Innovation vs. Old School Short-Sightedness

Today's Financial Times, includes a news analysis quoting the former U.S. Auto Czar Steven Rattner comparing allowing the auto inustry to fail with "dropping the economic equivalent of an atomic bomb on the Midwest."

Dramatic, huh? The question is... what would constitute "allowing the auto industry to fail." See, to my mind, encouraging transformative technological advances with the potential not only to retain old jobs but create new ones is a viable alternative to injecting good cash into bad businesses.

Try this on for size: rather than propping up the behemoth auto makers, why not create a pool of cash, say $100 million (small change to what they threw at the giants) to finance a handful of awards for projects that would push the envelope, creating, developing, and commercializing innovative automotive technologies, and a whole bunch of jobs with them. It'd be a cross between SBIR and public venture capital.

Why does it have to rest on private initiative, like the Automotive X-Prize to support these sorts of projects? Rather than arguing that allowing some particular old firms to fade is the equivalent of letting the automotive industry fail, perhaps government officials would do better to think outside the box. If we're going to spend taxpayer dollars on supporting business, why not do it in a way that supports society and job creation as well?

Problem is: if you hire people like Steven Rattner, former private equity executive, to run a bail-out scheme, you're likely to get results in line with old school short-sighted thinking. Perhaps it's time to be bold!

Taxes & Small Businesses

Arguing that the sunset of the previous administration's tax cuts for those earning more than $250k net will hurt small businesses & job creation seems a bit of a stretch. Here's a post on the subject on Growthology. Be sure to read the comments, in particular note the following remark: "Wouldn't the fact that pass through profits are taxed at a high rate encourage reinvestment? If we want businesses to hire then pulling money OUT of the business should be discouraged."

And here is a letter to the editor of the Wall Street Journal from this morning:

Your Sept. 3 op-ed "The Small Business Tax Hike and the 97% Fallacy" by Kevin A. Hassett and Alan D. Viard makes a misleading argument about small businesses in order to justify borrowing $700 billion to finance the extension of the Bush tax cuts for the wealthiest 2% of Americans.

Messrs. Hassett and Viard concede that 97% of small businesses will pay nothing more in taxes under the president's plan to allow the Bush high-income tax cuts to expire on schedule. Yet they argue that even if only 3% of small-business owners would be affected, this small fraction reports a large amount of what they term "small business" income.

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income. Thus, they count as small-business income profits that go to a partner at a major law firm or hedge fund. Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million. Keeping the Bush tax cuts in place for these taxpayers would not likely result in additional job creation, and it would add significantly to federal budget deficits and debt.

The experience of tax policy over recent decades clearly demonstrates, and the Congressional Budget Office has confirmed, that tax cuts for the highest-income Americans—regardless of whether their earnings are classified as ordinary or small-business income—are not an efficient way to stimulate the economy or create jobs.

Michael F. Mundaca
Assistant Secretary of Treasury for Tax Policy
Treasury Department
Washington

Winslow Sargent, Chief Counsel of Advocacy, Small Business Administration

President Obama has taken the August recess of Congress as an opportunity to issue a Recess Appointment to Winslow Sargent to be the Chief Counsel of Advocacy of the Small Business Administration. While some objections have come from those in the small business community because of Sargent's connections with a small Wisconsin Venture Capital firm, there is good reason to believe his appointment will benefit small innovative businesses and the Small Business Innovation Research (SBIR) program. His nomination, held up for months by neglect and political posturing, was supported by the Small Business Technology Council (SBTC) of the National Small Business Association (NSBA) . Here is the NSBA commentary on the appointment.

Below is the relevant section from the White House Press Release:

Winslow Sargeant, Nominee for Chief Counsel of Advocacy, Small Business Administration
Winslow Sargeant is currently a Managing Director in the technology practice at Venture Investors, where he works with entrepreneurs to create innovative companies in underserved communities. From 2001 to 2005, he was the program manager for the Small Business Innovations Research (SBIR) Program in Electronics, a new office in the National Science Foundation's (NSF) Engineering Directorate. Previously, Sargeant co-founded Aanetcom, a fabless semiconductor chip startup company with seed funding from Cisco systems which was acquired by PMC-Sierra. Prior to Aanetcom, he held senior engineering positions at Lucent, AT&T Bell Labs and IBM. Sargeant currently serves on the Boards of Silatronix and Pattern Insight. He serves as a Director of the University of Wisconsin Foundation and was the Vice Chairman ofthe UW-Madison Astronomy Board of Visitors. He is a member of the Boards of Directors of WiCell, WiSys and the Waisman Center. Sargeant is a Trustee for theWisconsin Alumni Research Foundation (WARF) and also serves on Purdue UniversityDiscovery Center's Research Board of Visitors. Sargeant received the inaugural2002 University of Wisconsin Distinguished Young Alumni Award and was a 2003Outstanding Engineering Alumni Awardee from Northeastern University. He receiveda B.S. from Northeastern University, an M.S. from Iowa State University and hisPh.D. from the University of Wisconsin-Madison, all in Electrical Engineering.He is a member of the society of Kauffman Fellows, Class 11.

Re-election Posturing Sticks it to Small Businesses

I have difficulty understanding how some politicians consider political maneuvering that damages small businesses, which has a deleterious effect on job creation and economic growth is somehow in the best interest of getting themselves re-elected. [SIGH]

via NSBA news:
Small Business Jobs Bill Stalemate in the Senate
1099 Reporting Repeal Defeated by House Politics