This is a bill that would cut taxes and help provide loans to millions of small business owners who create most of the new jobs in this country. It is fully paid for, it won’t add to the deficit, and small businesses across the country have been waiting for Washington to act on this bill for far too long.
President Barack Obama, September 14, 2010 [1]
By the time you read this, Washington will have agreed to spend another $30 billion of your money on a job creation bill that is not going to work. Legislators know that the bill will not stimulate lending to small business, nor will it create jobs, but as midterms near they need a victory before they return home to face their unemployed constituents. $30 billion is a lot to spend on false promises.
Small business has been languishing for nearly two years, and even if the proffered assistance had a reasonable expectation of success, it may be too late to help. [2] The time to do this was early in 2009, when the only concern in Washington was health care reform.
The centerpiece of the Small Business Jobs and Credit Act of 2010 is a $30 billion small business lending fund, a mechanism to infuse capital into smaller banks so they can step up lending, despite evidence that the demand for small business loans has dropped. Vanishing sales have overtaken vanished credit as the major concern of small firms [3], and the decline in loans may be due to a simple lack of demand:
An important but difficult-to-answer question is how much of this reduction has been driven by weaker demand for loans from small businesses and how much by restricted credit availability. [4]
Whether this even matters is the larger question. Paying hackneyed lip service to the role of small business in solving our unemployment crisis is the excuse, not the reason, for approving this bill. Midterms will arrive well before the mechanics of the act are underway. What matters to Democrats is that something is passed for which they can take credit this fall.
Government agencies less agenda-laden than legislators hoping to save their hides have issued warnings for months about the ineffectuality of a lending fund(see: The Small Business Jobs Fund: It’s Not About Jobs). The administration is out of ideas to spur job growth, so it has fallen back on tried methods to stimulate small business lending that have already proved likely to fail:
In many ways, however, the SBLF [Small Business Lending Fund] substantially resembles the CPP [TARP Capital Purchase Plan]: it is a bank-focused capital infusion program that is being contemplated despite little, if any, evidence that such programs increase lending. [5]
Evidence is a big problem, because the data we have about small business lending is not sufficient to justify a $30 billion gamble. Two months after the bill was introduced, the SBA complained about the inadequacy of information about small business lending:
In order to continue to monitor and ensure the health of small business lending over the long-term, we need timely, meaningful, and actionable data.
Right now, we’re working very closely with regulators – as well as the private sector –to tackle this issue. Currently, there are very few existing data sets available to help us paint a clear picture (and there is also a lack of consistency in reporting). [6]
The consequence of bad data? Congress will pass a bill without being able to judge whether throwing money at community banks will make a difference:
Treasury’s reliance on capital infusions for these institutions may, however, be misplaced: not only are smaller banks still under substantial stress and unable to shoulder the burden of leading the economy into recovery, but there are also poor data underlying the proposition that capital infusions increase lending. [7]
“Stress” is the operative word. Community banks are in trouble, and those who took money from the TARP are having problems paying that money back. [8] Infusing more capital sounds suspiciously like another bailout.
Proponents have been quick to point out that the bill is paid for. The Small Business Lending Fund risks $30 billion with no assurance that banks will use the money for lending. Given the meager penalties for refusing to lend, and the low cost of the capital infusions, banks might just decide to hold on to Uncle Sam’s assistance, even if small businesses decide that they want loans, after all. [9]
The Small Business Jobs Bill will be approved because Democrats need a victory, and the president’s legacy is at risk if his party loses out in November. This is a mighty expensive campaign ad, even by the standards of the corporate ad funding decried by Mr. Obama after the Citizens United decision. Perhaps if our small businesses had some indication that this administration had intentions of fostering something other than a climate hostile to the private sector, they would feel comfortable hiring employees and taking out loans. For now, our small businesses mean little more than a false campaign promise.
1..The White House. Office of the Press Secretary. Statement by President Obama on the Small Business Jobs Bill. September 14, 2010.
2..Congressional Oversight Panel. May Oversight Report. The Small Business Credit Crunch and the Impact of the TARP. May 13, 2010. p. 4.
3.Governor Elizabeth A. Duke, Testimony Before the Committee on Financial Services and Committee on Small Business. U.S. House of Representatives, Washington, D.C. February 26, 2010.
4..Board of Governors of the Federal Reserve System. Chairman Ben S. Bernanke. June 3, 2010.
5..Congressional Oversight Panel. May Oversight Report. The Small Business Credit Crunch and the Impact of the TARP. May 13, 2010, p. 82.
6..Small Business Administration. Strengthening the Lending Environment for Small Businesses. Federal Reserve Forum: Addressing the Financing Needs of Small Businesses. July 12, 2010. As Prepared for Karen Mills, SBA Administrator. p. 5.
7..Congressional Oversight Panel. May Oversight Report. The Small Business Credit Crunch and the Impact of the TARP. May 13, 2010, p. 7.
8..Congressional Oversight Panel. July Oversight Report. Small Banks in the Capital Purchase Program. July 14, 2010. p. 3.
9..Congressional Oversight Panel. May Oversight Report. The Small Business Credit Crunch and the Impact of the TARP. May 13, 2010, p. 74.
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