November 21, 2014

Speaker of the House: Between a Rock and a Hard Place

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The Speaker of the House, John Boehner, believes that small businesses are the “primary engine of job creation in our country.” He favors policies that help small companies create jobs, which has led the National Federation of Independent Business (NFIB) to give him a Guardian of Small Business Award for his voting in the 111th and 112th Congresses.

Right now, however, he has to choose between three alternatives that will harm small business employment. It’s enough to make a House Speaker cry.

If the Speaker allows the U.S. House of Representatives to pass a continuing resolution (CR) without defunding the Affordable Care Act (ACA), he contributes to burdening small business with the cost of the new law. As I have written elsewhere, the ACA is raising the cost of health insurance coverage at small businesses. Not all companies will be able to pass this increased cost onto employees in the form of lower wages. Some of them – particularly those in low wage industries – will be forced to cut employment instead. Others will cut worker hours and convert full-time jobs to part-time ones to avoid the requirement to provide full-time workers with health care coverage. Still other businesses will cut back on expansion plans because the new law compels businesses with 50 or more full-time workers to provide employees with health insurance, or because the cost of providing insurance makes growing less attractive.

If Mr. Boehner doesn’t allow the House to vote on a clean CR, then the government shutdown is likely to continue. While the shutdown itself directly affects only a small number of small businesses – relatively few operate in places where federal workers have been furloughed or are seeking to obtain now-delayed Small Business Administration loans or to collect suspended federal contracts – it’s now threatening to roll into the debt ceiling debate. If the U.S. government runs out of money because Congress doesn’t raise the debt ceiling, a financial crisis and recession are likely.

A government default would rile financial markets. Small business credit markets would likely suffer collateral damage, as happened during the 2008 financial crisis. Unable to borrow, many small businesses would be forced to lay off workers.

Moreover, many economists predict that a default-induced financial crisis would set off a recession. Demand for small business owners’ products and services would drop, just like demand for big business’s goods and services. With sales falling, small business profits would slide, and small business owners would have to cut staff.

Mr. Boehner doesn’t even have the luxury of waiting for the Democrats to move first. The Economic Policy Uncertainty Index, calculated by economist Nick Bloom of Stanford University and colleagues, has recently risen.

Policy uncertainty is bad news for small business hiring. When business owners can’t predict what Washington will do, they put hiring and investment decisions on hold, as I showed in 2011 Federal Reserve Bank of Cleveland Commentary, written with the bank’s Senior Vice President and Director of Research, Mark Schweitzer.

Mr. Speaker, I’m sorry, but you are boxed in. If you want to help small business, then your best option is to pick the least-bad alternative. If it’s any consolation, I don’t think many small business owners will blame you for the choice you make.

9 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

9 Reactions

  1. Scott – the House leadership is going to have to get serious. There will be no defunding of the ACA in the way conservatives want to see. Joshua Green has the perfect solution:

    http://www.businessweek.com/articles/2013-10-07/how-to-solve-the-debt-ceiling-crisis-forever

  2. That’s quite tough. It’s like you’ll be dead no matter what door you choose. You’re probably right when you said that the best way he can approach this is to choose the least bad alternative. But then again, he can come up with some creative idea to overcome everything. I am not limiting his choices.

  3. Scott,
    Everyone is crying that the ACA is going to raise rate. My insurance company pulled out of my state of South Carolina and the replacement company is $1000.00 yes that is one thousand dollars a month less expensive than my former insurance. My business of 3 people is saving $12,000.00 per year thanks to Obamacare!!!

    I love Obamacare!

    • By the way I pay 100% of my employees health care because it is the right way to treat employees.

      • Jane,
        You are to be commended for taking care of your employees. My question is, for the $1000 less a month, what happened to the deductibles, co-pays and total out of pocket for your employees? Did they stay the same or change?

  4. I don’t think I would want to have Boehner’s job right now or ever. No matter what he does, he will get shut down by the opposition as that is what our “government” is all about. Everyone is telling everyone else “no” just for the sake of saying it. Right or wrong, the opposing sides of any government will always be against each other rather than for the people.

  5. John Boehner is surely at the cross roads where he has to decide whether he will be in favor of small businesses, that he correctly thinks as the employment generator in this ailing economy. When the economy has just started to bounce back from its deep recessionary phase, a default will bring doom for the economy. Rather than fighting with each other, the two parties should try to come on a common ground so that the economy does not default. Keeping my fingers crossed. Can John Boehner save the economy and the small businesses?

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