Monday, June 8, 2009


In today’s economic environment, helping small businesses create new jobs needs to be our leading priority. Yes, we must take care of the displaced, but we must do it through job creation. The Democrats in Concord can’t seem to understand this. They keep adding more and more weight onto the state’s business community, expecting them to continue to fly. They have just done it again this week by adding more social safety net legislation at the expense of job creation. While they will now crow about “helping people” their policies will have the exact opposite impact.

America’s economic safety net undoubtedly plays an important role in stabilizing the economy when events or economic situations take a turn for the worse. Markets have always had an unfortunate tendency to over-react in the short run. Therefore, such measures as unemployment insurance serve as a good short term shock absorber to slow the descent while economic policies and normal market forces bring the economy back into balance. Other social safety net policies can also be helpful to an economy and the quality of life.

But as the saying goes, “Taken to an extreme, any virtue can be turned into a vice.” Just as a wrong sized shock absorber on a car can be counter productive, so it is in economics. The Europeans have been seeing this in spades over the last few decades. Several countries like France and Germany have adopted such inflated unemployment and other social benefits that businesses are now very reluctant to hire new people. As a result, unemployment is the overriding problem because existing businesses can’t bear the load. This also means that new businesses are hard to start and job creating innovation is much slower than in the faster paced economies. There is clearly a balance to be struck.

America’s business community is now struggling to survive in the worst economic downturn in the past seventy years. Even the largest and once most successful of businesses are holding on by their fingernails. In the past year we have seen the bankruptcy of some of America’s business icons such as Chrysler and General Motors, Merrill Lynch, Circuit City, and many others. At the same time businesses have been scaling back and closing stores at an alarming pace. As a result, the country's jobless rate jumped to 9.4 percent in May, the highest in twenty-five years. This figure is already higher than the “worse case scenario” of the government’s just completed stress tests. And there is more to come as unemployment will surely pass into the double digits.

But it is the young and the weak - small business and new graduates - that usually bear the brunt of the problem. Small businesses are much more fragile and prone to being undercapitalized and living on the edge. With the banking crisis still at high tide, they are really suffering as even short term finance is very hard to find. Young labor is also struggling to find jobs that increasingly are not there.

Oblivious to this situation, our State Senate passed out three new bills this week that will undoubtedly put even more pressure on our economy. Unfortunately, these have come on the heals of the 23 new taxes which the Legislature has signed this year.

SB144: Allows expanded unemployment benefits for such new reasons as the spouse is relocating, or to care for an ill family member. This was partly done to take advantage of stimulus funds for this year. But what about next year, and the years ahead? Ultimately, businesses will have to pay more into the unemployment account – with funds they do not have.

SB40: Requires businesses with more than 80 employees to be given 60 day notice before layoffs (compared to Federal requirement of more than 100 employees). This has numerous implications for business, including lost productivity during a layoff.

SB129: Increases the contributions required of businesses when they run a negative unemployment compensation balance. The problem is that if the balance is negative, the business is laying off people, and now more must be paid, leading to more layoffs. An amendment to defer implementation of this for one year was defeated.

There is no such thing as a free lunch. Someone will have to pay for these measures. Unfortunately, it is bound to be most heavily felt by the people of New Hampshire as businesses find the state increasingly less attractive a place to work in.

Considering what we have been seeing from the legislature this year, they seem really determined to turn our state into California or North Massachusetts.

Bob Bestani

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