The Budget Deficit and Business a Personal Experience

A year ago I wrote an essay in which I pointed out that tax cuts do not stimulate the economy. (http://bill.baldwincs.com/writings/politics/EconomyStupid.html) One of the thesis point was that budget deficits do not stimulate the economy because the resulting budget deficit eats up all the credit so credit is not available for starting small businesses.

About six month ago I decided I wanted to open a new business. Since I am unemployed, and not likely to find a new job, that is, I am not as young as other computer people, and since I do not have enough money, nor am I old enough to retire, starting a business seemed like a way to support myself until I can retire, and possibly beyond.

The business involves the selling of computers. However, it would differ from other computer sellers in that I would sell computers and operating systems as separate line items. The buyer could chose a particular computer, then chose the OS they wanted, which would include many Linux distributions as well as Microsoft Windows.

At first, I thought I could start the business myself without any help from the bank. However, I discovered it would cost about $50,000 more than I had originally thought it would. Therefore, I needed to look to getting some credit.

First, I checked with my local banker, Intrust Bank. His indication was that I didn't have enough collateral, so they turned my down. I have to admit that my business plan was not fully developed yet, so I didn't worry too much.

Later, I checked with the Medcalf bank. The bank there made some suggested improvements to the Business plan, so I made the changes, and resubmitted the request for a business loan. I received the same result – the business plan is good, and would probably work, but I lacked enough collateral.

At this point I talked with someone from the Small Business Development Center at Johnson County Community College. He suggested I contact some banks that might be suggested by them. They suggested the U.S. Bank, the Gold Bank, and another bank. I called the U.S. Bank. They would not listen to me, saying they were not funding any startup businesses, only existing businesses, so I did not talk to them.

I talked to the Gold Bank, where, again, I was told the business probably would succeed. However, after they looked it over, and (they told me) they talked with the SBA, I received the same result. The business plan was good, but I didn't have any collateral.

After that, I also talked with the Team Bank, and received the same message.

The question can be asked, "Why?" Some rather short sighted people will say maybe I need more collateral, which means, basically, since I don't have a lot of money right now, I cannot be allowed to start a business which has a real chance of giving me the enough money to get by. Smart. If I had the money I would simply retire and not bother to start the business. Since I don't, so the logic goes, I should not be allowed to make any money either.

I would propose that this is precisely what I was talking about in my previous essay. Bush insists on cutting taxes to "stimulate the economy." The result is a huge budget deficit, which requires the government to borrow a lot of money. Therefore, why should a bank loan money to me for a new business when they can loan it to the Federal government, which is billed as being much more secure. Therefore, I am unemployed with no hope of ever having any income again, and, since the business planned on hiring two or three more people, there are two or three more people unemployed that would otherwise be employed.

The question is, does this stimulate the economy? The answer no, I think. The economy would have been stimulated a lot more if taxes had not been lowered and I had been allowed to start the business. Multiply this by a million or so, and there is some real stimulus.

Look at the Clinton years. Clinton reduced the budget deficit to almost nothing, therefore, banks were not able to put all their money into a sure thing. Therefore, there was money available for other things, such as starting "dot COMs" and other businesses. There was a rash of new computer businesses, the unemployment rate was down, and the economy was doing well. It only started to sour when people began talking about "spending the surplus," just before the end of the Clinton presidency.

Bush, of course, announced that he was going to send the surplus back to the people, which he did. This was supposed to stimulate the economy, but the economy just went downhill. He tried to buy everyones votes, but at what cost, an unemployment rate that went from about 4? to around 6? (probably higher when you consider people like me – officially I'm employed because there is no way I can ever get a job.) For two or three percent of the population that rebate check was very expensive – probably at an interest rate of more than 100,000 percent. (For many of the employed that had to take a pay cut, the interest rate may not have been as high, perhaps only 1000 percent, the percentage if you got a $600 check and received a $6000 pay cut.)

The rest of the population only have to pay at the relatively low rate of 7 or 8?.

The main point, however, is that I have demonstrated the direct link between the tax cuts and the souring of the economy. Therefore, what should congress do to stimulate the economy? Balance the budget!!!! idiot. That's what Clinton did, and it worked. Why not try it again, go with something shown to work rather than these stupid theories which have never worked.

As far as my business is concerned, I may try a less expensive approach that will not allow me to keep from going under, but which will also not allow me to hire anyone or really to make enough to make ends meet either. The services that I would like to provide will not be provided, and therefore cannot be bought at any cost. All this is wasted due to an economic system which is not working.