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

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.

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.