Our new, prosperous economic normal
The difference between economic conditions now and a few years ago is stark. Since the 2016 election, the unemployment rate has dropped to a five decade low. Year-over-year monthly wage growth consistently surpasses three percent with blue-collar earnings rising faster than those of their managers. And the tight job market is encouraging more Americans to enter the labor force.
Recent polling shows most Americans are personally benefiting from these economic improvements.
According to Gallup, nearly two-thirds say they are better off now than three years ago. Among election cycles with an incumbent president on the ticket, the indicator has hit a three-decade peak. Optimism for the future is also strong. 74 percent of Americans believe their personal finances will continue improving in 2020—a record high.
The new economic “normal” is welcomed. The Great Recession was followed by years of misguided federal policy that suppressed economic growth and financial security. Small businesses were particularly affected as their comparably modest budgets were less able to absorb shocks to labor costs, consumer demand changes and a growing regulatory burden. Prior to the passage of the Tax Cuts and Jobs Act in 2017, these businesses were also subject to higher tax rates.
During this period, extreme regulation proved especially challenging for entrepreneurs.
The overtime rule threatened to double the legal earnings threshold for salaried workers—forcing businesses to scale back job opportunities, cut employee hours and reclassify salaried workers as hourly ones in order to comply. Luckily the rule—backed by Obama’s Labor Department—was tied-up in the courts until the Trump administration proposed and adopted a more moderate benchmark.
The franchise business structure—responsible for over 8 million American jobs—also came under attack. The National Labor Relations Board (NLRB) under Obama supported a legal standard that made franchisors liable for actions taken by independent franchisees. The move encouraged an avalanche of frivolous lawsuits that jeopardized the job creating business model. Thankfully, this too was later walked back under the Trump administration.
Additionally, sweeping financial regulations drained credit pools that small businesses relied upon to grow and expand. The legislation known as Dodd-Frank, passed under the Obama administration, subjected financial institutions to hundreds of new regulations that have cost the economy over $36 billion; not to mention the over 70 million hours of additional paperwork that flooded banks across the country. Consequently, one-in-five U.S. banks closed their doors. Many were small, community banks—which supply nearly half of small business loans. Another save by the Trump administration, which—with the support of Congress—rolled back parts of Dodd-Frank that directly impacted small community banks.
And let’s not forget about Obamacare. The partial government takeover of healthcare caused choices to dwindle and costs to skyrocket. As a result, the proportion of businesses with fewer than 10 employees offering health coverage dropped by more than a third—piling an even bigger financial burden onto American families. Similarly, the number of businesses employing between 10 and 24 workers offering coverage decreased by a quarter.
The past decade has been an economic roller coaster for small business. The policies highlighted above were a drag on the economy and entrepreneurial spirit. Instead of wondering how successful a business could be, entrepreneurs were concerned about a regulatory progress ceiling.
Thankfully, under policies pursued by the current administration, the economic tail winds have shifted and are now firmly at the backs of American enterprise.
Tax cuts have put more money in people’s pockets and deregulation has unleashed the full potential of the small business community. The new economic “normal” is one I hope we can keep. I for one don’t want to go back and neither do most other Americans.