Americans Want to be Entrepreneurs, But Economic & Policy Uncertainty Could Hold Many Back

By SBE Council at 16 December, 2022, 11:06 am

by Raymond J. Keating – 

The latest business applications data from the U.S. Census Bureau points to a continuing high level of desire or a significant intention among Americans to startup their own businesses. The “but” comes into play, however, when looking at the costs and uncertainties imposed by policymakers, and economic uncertainty and opportunity in general.

New Business Applications Still Exceed Pre-Pandemic Levels

Even though the number of business applications (i.e., “business applications for tax IDs as indicated by applications for an Employer Identification Number (EIN) through filings of the IRS Form SS-4”) in November were down compared to October (seasonally adjusted data), the numbers persist far above their pre-pandemic levels. And as noted in the following two charts, that is the case with total new business applications and high-propensity applications (i.e., business applications most likely to turn into businesses with employees).

The November total number of new business applications came in at 418,905, and that compared to 432,258 in October, but to 300,490 in February 2020, for example.

As for high-propensity new business applications, they registered 138,420 in November versus 142,189 in October, but versus 111,892 in February 2020.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

While a share of business applications will turn into actual businesses, it’s not clear how many that will be, as there is a multi-year lag in actual business formations.

Weighing Costs, Risk and Opportunity

Of course, costs and uncertainties matter in starting up and building a business from the perspectives of entrepreneurs and investors. Unfortunately, just as they talk a great deal about how important entrepreneurs and small businesses are to the economy – and correctly so – too many elected officials, including in the White House and Congress, push an anti-entrepreneurship, anti-small business, anti-investment agenda featuring higher taxes, increased regulatory burdens, protectionism on trade, more government spending (with resources drained from the private sector via taxes and debt), and misguided monetary policy that actually undermines the key goal of price stability.

Make no mistake, these costs and uncertainties undermine entrepreneurship and private investment that drive economic recovery and expansion. Indeed, the post-pandemic business applications data point to Americans seeking to be entrepreneurs.

Why are politicians working against that?

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.