Green Shoots Withering?

The Best Sign That It's Safe to Start a Business Again ... Self-employment is suddenly spiking in 2012. That might sound like more people are giving up hope on the job market and going it alone. In fact, it's great news. For the last four years, more Americans were starting their own businesses, yet self-employment was decreasing. This sounds like a contradiction, but it's not. The explanation – and the surge of self-employed Americans in the last few months – tells an important story about the recovery. For three years, lots of businesses were being born, but even more were likely dying. Today, businesses appear to be surviving. And that's the best sign that it's safe to hang up your own shingle in the U.S. today. – The Atlantic

Dominant Social Theme: Things are looking up! Green shoots are around the corner!

Free-Market Analysis: The Atlantic in its 21st century incarnation is a more predictably elitist publication than ever. These days, like the New Yorker, its editors have expanded its brief to include articles on various economic and military-related issues.

But we don't find much that is compelling about these sorts of articles. We find they tread familiar ground because they inevitably resemble the memes of the elites.

These articles, in fact, replicate elite dominant social themes, which is the reason these magazines were created in the first place. They were invented as "thought publications" to influence the thinking class. If one can bring society's most adept "messengers" around to one's way of thinking, then the ripple effect can be valuable indeed.

We've written about The Atlantic before. Here are two articles among many:

The Quiet Coup

Atlantic Misleads with 'Short History of Money'?

When it comes to money, there is no question – The Atlantic takes mainstream stances that correspond to what we would expect from a publication designed to promote certain standards and aspects of elite positioning.

Thus it is we find amidst articles on food, wine and literature various speculations about economics, and this article on the US's entrepreneurial comeback is no exception. Here's some more:

During the recession and its aftermath, the share of Americans starting their own business each month – whether small corner stores or high-tech start-ups – reached a 14-year high, as shown in this graph below from the Kauffman Foundation. But despite that apparent flurry of entrepreneurial activity, the number of self-employed Americans went into free-fall. From mid-2007 to September 2011, the non-seasonally adjusted total dropped by more than 2 million.

In short, lots of people were starting companies, but like ghosts, they didn't seem to be showing up in employment figures. There are a few reasons this could have happened. For instance, some new businesses being founded might have been side-gigs for people with day jobs – say, a college professor moonlighting as a consultant.

Those sorts of ambitious folks wouldn't show up as self-employed, since they had full time work with a larger company. There's at least one compelling piece of evidence for the side-gig theory: even as the number of people claiming to work for themselves dropped, the number of businesses without any employees other than the owner increased, according to the Census Bureau. That suggests a lot of people were making money from second businesses after hours, then telling the government's data collectors that they worked for another company full time ...

Establishments began their rebound around in the second half of 2011 (sadly, these numbers are only available through the end of last year), and not long after, the self-employed numbers started returning to health. The BLS doesn't report seasonally adjusted figures for all of its self-employment data, so I've only used the un-adjusted numbers for consistency's sake. On that basis, self employment dropped a bit in September, but is still up decisively over the past 12 months.

This could be a sign that many, many more people have suddenly decided to try their hand at running their own business, enough to offset all the entrepreneurs who are closing up shop. But that seems unlikely, given that the Kauffman foundation's entrepreneurship rate was already dropping in 2011. Chances are, it means that fewer businesses are being shuttered. More of the self-employed are managing to make to make a living at it. And that's a positive sign for the whole economy.

On its face this argument is questionable, in our view. The British economy, from what we understand, just slipped back into "recession." Europe generally is a chaotic, near bankrupt mess. But in the US no effort is spared at the moment to ensure 24-hour happy-talk.

A good deal of it, from what we can tell, is aimed at providing Barack Obama with a perception of economic expansion that will help his electoral chances. We predicted this long ago.

There seemed no doubt to us that Obama was the Chosen One for that nexus of elite military-industrial interests that supervises the US. As a result, we expected a media campaign to mitigate the severity of what is actually occurring.

Just the other day, the US Bureau of Labor Statistics released a number that showed employment had moved up a good deal. The number was widely questioned but is within the parameters of what's expectable, given the political season.

When it comes to these "green shoots," there are also grounds for questioning. The very first feedback posted beneath the article by "jmco" lays out an alternative case, as follows:

This data is being read incorrectly. When professionals are out of work, many "consult" which may or may not mean they are actually making a living at it. Indeed, the term is kind of an inside joke and simply means you are still looking for a job. Also, self employment pays less than a typical job.

What? How? Remember, your salary is not *just* the paycheck but the benefits you get. The big benefits being the company contributing to your retirement and healthcare. For the older "self employed" getting insurance that matches what company provides is nearly impossible, but mostly simply unaffordable ...

No, I think all this data shows is that many people are still out of work and are "consulting" or "starting a business". Most are not seriously consulting or starting up. A small few are or hope to and will succeed. But like all small businesses startups, even in good times, most fail or never get off the ground due to a lack of startup experience, lack of knowledge about running a small business, lack of ability to find clients, lack of capital (a big problem since 2010), or a myriad of personal problems that hold it back ...

This is far more likely the case than there is a turnaround in the US despite all the happy-talk. We return to the larger business cycle for a more realistic understanding of what is occurring.

The current decade, as we've often written, is mired in a 1970s-style bull market, what we've called a "golden bull" where commodities are highly priced. This is because people don't trust the economy and seek tangible investments.

As long as this trend is intact, there will be no long-term recovery. Additionally, if various stimulative efforts begin to work, there is no doubt that price inflation would force central bankers to raise rates and drain money, thus withering green shoots once again.

Conclusion: These are the unfortunate facts of the current economy as we see them. The combination of regulatory expansion, the upcoming "fiscal cliff" of tax expansion and the continued presence of a 1970s-style business cycle all make it distinctly "unsafe."