If history is a guide, by now, more than 14 months into a steep recession, a very sharp recovery should be underway. Businesses should be looking out and saying, “You know, Charlie over there has run of out money. I’ll bet I can buy his plant for a great price and I’ll be able to expand for way less than it would have cost me when times were good.” Or they may say, “Acme threw in the towel. Let’s staff up a little bit and go after their customers.”
Yet none of that is happening. Instead, we’re all still sitting here, stuck in second gear, with job losses continuing and the Commerce Department making downward revisions to third and fourth quarter 2009 economic data.
Why is this so? I had it explained to me yesterday by a plumber. A plumber is a prime example of a small business owner. Small business owners understand cost on a near visceral level. We who own businesses understand that for every X dollar spent, there is immediate pressure to produce two or three of four or five X dollars in revenue or the business will die.
In this brutal recession, the costs that business owners can control have been addressed with a vengeance. That’s why nearly seven million people nationwide have lost their jobs since the fourth quarter of 2007.
It’s the costs that we can’t control that are casting a cloud over what should now be a naturally-occurring recovery.
The plumber, one of our clients, explained it very simply. He said, “I get $110 an hour to come unstop your drain. If they make me provide health insurance, it’s going to cost you more. Everybody thinks they’re gonna get free health care. Nothing’s free.”
Well, Paul, are you saying he doesn’t provide health insurance to his employees?
Evidently not. Health insurance isn’t a right. It’s a benefit. In some employment relationships, the underlying economics make it reasonable to include health insurance as a part of the compensation package. In other employment relationships, the underlying economics don’t. The beauty of being an American is that you are free to pursue, by virtue of education and preparation, the employment and compensation system that best suits your needs.
The mere process of enacting a law doesn’t change the facts. Those who are pushing this horrendous health care package can’t simply legislate away the economics of running a plumbing business. Or a dry cleaning company or a printing concern or a children’s clothing store. Taking on the risk of hiring an employee is driven by the economic fundamentals of the business. Those fundamentals don’t change just because Congress acts.
It’s no more complicated than this. If Congress passes a law that raises the cost of an average employee by five percent and if you have 20 employees, you have effectively “hired” a 21st employee that doesn’t do any work.
One of three things will happen as a result. The first thing that might happen is that you will adjust by raising the prices you charge to recover the increased cost. If the business lacks the market pricing power to raise prices – likely in the current soft economy – the second possibility is that you will absorb the increased cost, resulting in decreased profits and thus decreased capital available for reinvestment and expansion. And the third possibility is that a real human employee will lose his or her job in order to compensate for the phantom employee that was placed on your payroll by an act of Congress.
My plumber friend got it right. Nothing’s free.
And thus small business owners are rolled up in the fetal position doing all they can to protect themselves. It is very frightening to a business owner when it becomes clear that not even the sanction of the will of the American people can protect us from a rapacious political class.
This health care fiasco is a microcosmic view of why American business owners have stopped doing what would otherwise come naturally. In ordinary circumstances, financially-strong businesses would be looking to profit from the recession.
But instead, here we sit.