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This week we’ll encounter the annual tradition known as Black Friday. Consumers will flood stores and websites to take advantage of after-Thanksgiving sales.
Imagine if the greatest sale in history occurred but most of the middle- and working-class were excluded. Most Americans would rightly be upset. The best deals ever are only available to the “Haves”? This would indeed be a bizarre and infuriating situation.
Well, that’s what government policy has done over the last 8 years. This past election season showed us how just ticked off voters were. Not only did outsider Donald Trump win the presidency, but self-described socialist Bernie Sanders won 25 states in the Democratic primary. The electorate rejected business as usual.
The “Sale of the Century” was on money. We’ve had the lowest interest rates in history, yet poor regulation is keeping many from enjoying the benefits. While households have borne the brunt of this unfortunate situation, the most jarring aspect may be occurring in the corporate space. Big business has had it good, refinancing existing debt and borrowing at cheap rates for new projects.
Meanwhile — and here’s the kicker — small businesses have been largely locked out of the Sale of the Century. Over-regulation, chiefly 2010’s Dodd-Frank Act, has hindered the economic recovery by making it difficult for small businesses (and would-be entrepreneurs) to get the loans that could have filled up empty storefronts and office space across large swaths of the country. As the Washington Post put it in an article about the lack of new businesses, the current situation is “A very bad sign for all but America’s biggest cities.” As the article says, “Industry groups and many economists have warned that the Dodd-Frank financial regulation act, passed in 2010, has forced smaller banks that often serve rural communities to tighten their lending.”
Small businesses rely on bank loans, unlike big businesses that have been raising money by issuing bonds (although big firms also utilize bank loans, via a banker who actually takes their call).
Normally, the only silver lining to a recession is that entrepreneurs take advantage of inexpensive commercial rents, ample labor and low borrowing costs to launch new enterprises. However, over-regulation has held this process back and given us the weakest recovery in memory.
Picture someone in an economically depressed town who seeks a $20,000 loan from a local bank in order to open a nail salon. The Obama administration’s regulations are a major roadblock. To wit, here’s former Fed Gov. Elizabeth Duke’s testimony to Congress in 2010: “Some banks may be overly conservative in their small business lending because of concerns that they will be subject to criticism from their examiners…some potentially profitable loans to creditworthy small businesses may have been lost because of these concerns, particularly on the part of small banks.”
So, big businesses are getting the benefit of both cheap financing and reduced competition, since they aren’t facing as many pesky new competitors. Nice work if you can get it. Even the Obama administration’s head economist has acknowledged the problem of decreased competition in many industries.
In addition, in a country that relies on free enterprise to help new immigrants (who start businesses at twice the rate of other Americans) integrate economically, the last thing we need are more headlines like this one from The Hill, “Banking regulations obstacles to Hispanic business growth.”
We had the Sale of the Century on money, and for that matter also on some cheap assets too — think foreclosed homes in, say, 2009-2012. But policymakers only let the “Haves” into the store. No wonder voters demanded change.
Kyle Hauptman is Executive Director of the Main Street Growth Project, an advocacy group focused on pro-Main Street financial policy, and is a member of the SEC Advisory Committee on Small and Emerging Companies.