Under Ben Bernanke’s leadership, the Federal Reserve has worked steadily to boost our stagnant economy. With a series of incremental efforts since 2008, the Fed has tried to get us back on track, albeit with limited apparent impact.
New jobs are the obvious fix for an immobile economy. And the best sources of those jobs are start-ups and small businesses. According to the National Economic Council, over the last 20 years, start-ups and small businesses have created two-thirds of all net new jobs. And roughly half of today’s private sector employees work for small business.
The Obama Administration understands the importance of start-ups and small business, and its commitment to supporting them and their job creation efforts is evident in laws like the JOBS Act, the America Invests Act and the Affordable Care Act — all of which have had a positive impact. Thursday’s announcement is a welcome sign that, like the Obama Administration, the Fed is now singing from the new jobs hymnal.
Unfortunately, the Fed’s actions are hardly enough to deliver a significant immediate reduction in unemployment. Keeping interest rates low for several more years will help small businesses by preserving low borrowing costs, as well as by minimizing the opportunity cost of funding start-ups. But the potential short-term impact of the Fed’s plan seems limited, given that borrowing costs have been low for years, and given that money markets and other similar low-risk investments have provided meager returns since 2008. In short, the Fed’s new plan doesn’t change much in the short term.
For the Fed’s plan to have an impact, it must be coupled with more direct steps to enable the launch of new businesses and more incentives for small businesses to hire.
Initiatives like the Startup America Partnership have directed more private sector capital to start-ups, and we can certainly use additional similar programs. However, the best example of the kind of help we need is the HIRE Act — a program refreshingly simple in application and potent in impact, which offered an immediate tax break for hiring unemployed individuals. Every employer took note of this program, and it certainly gave my start-up the incentive to hire more aggressively than we would have otherwise.
By maintaining a favorable borrowing environment and setting its sights on unemployment, the Fed has demonstrated both a focus on a potent contributor to our economic stagnation, as well as a commitment to addressing it. But if we want to accelerate the creation of new jobs and a reduction in unemployment, we must couple the Fed’s work with more hiring-focused offers that small business employers and start-up investors cannot refuse.
Paul Mandell is chief executive of Consero Group, an event development firm in Bethesda.