mess.  Those regulations in fact turned into a massive cover up by Democrats of their failed policies.