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Industry Insight

Dr. Joe Recommends: Goldman Sachs “Two-Speed Economy” Report

By Dr. Joe Webb
Published: April 30, 2015

A recent Wall Street Journal article summarized a new report that explains the unevenness of the recovery that started in mid-2009. As mentioned last week, only three of the favorite economic indicators used by Fed chair Janet Yellen are better than they were at the beginning of the recession. I strongly recommend a Goldman Sachs report, “The Two-Speed Economy” which addresses issues with small business and especially regulation's effects on business formation. The report builds on some of the research of the Brookings Institution from last year. That report was about the lack of dynamism in the economy. Among the comments in the GS report, which compares big businesses with small businesses, are:

  • Small firms... have suffered low rates of business formation and tepid employment growth.
  • Employees of small firms have also seen significantly weaker wage growth
  • ...small businesses haven’t yet fully recovered from the recession
  • the number of [small] businesses actually declined over the five years from the start of the crisis –the only such decline since the data became available in the late 1970s. The result is an estimated 600,000 “missing” small firms, and six million jobs associated with these firms, as of 2012.

There is an unintentionally funny part of the report, the shock, the shock I tell you, about the negative effects of business regulations on small business. “Each new regulation was not meant to create negative outcomes: each was aimed instead at addressing other policy issues, such as ameliorating the risks of another financial crisis, protecting workers or providing greater access to healthcare.” Really, now you tell us? How isolated are the bankers at Goldman to only realize this now! Their nickname has been “Government Sachs” for years, because of the close ties the company has had with government administrations and the number of their executives who have worked in high appointed positions, where agency regulations are proposed and implemented, and with profound influence in the design and content of legislation.

One hopes that the discussion in this report creates a better environment for stimulating the positive economic dynamism of small business. Perhaps this means there is now at least one person at GS who has read the works of the dead economist Bastiat.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.


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