The Amazing Explosion of New Businesses Continues as Americans Strike Out on their Own

And my 2 cents about the high “failure rates” of new businesses, being a small-business owner myself.

By Wolf Richter for WOLF STREET.

New business formations, based on applications for an Employer Identification Number (EIN) with the IRS, exploded in June and July last year, then zigzagged up and down, and then this year exploded again and remained far above the historical range.

In September, 431,381 EIN applications were filed with the IRS, 49% above September 2019, and at the same red-hot level as September last year, according to data released by the Census Bureau today. For the first nine months of the year, EIN applications were up by 58% from the same period in 2019:

The historic high level of new business formations every month is part of the bizarre puzzle that this economy has become: The strange phenomenon of labor shortages, the enormous stimulus payments that went out, the federal unemployment payments that are now ending, the $800 billion in forgivable PPP loans that went to just about everyone last year and earlier this year, the 3.2 million people who still haven’t returned to the labor force….

Last year and earlier this year, there were suspicions that EIN applications were spiking because fraudsters were creating businesses to get their hands on these forgivable PPP loans. But an EIN wasn’t required for PPP loans. Businesses had to have been around for a while to qualify. And the PPP ended in May. Yet business applications have continued to be sky-high every month since then.

The Census Bureau removed from these EIN numbers those applications that were unrelated to typical business formations, such as for tax liens, estates, trusts, etc.

Most new businesses will create a job for the owner and maybe for a few other people and never become large employers. It can be very exciting and rewarding on many levels to own and run a small business. My WOLF STREET media mogul empire is one of them. Those types of small businesses pay other businesses or people on a contract basis, from accounting to IT work. But they don’t add many employees.

The potential job creators.

Using the information in the EIN application, the Census Bureau categorizes businesses with a high likelihood of creating a significant payroll as “High-Propensity of Planned Wages” business applications (HBA).

In September, there were 145,628 EIN applications by businesses that the Census Bureau deemed to be HBAs, up 31% from September 2019. In the first nine months of this year, there were 1.40 million of these business applications, up 41% from the same period in 2019:

The real potential job creators – with planned wages.

Within the HBAs, there are the “Business Applications with Planned Wages” (WBA) by businesses that have a planned date for their first payroll. They have funding, and they’re ready to pay wages. They’re most likely to grow their payroll and become significant employers.

In September, 51,617 WBAs were filed, up 30% from September 2019. In the first nine months of this year, 485,155 WBAs were filed, up 34% from the same period in 2019.

But they remain down by over 35% from before the Financial Crisis:

So how many new businesses with a low propensity to create jobs?

To get the number of applications for businesses with a “low propensity” to become significant job creators, I subtract the number of high-propensity applications from total EIN applications. These are the businesses that might only employ the owner and sometimes a few other people.

These types of business applications have risen for years, roughly doubling from 91,000 per month on average in 2007 to 183,000 per month on average in 2019, or 2.2 million for the whole year 2019! And they did so while the HBAs and WBAs fell over the same period. Then came the spike during the pandemic:

The huge number of these largely one-man shows and one-woman shows delineate a big shift in American society, with ever more people striking out on their own.

Much of that was made possible by the Internet which allowed these entrepreneurs to gain visibility, promote their goods and services, use convenient third-party platforms such as eBay and Amazon, and payment platforms such as PayPal and now many others, and engage in direct relationships with potential customers.

This was already a big trend when the pandemic hit with the flood of cash it unleashed that provided funding to strike out on their own, especially people who got laid off by their employer.

But applications by businesses with planned wages (WBAs) in September were back at levels where they’d been in late 2007 and far below where they’d been before the Financial Crisis.

Here are the three types of business applications: Low propensity to create jobs (red), high propensity to create jobs (purple), and with planned wages (green):

By industry?

Retail is the biggie, thanks to the Internet and shift to ecommerce. When people think ecommerce, they think Amazon and other giants. But ecommerce has attracted millions of entrepreneurs, working out of their garages, condos, or farms, selling merchandise to customers around the country.

Even as brick-and-mortar retailers and malls have gotten battered, ecommerce entrepreneurs jumped into the game by the millions. And the pandemic accelerated that process.

In September, 73,884 businesses filed applications that listed the NAICS code (North American Industry Classification System) for retail trade businesses, up by 70% from September 2019. For the first nine month, these types of EIN applications nearly doubled from the same period in 2019 (red line below).

It is effectively businesses in the retail trade – think ecommerce out of the garage – that created the lion’s share of the surge in business applications:

The top seven industries, by number of business applications in September, and the % increase from September 2019:

  • Retail (red): 73,884, +70%.
  • Professionally services (light blue): 82,272, +34%.
  • Transportation & warehousing (green): 41,229, +112% related to the delivery needs of the ecommerce boom.
  • Construction (black): 39,484, +30%.
  • Administration and support (yellow): 30,290, +50%
  • Accommodation and food services (gray): 24,014, +50%
  • Health Care and Social Assistance (brown): 24,297, +22%

My 2 Cents about Failure rates.

The “failure rates” of small businesses are high. The alternate term used by the Bureau of Labor Statistics is “survival rate.” The commonly cited metrics for failure rates:

20% of the businesses fail within the first year; 50% fail within the first five years.

Sounds discouraging. “Failure” is defined as the business not being around anymore after x number of years. But in many cases, the owner of a business quietly ends the activity and retires, or gets a job with a company, or starts a new business. It doesn’t necessarily involve bankruptcies and upheaval, or even “failure.” Just a change of plans.

The metrics of the number of businesses that aren’t around anymore after x years and call them “failures” don’t sort that out. So these high “failure rates” are misleading about the risks of starting a business, and they can be discouraging even if reality for many of the owners that shut down their businesses looks very different.

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  136 comments for “The Amazing Explosion of New Businesses Continues as Americans Strike Out on their Own

  1. Roger Pedactor says:

    This is actually very positive news.

    Thanks Wolf. As a former small business owner myself currently tied up in an a noncompete, I look forward to starting another company soon.

    • VintageVNvet says:

      Off and ON ”contractor” or SE from 1968 to 2019, I LOVE IT!!
      And will only encourage/recommend that everyone go to night school or whatever and learn ”double entry” bookkeeping ASAP,, before starting if at all possible.
      Did so on advice of my accountant after ”formal” start of ”licensed” biz in SF Bay Area, CA, and learned a ton of really good stuff, including how to PAY my folks more cash than union.

      • DawnsEarlyLight says:

        Very good advice!

        • Joe Saba says:

          when I started my 1st company in 1996 – I spent day going to IRS(yah I know) and got every publication/form/bulletin relating to business
          since I was on contract work out of town I had full nites to read
          keep good books/receipts and use system like big corps do

      • Roger Pedactor says:

        QuickBooks makes it easy now.

        I am not advertising. Simply stating my experience.

        • robert says:

          But it’s not as much fun as double entry in a big old ledger, hands on.

        • kam says:

          How many “new start-ups” are the very same people that were bankrupted by the American Federal and State governments during the Covid strangulation of small business and the exemption of Big Business.
          The current new wave is probably a mirage but will be used as Political fodder.

        • VintageVNvet says:

          Definitely going with ”robert” on this,,, not only because of the ”fun” with which I agree, but especially because of the very very clear advantages of doing your own ”bookkeeping” to KNOW how the ”cash flow” compares with the actual ”profit(s)”…
          Been absolutely ”fabbergasted” to learn how many of the companies I have ”done my best for” over the last several decades who had NO CLUE that, in spite of very good ”cash flow” had NO PROFIT(S) at all, and several of them went away in spite of my trying to help them understand the difference…

      • phleep says:

        I was a law office for 20 years. The flexibility was great, I could team with others (in those days on the same office suite) on a dime, scale up or down. I could fill many roles that way, whatever the situation needed. I was in the first wave of computer-literate lawyers (old school had zero keyboard skill, insisted on dictating everything to typically female sidekick). And, I started doing coding which replaced human assistance under me. I only had sporadic contract help under me, which would be considered unworkable before that era. No fanfare or report to anyone when I stopped. I concur with everyone’s comments about basic accounting: it is the most core skill for business (and I teach business too, so I know a bit my now). The experience is a great background for my teaching it now.

      • LK says:

        Accounting is the language of business.

      • Truckman says:

        Agree completely about the bookkeeping, also one must be able to do a business plan. Be very aware of what can be counted against tax, and what can be written off when you cease trading, before you even start.
        I’ve run 3 one-man companies between regular jobs. All made a profit from Day One (hint: Minimize overheads and get payment either in advance or from a reliable source), typical lifespan of 2 years.

        • Depth Charge says:

          (…get payment either in advance or from a reliable source…)

          My longest outstanding accounts receivable invoice is from perhaps my wealthiest client. It’s annoying. At this point I’ll probably require payment prior to any future services rendered. I don’t need him, and I find the lack of payment to be disrespectful.

        • Truckman says:

          The wealthiest being the worst payers has been true as far back as 1200BC. I did a project on Mycenaean Greece where the clay tablets record this.

  2. polecat says:

    Could this trend in startups be why the Biden Admin wishes to focus on $600’s worth of taxcheat ‘assets’ … you know.. to curb all those potential newbie ‘Rich’ bidness innovators, winkwink .. ??

    • phleep says:

      I think the intent (and good intentions aren’t necessarily good execution) is to address the vast number of folks who have worked out (and I have personal knowledge of this) using this country’s markets and infrastructure for laudable business success, but growing ever more remotely, inter-generationally, astronomically rich. Meaning some entrepreneur’s empty-headed kid will be zooming around in huge boats and planes lifelong, adding little value and paying almost zero tax. The trick I believe is to hit the balance point where business is rewarded well but not falling into this equal and opposite runaway process of social decay (see the French and Soviet dynasties and revolutions). I don’t subscribe to political paranoia either way.

      • Depth Charge says:

        I disagree with this. I think it’s their intention to take down the little guy as usual, in order to pay for their lavish spending where they bestow untold riches on the already wealthy. These politicians – BOTH PARTIES – are rotten to the core.

    • Rod says:

      Polecat, meanwhile, Chevron and Amazon paid no taxes in 2020 and got massive refunds from the IRS, paid for by tax donkeys that will be subject to the $600 sheeple shearing.

  3. JoAnn Leichliter says:

    This is really interesting and encouraging. I might add that there are still other small businesses whose numbers are not captured because they don’t need an EIN. There are more of those than you might think.

    • Masked Ghost says:

      I wonder how many of these bidness startups are just hobbyists ?

      I know some people working their stamp (old postage stamps) shop about 9 hours a month.

      Others set up and sell supplies at coin shows, flea markets etc etc ….

      • polecat says:

        Remember that District 11 mill building in the film the “Hunger Games”, where everyone had ‘saleable’ atributes in skills/barter/gleaning?? If trends continue, that’ll be where many, if not most of us, will reside as what are deemed ‘current living standards’ slide down the backside of the resource curve. Between the WEF, the Banksters de Central, the D.C craycrays and other Powermonger centers .. along with that constant nudge of ‘benevolent’ Oligarchy .. we’ll be lucky to bag the occasional squirrel & some stale buns to ‘sell’..

        Will there be ‘peacekeepers’ to try to lay waste should any of the district folk get too uppity, I wonder?

        May our betters reap what they sow.

      • Joe Saba says:

        biggest rule on DO NOT DO

        DO NOT UNDER ANY CIRCUMSTANCE take home office deduction

        BIG RED FLAG and when you sell house YOU’LL OWE RECAPTURE TAXES which start at 25%
        take utilities of course, equipment, etc.

        • SUS says:

          Very True, I have a very profitable side gig doing electrical service work. Deductions for home office was said to be a no no from my CPA. I’ve known others that have and paid dearly in fines when audited. I think many go overboard on this category, along with entertainment expenses.

        • RightNYer says:

          This is BS. You can take the home office deduction fine, but you have to do it properly, dedicate a space that you don’t use for anything else, and keep track of square footage and other numbers to justify the percentage. I’m not saying it won’t cause an audit, but it’s entirely legitimate if done correctly.

        • Eastwind says:

          I’d say don’t take it unless you have a tax accountant guiding you who says you can. If you’re doing your own taxes, and you aren’t a pro tax expert, steer clear is not BS, it’s the best advice. It’s well documented as being a minefield, so either get a pro who knows how to navigate it or steer clear. If your CPA just says no way, and can’t give you a clear explanation of exactly why your specific case doesn’t qualify, get another CPA, because the one you have doesn’t know their onions and is just being conservative. You can do that without their help.

    • Wisdom Seeker says:

      The Work From Home revolution is a big part of this.

      I expect a lot of these startups are side gigs that people had wanted to get going on for ages, but couldn’t get traction from someone else’s office.

      I also wonder how much of this has to do with tax breaks on business assets linked to work-from-home situations?

      I also really like Wolf’s point that it’s unfair to say startups which are no longer in business were “failed”. They may not make millions but so long as you’re making money, gaining experience, and building valuable relationships, today’s “failure” is really the seed for tomorrow’s next success.

      Now I need to find a good guide to teach teenagers how to break out of the public school “pre-employee” mindset and learn to think like free-wheeling entrepreneurs…

      • SOL says:

        Let me know if you can recommend a book on how to break the employee mindset. I’m 41 and can’t figure it out.

        • Chris from Texas says:

          Start with reading Rich Dad Poor Dad.

          Then figure out a way to moonlight evenings or weekends at ANYTHING to learn and practice building a business.

          There are tons of books out there about how to start and run any type of business.

          Books to help you with selling, accounting, making/doing, etc.

          Check out Reddit and find blogs of other people doing the same type of business.

          Grow it on the side until you can make enough to replace your current salary… then quit and go full time.

          The best thing is that, even if you stop your business, you WIN! You will learn so much that you will be more valuable if you go back to being an employee.

        • Walter Johnson says:

          Desperation works. They pay just enough that desperation is one paycheck away. Thus, though you are unhappy slaving for the man, you don’t experience desperation. This is only my anecdotal personal experience. The third time I was refused a wage increase based on (my opinion of my) performance the desperation kicked in. That was more than thirty five years ago, been running my own ever since. My employees don’t get desperate.

      • Mr. Wake Up says:

        I agree, positive point on Wolf’s end.

        Pre employee mindset – teenagers late.

        Must start in pre school where they tell kids what you want to be when you grow up and then offer them several choices all related to being a worker bee.

        • Sierra7 says:

          Mr.WakeUp (and others)
          Had lunch with a retired grammar school educator and inevitably we alighted on the question: “What happened to all those trade schools for those good blue collar jobs like carpenter, cabinet maker, plumber, sheet metal benders….mechanics….etc, etc.?
          So many of those schools poured out graduates that of so many eventually became small business owners?”
          Our educational system is now so much based on college debt and based on “loop-dee-doo”
          AI intelligence gigs.
          We need to re-adjust our educational opportunity priorities.
          Bring back those thousands of trade schools and unleash another era of small businesses serving our local communities.

        • Wisdom Seeker says:

          I agree it’s better to start early, but it’s never too late to start!

          (Even those who locked themselves into a pension-serf arrangement can become entrepreneurs again after they hit the retirement jackpot.)

          Rich-Dad/Poor-Dad was good, but the book I liked best so far is “The Wisdom of the Ages on Acquiring Wealth” by Welles Wilder, which is written in 1989 as an easy short textbook for teens who’ve had some basic algebra, and has a lot of examples. If it’s spiced up with contemporary examples it’s very relevant. (Examples: How much will spending $5/month for Spotify impact your retirement income? What’s your actual income and hourly wage if your part-time job at $15/hour for 3 hours/day requires a commute that’s 10 miles & 20 minutes each way, gas costs $4/gallon, and you need to save $.20/mile to replace your used 40mpg car when it expires? Is staying in a hotel room-with-a-view worth the extra $50/night that the hotel is asking?)

        • VintageVNvet says:

          This for all above plus those asking how to ”motivate” young folks to get over the ”employee mindset, etc.”
          At the first class session, I challenged all my students to tell me two categories:
          1. What is the name of the tools I took out of my ”carpenter carry boxes.”
          2. Explain how you are going to be able to live and raise a family on the current wages they could reasonably expect locally as an employee…
          Most of them were actually fairly intelligent but clearly totally bored with the two high schools they were in at the time,,, and many of them, 16 and older, could not do even basic arithmetic.
          Got to them with concrete examples of math/arithmetic needed to lay out a simple set of stairs and the railing components…
          Out of sixty or so students over two years, about a dozen really and truly got the message and stopped already with the dope and other drugs, got their acts together and became contractors and kept me in their loops regarding their successes… maybe most gratifying work ever in spite of the relatively low pay, eh?

      • Stephen says:

        Step 1…a teenagers first job shouldn’t be a “job”. It should be either contracting a service to a local community (lawn mowing is the paradigmatic example), or reselling niche goods on a digital patform.

        One teaches customer service, marketing, work ethic. The other teaches inventory management, price discovery, marketing. Both teach bookkeeping and time management skills.

        If the teen’s first job is employment in a company….they’re already a foot behind.

  4. MonkeyBusiness says:

    I wish them the best. This country needs more small businesses. They might be the key to rejuvenating our communities after all. And someone needs to breakup Amazon and the other big monopolies.

    • Depth Charge says:

      Americans (I’m generalizing) have developed a mindset where they want everything at the cheapest price possible. That’s where companies like Amazon and Walmart got traction. They offered the lowest prices and crushed the competition, then raised prices once the competition was gone.

      I need tires for a trailer of mine. I could be out the door for $900 if I went to big corporate tire. Or, I can go to my local guy for $1,000. He can’t get as good of wholesale pricing as they can, nor does he have the mass footprint to buy down his lease rates. I’m going to my local guy. That’s how I do things, and I think that’s what will lead to a resurgence in small businesses.

    • Engin-ear says:

      To break a big monopoly, you need something bigger than a sum of small independent businesses working by definition in small market niches.

      Typically you need a antitrust laws, a big technological shift or a dirty attack by a rival oligarch.

  5. Augusto says:

    I know a couple of friends who are going “consulting”, that is setting up their own business’s. Covid is behind both, but with different reasons. One doesn’t want to go back to the office because he’s had it with the office BS and commute. The other refuses to get the Vax and wants to avoid running afoul of employment requirements, so is trying to become a consultant. Both are getting up there, near the end of their careers. I wonder how many of these “new business” people in this article are similar? Also, I have seen this before in the Oil and Gas world (where I used to work) when people are laid off. Many set up shop either working in their line of business or starting something new. Sometimes, these businesses are simple fantasies. There is either no work out there (which is why they got laid off), or they hate saying they are “unemployed”. So saying “I’m starting my own business or going out on my own” sounds so much better to them/others. And of course many try to make their new business work. My guess is about 80-90% of the so-called “new businesses” I have seen never really get off the ground, or fail outright. The owners either return to a job or retire outright. Now this is all antidotal, I know but I wonder about the numbers above.

    • Wolf Richter says:

      Augusto,

      “…or they hate saying they are “unemployed”. So saying “I’m starting my own business or going out on my own”

      These numbers are based on EIN applications. You don’t need an EIN application to start a business because you can use your Social Security number as tax ID. If someone wants a business on the resume, rather than being unemployed, and it’s really a fantasy business, as you call it, the last thing they’d do is apply for an EIN. You can pretty much exclude those businesses from this group here. These are pretty serious business applications.

      But as “JoAnn Leichliter” above pointed out, there are a lot of businesses that were started that didn’t file for an EIN but used the owner’s SS number. So the total number of businesses started is higher.

    • robert says:

      Ah, consulting. That’s where you walk in the room, find out who authorizes the check, and recommend whatever they want in the most diplomatic way possible so everyone else’s feelings aren’t hurt.

      • Truckman says:

        ..and whatever’s wrong with the company can easily be discovered by talking to the intelligent employees, it’s just that the boss isn’t listening to them.
        It’s also very important to charge a big fee. The purpose of a consultancy report is to cover the donkey of the check-writer, and a big fee gives this pseudo-legitimacy.

        • Joe Saba says:

          YOU DO GET WHAT YOU ASK FOR
          they can always counter lower(and many do)
          I have line in sand number and walk away quickly when they violate it
          if I wanted to work for slave wages I can take a job at one of the low wage companies like homeless depot

      • El Katz says:

        Consulting: Where you borrow their watch, tell them what time it is, then keep their watch.

        • Anthony A. says:

          Besides keeping the watch,you send them an invoice for your work. Great stuff!

      • Wisdom Seeker says:

        That’s one flavor of consulting, but the other is where you provide expertise that’s essential to solving a one-time problem they know they have, but don’t have in-house expertise to solve. Not the kind of problems that have commodity solutions; the kind that require deep expertise in a particular system or specialized issue.

        The second kind can be really rewarding both personally and financially. Those consultants are legitimate “business doctors”, fixing their “patients” (the companies in trouble) before they go belly-up.

        • VintageVNvet says:

          Very good comment WS!
          Been there and seen that while working at companies as employee and ”contractor” ,, where the owners/bosses actually were able, somehow, to realize their lack of expertise and brought in seriously well qualified consultant ”help”.

  6. historicus says:

    The entreprenural spirit is essential to this nation.
    It must never be smothered by government.
    weigh these noble efforts vs those trying to scam govt programs.
    The mindsets are diametrically opposite. One should be applauded, one chastized. Yet it seems the focus and approval falls upon the wrong group.

    • Roger Pedactor says:

      There is some hope.

      Now if only regulators had the balls to break up Google, Facebook, and Amazon.

      • Bobber says:

        The best way to attack harmful corporate consolidation is to put a progressive corporate tax rate in place. No new government agency or program or policy change is required. Just change a few numbers in the tax code, and let the free market do the rest.

      • RockHard says:

        Then how do small businesses advertise? What about all the FBA businesses (fulfillment by Amazon)?

        I agree that we need to bring back antitrust but people are also figuring out how to play off of the big kids. If you read what Wolf wrote, a lot of these businesses are in retail, and their biggest problems are advertising and fulfillment.

      • polecat says:

        Water over the cataracts .. I mean, just WHO are these ‘regulators’ of which you spaketh? .. I don’t see no regulators .. All I see are revolving CHEATS in ‘Ties’!

    • drifterprof says:

      historicus: “weigh these noble efforts vs those trying to scam govt programs”

      There’s a lot of scamming going on, from all corners. For me, the words “entrepreneurial spirit” do not necessarily evoke some noble heroic patriot who is the lifeblood of a nation. For example, many drug dealers have excellent entrepreneurial spirit.

      Small business owners can often be mean-spirited bigots who will take any chance to scam the government (cheating on taxes, regulations, etc.) while at the same time gouging and misleading their customers.

      Back in the day it was sort of the same, but not so obvious as now. IMO, most American retail businesses, whether big or small, are very irritating these days because they treat customers like morons (especially in advertising). I never understood why there are tax breaks for advertising. It means people are actually paying for the crap that advertising throws at them.

      (no offense intended to competent, positively productive entrepreneurs)

      • Mike says:

        I started my small business about 5 years ago. It’s retail. I did it part time as I kept my corporate job. My first corporate job was in 1985, after college. So many years of corporate employment under my belt. In sales and business development for the most part. I went full time this year. My revenues exceeded $1 million here in 2021.

        So let me tell you about retail consumers. In a word they ARE morons. In a few words, mostly self entitled spoiled morons, who have themselves been corporatized by the Spamazons and Wally Marts of the retail space. They are all about instant gratification, which means if anything is not absolutely perfect they demand an immediate resolution. They will crap all over every small business owner every chance they get, and it’s because they largely feel they are more important and powerful than any small business, and can slap that business with a nasty Google or Yelp review in a New York minute. They can’t do that with a Costco or Home Depot or a Walmart but those businesses sell in such high volumes that returns or solving an issue is no big deal. These morons nearly always ask for a discount. They have little appreciation for what actually goes into operating a business and all of the costs, and government red tape, insurance and so on. American consumers are also very fickle fairy farts. Zero loyalty, but they have been ‘trained’ by corporations to be that way. Corporations have largely destroyed America. As they have become more powerful than most nations, and basically own the Congress people who legislate for what they are bribed into doing. Consumers can’t control any of that, so they seek out the small business, and feel they can get away with pretty much anything, and kick the snot out of the owner or that business whenever they want. They really know very little about anything and have lost all common sense. So yeah, most, not all, are definitely morons. And NO that old adage about the ‘customer is always right’ is a bunch of baloney. The customer may FEEL that way, but 9 times out of 10 they are wrong. Very wrong and very disrespectful about it. So you have to treat them like morons, not take one once of crap, and be mean as all get out when they start being jerks. And you know what ? They’ll back down and fold like cheap tents. It’s because they are stupid. And they know that, and they have nowhere else to turn, as most corporations have gotten out of a lot of much needed local service. The value of local service is infinitely more important these days than anything else. Why ? Because the internet has so distanced everyone in all these businesses, and totally killed off intelligent and respectful representatives and killed off deep levels of product knowledge. Nobody even stays in their job long enough in any retail support position to actually know anything. So if it’s not the most perfect appliance, that never fails, and can’t easily be returned, the consumer is screwed. The stuff you really need must be purchased via local business. Stuff you don’t need, is no problem buying on line. A gazzillion clones of that crap.

        • drifterprof says:

          Mike:
          Well, I can’t disagree with your basic description of the average American consumer’s personality and intellect. Not only in consuming, but electing politicians.
          😅
          It’s part of the reason I got outta town. Congratulations on your awesome success!

        • Nate says:

          Awesome Rant :D

          When they taught me what a bell curve is I finally realized a big part of the problem is that 50% of people are below average intelligence and am starting to wonder how low that average really is… and the sociopathy of a good portion of those on the other side taking advantage of them.

        • Petunia says:

          For the past few years I have lived in the deep south where local businesses are plentiful. Some are very well run, but most are not. The stupidity I have seen them engage in has run from interesting to sad. Many of these businesses have survived because they are the only game in town, or one of very few.

          Here are some of my observations:

          Having a nice looking location/store/website doesn’t make up for bad service or lack of skills.

          If you tout your religious affiliation don’t cheat your customers or nickle and dime them unnecessarily. Just charge a fair price.

          Just owning a business doesn’t make you a superior person and your customer subservient. Especially when your customer can see you have no idea what you are doing.

          Don’t gossip about your customers, it’s a turnoff.

          If your customers really are morons, then strive to educate them about the product or service. It will make you a resource in your niche and bring you business in the long run.

        • Peanut Gallery says:

          @Petunia

          So I guess many like yourself find religious affiliation among businesses a turn off

          but liberal points of view associated with business (a religion in itself the same) is embraced by all of society and even encouraged?

          doesn’t seem fair?

        • Wisdom Seeker says:

          @Peanut – that’s not what Petunia said.

          She said if a business is going to make a thing out of their religion (or other stated principles), they need to walk the talk.

          My current favorite example is all the businesses claiming to support diversity and inclusion, yet screwing over anyone who questions anything about the party-line propaganda… You can’t really be inclusive with such a closed mind!

        • RockHard says:

          @Nate – the other aspect of the bell curve is that 50% of the business owners are idiots as well. Which is basically what @Petunia said.

      • historicus says:

        “For example, many drug dealers ”

        Really? you “leap” to illegalities ?
        Entrepreneurs succeed when they provide a better product or service.
        That is an improvement.
        Speaking to the economics, whether they are nice people or not does not factor in.

        “some noble heroic patriot who is the lifeblood of a nation. ”
        Whether they are a patriot or not doesnt factor in an economic discussion. Again a “leap”.

        But, entrepreneurs who create better products and services is indeed the lifeblood of the economic nation. Who would you leave those tasks to? The government?

        • COWG says:

          h,

          Confusing read…

          What was your point?

          DrifterProf is absolutely correct that the “ pharmaceutical “ industry has some of the most clever entrepreneurs around…

          Leaving aside moral, ethical or legal issues…

      • El Katz says:

        An former neighbor of ours started a “minority female owned business” selling stuff to the U.S. Government. She’d buy it on Amazon, rebox it in her garage, and ship it to the procurement office marked up 100%.

        It was actually quite funny to watch…. make up box, open Amazon box, move items from box A to box B (using the same packing material), and give it to the UPS guy the following afternoon. Did it out of their third car bay in the garage.

        Made a tidy bundle of money.

        • Wisdom Seeker says:

          Multiply that sort of economic waste by $3.5 trillion and you have a good chunk of the current stimulus package proposal.

          Government is great at wasteful spending but a disastrous failure at productive investment. A large share of giant corporations have similar failures. Too easy to end up with misaligned incentives in large organizations.

  7. Anthony A. says:

    I got my EIN back in 1997 and started an engineering consulting business focusing on oil & gas and petrochemical areas. In a couple of years, I became a Sub S Corp and ran the business with a few employees (engineers) and stayed in business until I retired a few years ago. It worked for me, but it was HARD and lots of 80+ hour weeks and weekend work.

    I probably worked longer than most my age but the money was so good it was hard to pull the plug. Plus, I had cultivated several good clients to really wanted us to handle their projects.

  8. BuySome says:

    Stick a truck in the garage and wait for it’s value to keep going up. That’s a business that could fall into any one of those several categories. Hold it as inventory for a business and now you’re an automotive mogul. Qualify for local development funds.

    • Jon Martin says:

      No kidding! I bought a new truck last December and the blue book is now $8k more than I paid. At the time, commenters here were bragging about the roll up windows on their 25 year old cars with 200k miles, saying cars are depreciating assets. One comment pointed out that I third world countries with high inflation people buy vehicles as stores of value (inflation hedges).

      • El Katz says:

        JM:

        The problem with your “business model” is that, once you sell the car you made those big bongo bucks on, what do you replace it with to continue your business? Since there’s only more expensive units to purchase it sorta blows your whole business longevity thing.

        Keep in mind that some of us who have those old “roll up window cars” can now command 1500% (or more) over what we paid for the car back when. Makes your ROI pale by comparison.

        Call me when gas hits $5 or $6 a gallon and see what the value of your truck is……

      • Happy1 says:

        This will last about 12 more months

    • COWG says:

      Brilliant !

      And… since dispensing that advice, you are now a business consultant, too…

  9. breamrod says:

    people will find a way to be as free as they can. I believe it could be the rebirth of America. We’re in the 1st inning.

  10. cas127 says:

    Wolf,

    In your view, how would a one-man-band/drop-shipping indie Amazon 3rd party “retailer”/salesperson be counted?

    As you point out, the Amazon/Ebay/Alibabas of the world have made this possible – basically one-man-bands selling via Amazon/Ebay but relying on Alibaba sourced suppliers for drop-shipping services (almost everything except sales).

    That model (essentially price arbitrage, based on intermediary sellers’ ability to fund Minimum Purchase Quantities from Alibaba sourced manufacturers, while necessarily taking on the risk of failed sell-through) could lead to a *lot* of very fast tiny business creation…but (as you indicate) little employment increase…and the risk of future disintermediation by manufacturers.

    I know you discuss the “high-propensity” employer businesses too…but the one-man-band product arbitrageurs might be the bulk of the increased business creation numbers.

    And…I wonder how carefully Census really stripped out “non-employing” EIN applicants (trusts, tax and liability shells, etc.).

    The blow out in commercial real estate alone might inspire the creation of a huge number of new shells (CRE uses a *lot* of tax and liability shells) because vultures have begun circling in the aftermath of office/lodging sectors’ implosion.

    In many cases, each individual building gets its own set of shells. That is potentially a lot of new EINs if Census wasn’t careful in excluding them.

    Ditto PPP policing…are we sure EINs had to be pre-existing…or maybe just created within a year of getting the loans (that of course would be insanely lax…but DC has done insane things before).

    • Wolf Richter says:

      cas127,

      “Ditto PPP policing…”

      Forget PPP. That ended in May. There has been no drop-off in applications since then. And before then, they were not involved in EIN applications for the reasons I stated — including that you didn’t need an EIN to file for a PPP loan. SS number was all you needed.

      If an arbitrage business of whatever kind files for an EIN application, it’s included. If it doesn’t it’s not included.

      I don’t understand what your issue is with arbitrage businesses. Who are you to decide which business deserves to be recognized as business, and which doesn’t? If a person can pull this off, it’s like brokering mortgages or anything else. Good for them.

      I know a few mom-and-pop ecommerce retailers. They’re all buying somewhere and selling at a higher price. That’s what retail does. Whether you ship the merchandise with UPS every day, or whether you have Amazon ship it for you from their warehouse, or whether you make some other arrangement doesn’t matter.

      “I wonder how carefully Census really stripped out “non-employing” EIN applicants (trusts, tax and liability shells, etc.).”

      Keep wondering. Great use of time. It’s a breeze for a computer to sort digital EIN applications by type. No humans sitting there sorting and scratching their heads. Basic computer function.

      • cas127 says:

        “I don’t understand what your issue is with arbitrage businesses.”

        I don’t have an issue…I was just amplifying *your* point that one-man-band type enterprises, utilizing Amazon for sales and drop-shippers for everything else are, by design, not going to be big job creators (thereby reconciling the surge in job creation while the US is still 5 or 6 million people short of pre Covid employment.

        “Keep wondering. Great use of time. ”

        Manners.

        Questioning the specifics of survey methodologies or the definitional accuracy of government analyses is frequently worthwhile.

        Just because some GS 8 at the Census Department runs a SQL sorting routine on a database field entered/interpreted by a GS 4, using raw data supplied by market players who may have varying motivation, concerning issues where shell entities can exist in great abundance…certainty does not mean that probing questions *can’t* be asked.

        • VintageVNvet says:

          FWIW, I’m definitely w C10 on this one!
          Challenge, question, consider every possible error and then figure how those errors multiply the results…
          Said this before on here, but 50 years ago was able to peruse hundreds of PhD theses at leisure time while a library night time ”shelver.”
          Almost all of them had conclusions of one sort or another absolutely NOT supported by the data IN the thesis…
          It was not economics, but a couple other so called ”social sciences” similar to econ == mostly all a bunch of made up BS to this day, clearly proven by the current mess of economy, crime, etc., etc.

      • So we moved past doing each others laundry to selling pencils on the street corner. The genius of ecommerce is removing the middle man, now the middle man is back because of supply chain constraints? I really don’t get it. This is the opposite of value added, it’s value sucked out of the economy.

    • Thomas Roberts says:

      There are more people than you think just buying up used stuff from Craigslist, rummage/estate sales, and everywhere else and then reselling on eBay. There is also people who just buy up Amazon/other retailers stuff, when it’s on sale, and then resell it on Amazon, at a markup. The Alibaba/others middle man is of course barely a real business like you said. I don’t see any of these “retailers” as sustainable.

      I’m not a fan of the Alibaba middle men. My issue is that quite a lot of them are very unprofessional, as they will intentionally or carelessly put counterfeit or inferior products on sites like Amazon under the wrong product pages. Amazon is stacked to the brim with third party sellers, who are scalpers or selling a different product than the one listed on that page. It’s very ridiculous that the reviews on Amazon, don’t mention what seller the reviewer bought from.

      The only sustainable real out of house retailers, are those who make stuff themselves (like Etsy, it’s a website) or those who buy up stuff and fix it before reselling.

      I also wonder how the onlyfans “creators” are classifying themselves. They and other wanna be “creators/influencers” (twitch and YouTube streamers of all kinds) are likely a not insignificant part of probably “retail” or “professional services”.

      I’m definitely not against a bunch of people going out and trying to start their own businesses. I myself have one and come from a family of small businesses, I am also a part of the local business owners club and I do know some of the people in the young entrepreneurs group. They haven’t met since pandemic began, so I can’t report anything from them.

      My concern is that for most people in the gig economy, is that they can’t really negotiate. As automation of all kinds, hits over the coming years, the number of workers needed will drop, as well as it becoming easier to outsource office jobs. While certain types of small businesses and gigs will still be valuable, many will just become a subcontractor to one or a couple bigger companies, likely end up getting underpaid and taken advantage of. This could depress pay across certain industries. For years now (including prior to pandemic), many companies in certain industries have been forcing many/most new hires to be “independent contractors”, who are worse off in every way to an actual employee.

      The real way forward is to push “made in America” for most things (certain things like textiles, unless they become hugely automated, are not worthwhile). Push for automation as greatly as possible. Requiring most types of businesses to only hire full time American workers (the companies they contract with, have the same requirements). Salaried workers will actually, over time (averaged across year), only work the standard workweek (currently 40 hours a week). Over time as automation reduces the number of workers needed, the standard workweek will be pushed downwards.

      • Kaleberg says:

        Wasn’t that the story of the 2000 dot com crash? Buy stuff at CostCo and sell it on eBay to get by.

        • cas127 says:

          The thing I always wondered about in this model, is why buyers would not just buy (cheaper/easier) at Costco or Walmart.

          The only way I see this model working for any period of time, is if Amazon/eBay 3rd party intermediaries get much better prices from the manufacturers (hello, Alibaba) by having the financial resources to meet high Minimum Quantity purchase orders and then resell at a markup to ultimate consumers.

          But that is a risky, expensive game with a possible short life span too (why can’t manufacturers cut out one-man-band middlemen?)

        • Thomas Roberts says:

          The app company startups are like the dot com bust, on roids, these Amazon sellers are just glorified middle men. Both will crash eventually, the resellers crashing, will be a tiny blip to small to notice. The app companies crashing will make the dot com bust, look quaint and nostalgic.

          Some do indeed buy from Walmart, Costco, and others. If you as a small “retailer” buy from a B&M place (usually you buy online and get it shipped to Amazon), you have to pay full retail price and then Amazon charges you their cut (which includes shipping fees) and their warehouse fees (some bigger Amazon sellers do of course have their own warehouses); this would destroy the margin for most things. You can’t usually buy most things in person, because the cost to ship it to Amazon, would further erode your margin. There are some things like this though, on Amazon. For instance, some people rush to get black Friday deals and other in store sales and then resell on Craigslist, eBay, and Amazon at a markup; contributing nothing. You can also just buy direct from B&M and then resell through Amazon, shipping direct to customers from your house, but, most people only want prime shipped items. It’s much easier to do direct shipping from home with eBay.

          If you buy from Alibaba, you have a larger starting margin. If you buy from Amazon itself, you can sometimes get or possibly negotiate, bulk pricing to an extent, and the product itself might never leave the warehouse (I think it works this way). You flip something, by buying it when it’s on sale, or in limited supply, and then mark it up.

        • Thomas Roberts says:

          Oh I misread a part,

          Costco’s aren’t everywhere so that is a part of it. Sometimes buyers just aren’t aware if a B&M store nearby is cheaper. Sometimes going into a Costco because of long lines isn’t worth it for a few dollar difference. Because of shortages your Costco might be out. Laziness is definitely a major factor.

          There is quite a lot of people who claimed unemployment, made much more than they used to and blew alot of it, on having fast food and everything else delivered.

          The unaware it’s cheaper in store is a major factor though. Another thing is that Amazon has a lot more reviews on its items, but, fake reviews and bad resellers taint the value of all the Amazon reviews.

  11. tom15 says:

    29yrs for our small business.

    Other business we had for 10 yrs & sold.

    Retail growth makes sense in my little part of flyover.
    I’m sure most is online, but I have noticed new life on our
    small town main streets.

    The risk takers & doers will seek freedom.
    I wish them well.

    • Seneca’s Cliff says:

      These business startups are the wave of the future. The worm has turned and the consumer economy is dying. Welcome to the producer economy. It is no longer enough to have a sack with some digital fiat bucks in it. You have to be able to create value. The age of the customer is over and the doer is in the drivers seat. Inflation will wash away the spenders and leave the producers as the lords of the domain.

      • El Katz says:

        There is a book by Daniel Suarez called “Freedom”. It’s (well maybe was) science fantasy fiction, but it spoke of a return to small towns by young people and their developing industries under cloak of darkness as the corporate owned government went rogue in an attempt to control the population.

  12. gorbachev says:

    Great article wolf. I did this myself 30 years ago.
    As my life changed so did my business..Paid
    all my bills and had a recent score that allowed us to retire
    modestly. I had been laid off and because – I think- of horrible interview skills had issues getting a job with reasonable pay. I said screw it and off we went. She took care of the bills and kids while I learned new skills.
    Worked out Ok.

    • Augustus Frost says:

      I finally had to learn proper interviewing when I was laid off in 2011. I was finally motivated to do it. Approached it to answer two questions, “why should I hire you?” and “why do you want to work here?”

      • Michael Gorback says:

        They didn’t ask “Where do you see yourself in 5 years? ”

        I thought that was a Federal law. /Sarc

        • Petunia says:

          “Not here,” is the appropriate answer in tech, where projects run less than 2 years.

  13. Kaleberg says:

    I follow the restaurant scene in Seattle, and I have been surprised by the sheer number of new restaurant openings, not just recently with indoor dining reopened, but back when things were much rougher. They tended to focus on take out and delivery, but some had outdoor dining space.

    A lot of restaurants closed up front. Many restructured for take out and delivery, but this took time. Canlis, a long time upmarket restaurant got seriously creative, turning their parking lot into a “beach” and serving beach shack food or a drive in with a drive out menu. Then a lot of new restaurants started appearing in a sort of WTF, who would open a restaurant NOW with so many restaurants dying.

    In some ways, it was like a forest fire. On the surface, it seems like a disaster, but there are all sorts of components of the ecosystem that rely on periodic fires to clean things out and give them a chance. There’s suddenly room for all sorts of new things.

    • Peanut Gallery says:

      @Kaleburg

      I am also somewhat familiar with the Seattle restaurant scene and am equally puzzled at the number of people starting new restaurants in quite possibly one of the most hostile business environments in the US.

      I’m curious where they will all be in a year from now. Some of these businesses I’m sure are running on a deficit and draining owner/investor capital. What I’ve learned and observed is that a bad business can run for a lot longer than you think… Owner time and capital can prop up deficits for a long time!

  14. OutWest says:

    20% of new businesses in the US are started by first generation immigrants. That hasn’t changed since I was a kid.

    I’ve had a number of failures but never gave up. It’s easy to get a good job working for someone else and much harder to run your own business.

    I’ve been self employed for the last 9 years and can say that it is both endlessly frustrating and rewarding at the same…

    I’ve worked in restaurants, clubs, and bars. Tough to make it over the hump.

  15. Michael Gorback says:

    I wonder how many people are out there who haven’t filed for an EIN and are working construction, plumbing, electrician, or even mowing lawns. There is plenty of construction going on with off-the-books labor.

    How many housekeepers or dog walkers have EINs?

    • Wolf Richter says:

      Yes, lots of small businesses out there without EIN (including the self-employed and gig workers). Your social security number works just fine if you don’t intend to hire anyone, and there are lots of little operations that operate this way. The step to an EIN means that the owner is getting a little more serious about hiring — that’s how I see the motivation to an EIN.

      • Spiff says:

        You don’t think that ppp fraud is a contributor to EIN applications?

        • Wolf Richter says:

          Correct.

          There was a lot of fraud with PPP loans, and the rules were so loose you didn’t even need to commit fraud to get PPP loans. There was ZERO need to get an EIN to apply for a PPP loan. It wasn’t a requirement. All you needed was a social security number.

          In fact, applying for an EIN to get a PPP loan would automatically disqualify you from getting a PPP loan. Because you had to prove that the enterprise has been in business by x-date before the pandemic. So if you applied for an EIN during the pandemic, you were automatically disqualified for a PPP loan.

        • MA_Farmer says:

          I have two self employed gigs and file a separate schedule C for each under my SS# When PPP came out I filed an app for the one with the higher income under my SS# and then needed to get an EIN to file for the second one. So the EIN was not to “start” a new business but more to legitimize an already running one. I had multiple years of schedule C’s to back it up.

  16. Equelan2 says:

    It is also an indicator for increase of unemployment due to mandatory parasite injections and shutdowns. So people started to work at home with their families and using internet as marketplace to sell their product. I know a man who was a good photographer but since the madness begin due to lockdowns he lost his job. now working at home making some leather belts and trying to sell them not to live like how he was living but to be able to survive.

  17. roddy6667 says:

    I have a feeling that a lot of these new businesses are just side gigs that supplement the real job. They can last a lot longer than somebody who is depending on it paying all the bills. My brother had a soul-sucking office job in a dehumanizing bureaucracy. He operated a side business of home repairs to keep in touch with reality. He did this for 30 years. It paid less than half of what he made at his real job.
    This type of job can’t be included with full-time work that will support a family.

    • Wolf Richter says:

      roddy6667,

      You don’t need an EIN for a side gig. Your social security number works just fine. Lots of self-employed do that. Unless you plan to hire people or incorporate or take other more serious steps, you really don’t need an EIN.

  18. Chris from texas says:

    One of the best things that ever happened to me was the Junior Achievement program that I attended 45 years ago.

    It taught me that businesses weren’t some big complicated thing but something that anybody could do.

    This gave me the tools that I later used to start a small home remodeling business to pay my way through College.

    After college I went to work for “real companies” but eventually went back to starting and running different businesses.

    There are all types and levels of business. You have to find what matches your skills and personality.

    Personally, I am better at doing things than managing people and paperwork. I like small businesses where I work as an owner/operator. With 2-10 employees that I treat like family.

    Yes, it can be extremely hard. The hours can be long. But I take time off whenever I want. And the feeling of controlling my life lowers my stress much more then it was in a corporate environment.

    If you persevere, adapt, and keep growing your skills you will achieve financial success and great personal satisfaction.

  19. RedRaider says:

    Imagine you and I are neighbors. Our homes are identical. I agree to sell my home to you and you sell your home to me. We then both rent back our original home from the other. If this were done via a business wouldn’t I be able to deduct things like rent, property taxes, etc as a business expense? And I would still be living in my original home.

    Are ploys like this why people are creating businesses or do I just have a devious nature?

    • RedRaider says:

      P.S. You could even hire yourself as 24/7 watchman/caretaker of you home and deduct as a business expense all your personal expenses like food, gas, medical expenses, etc.

      Yummie!

    • historicus says:

      ” deduct things like rent, property taxes, etc as a business expense?”

      What’s the business? I believe those expenses have to be connected to a business income, not a salary from unrelated activities.

      • RedRaider says:

        Using a chainsaw to carve wooden indians. Creating a youtube site to react to songs… could be anything.

        • RedRaider says:

          Wouldn’t even have to be a profitable business. Or is it legally considered to be a business only if profitable?

        • Clete says:

          @Red: The rule may have changed, but basically you have to show annual profits every so often to be allowed to deduct expenses. Something like 1 / 3 years, IIRC.

    • RockHard says:

      I’ve personally wondered this and I intend to ask my tax advisor. Basically, what if you created an LLC that buys houses. You fund the LLC as an investor. The LLC uses that money to buy a house. You pay the LLC to rent the house. The LLC pays for upkeep, maybe even pays utilities (utilities incl in rent). You take money from the LLC as a dividend, or maybe loan payments if you structured your investment as a loan. Maybe pay yourself as an employee.

      It sounds like it’s maybe legal?

      I know with vacation homes, you can do that with IRA money. Your IRA buys a house and rents it out on AirBnB, the IRA collects rents. You also can rent from the IRA and use your IRA’s property as a vacation getaway. You have to keep a very strict separation (IRS sees this stuff and sirens go off), and your funds go back into your IRA so you can’t take it out as income, but it’s a little hack to fund your retirement with your vacation dollars. Also there are administrative costs and it’s a bit tricky to set up, but I did research it at one point and there was a regional bank in Colorado that actually did this kind of stuff as a sort of boutique investment.

      • Michael Gorback says:

        When I bought into a real estate deal in 2003 I was appalled that the other 3 partners were operating as a general partnership. It took an incredible amount of explanation to make them understand the liability.

        We converted it to a LP, paid FMV rent, and still had money left over after expenses to pay ourselves a nice distribution.

        A LP might be the way to go instead of an IRA. One thing to consider is that in some states if your IRA owns the house and someone gets hurt on the property and sues, you lose could lose the immunity of the IRA. For example, in Texas IRAs are not not subject to creditor attacks. If you have the property in the IRA that might crack open the IRA.

        With an LP you have different vulnerability. If the LP owns the house they can sue and get a charging order, which means if you withdraw funds the plaintiff gets a pro-rated distribution. The trick is to have the LP only own the house and don’t withdraw any funds. Every year file a K-1 with the IRS so the plaintiff pays taxes on money they never see. That gets old, plus the lawyer won’t want to stick around 10 years waiting for the contingency fee.

        In general do not put assets that could incur liability in a LP or IRA with other assets. For example, don’t put a rental house in a LP with your stock brokerage. This will vary for each state.

        This 100% amateur legal advice and possibly as much as 50% accurate.

  20. historicus says:

    Where do Uber drivers fit in? Is he a self employed business if that driver is an independent?

    • RedRaider says:

      The business would be to have a fleet of Uber drivers. You as business owner is different than you as Uber driver. And if your business prides itself on its benefits package (provide your fleet of drivers with all their earthly needs) wouldn’t that be a business expense? And if the only driver you’ve managed to hire is yourself can’t be held against you the business owner. Might be a very poor business plan but you’re not asking a bank for a loan.

  21. Beachwalker says:

    One source of new EIN applications is that commercial property owners are encouraged to set up a separate business with its own EIN for each property they own. It protects each property from the liabilities of another property held by the same owner. And even the owner of a single commercial property, it’s a good idea to form an LLC to protect one’s personal assets. So it might be interesting to know how many households hold multiple EINs. I cite households as opposed to individuals because it’s not uncommon to split businesses among spouses.

    • roddy6667 says:

      I was just reading an article about how the talcum powder lawsuit bankrupted Johnson & Johnson. It occured to me that every product should be registered and run as a business, thereby protecting the parent company. Same thing as your example with buildings. Living and doing business in a litigious society is pushing things to extreme limits.

  22. georgist says:

    This is great news and to be encouraged.

    However it still doesn’t fix the root cause.

    Imagine that many people start businesses and they are a success. They capture the value they create instead of some big corporation taking most of it and giving them a small wage. All good so far.

    Let’s imagine that this happens across the USA and real incomes are lifted. House prices will rise as at a given interest rate borrowers will now be able to access more credit. Everyone can access more credit as real wages are up, so they all big more for the same housing stock.

    The productivity uplift is captured by those who already own land. And even then it’s only realized by those who own land for speculative purposes. Those who own land just to live on will see their debt eroded by the general rise in wages too.

    But after that uplift has plateaued, the next generation of small business owners will be faced with higher land costs and though they are more efficient they will be buying the same small house, that stretches their income to the max and leaves them with the same disposable income as people right now (very little).

    This is the system. The computerization of banking as allowed for the near instantaneous reaction to economic events to pivot quickly to issue more credit to capture efficiency gains through rentier activity.

    Because the root cause has not been addressed, the same problem remains. As per Keynes , you have to “euthanize the rentier”.

    Land value tax is not “commie”. Location value is created by society, not the individual.

  23. Duane says:

    People are taking their cue from Wall Street and Fed monetary policy. We are in the midst of a new “working is for suckers” economic miracle and nothing will derail it.

    (from Barrons)……..
    “It is not a coincidence that individual trading accounts have exploded since early 2020…Robinhood Markets said it had 22.5 million funded accounts—the vast majority of those considered “active”—up 130% from a year earlier. Assets under custody ballooned 205% to $102 billion during the same time frame…Crypto trading platform Coinbase Global counts about 68 million users, $462 billion in quarterly volume, and $180 billion on its platform…How many workers are effectively participating in an alternative economy that traditional measures can’t begin to count?”

    On a personal note I sold a house for a sizeable capital gain, I’m sure many others have too. People are taking their cue from Wall Street and Fed monetary policy. We are in the midst of a new “working is for suckers” economic miracle and nothing will derail it.

    • georgist says:

      100% this. Everything is about rentier activity.

      Check the kidz forums online, “wagies” are referred to with disdain, they are the suckers. People are doing whatever they can to leverage up and ride the wave. For them it’s a one-way bet as the USA has terrible social mobility (29th in the world) so they know they will not “make it” by working. What have they to lose? If it all blows up they go bankrupt. What did they lose?

      Jokes like “my boss pointed at his Ferrari and told me ‘if you have a good year, work hard, put in the hours, I’m going to get a Porsche next year'” are all over the online world.

      Everyone is in crypto. The establishment must know that they are keeping a lid on unrest by not crashing crypto. If they do take it down they will be removing the very last piece of hope for many young men.

      Most of them are also against family formation as they know the system will use it against them to extract labour (school catchment areas etc).

      It’s a real mess out there.

  24. historicus says:

    “We are in the midst of a new “working is for suckers” economic miracle and nothing will derail it.”
    Saving your money is for suckers too, at about a 5.8% clip.
    This is not a healthy environment for a society, IMO. It is also UnAmerican to be punished for saving your money.

    When COVID hit, if you had liquidated your business and threw it all into the market and real estate, you’d likely be ahead.

    “Honey, how much higher is the stock market this morning? And why do our neighbors leave the house so early? Are they really still working?”

    Banks and Fed Governors (personal trading, and those they “advise”) had a record quarter..

  25. fred flintstone says:

    Deere goes on strike……I read those headlines thinking…..here we go again, a union out of control asking for enormous wage increases…….the reality…..the men rejected a union negotiated deal with a 5% wage increase for this year and 3% per year over the next five years. Its a 5-6 year deal.
    So…..the men rejected a deal that would have resulted in wages barely keeping up with the COLA this year and falling behind the next five years……Probably.
    Yep……management, who are flying their private jets into the meetings and earning 100x the men, can’t seem to find the cash to keep the company wages at the same level on an after inflation basis.
    After productivity at the company has jumped 5x over the past 20 years……and corporate taxes were slashed two years ago…..and business in the farm area is exploding.
    Yep…..we are headed for some real good times……1917 comes to mind.

  26. c1ue says:

    Ecommerce “new businesses” are very little different than Uber drivers or food delivery people: they are 100% at the mercy of the platform they are on. Except these new businesses also can be attacked not only by the platform directly and by other “new businesses”, but also large retailers and manufacturers themselves.
    This seems more like the adage of 2 families in a poor town getting rich by washing each other’s laundry.

  27. El Katz says:

    I wonder how many of the current crop of “YouTube” influencers are pulling EIN numbers due to their hiring people as cameramen, editors, etc.,?

    There are quite a few that are really branching out and appear to be making substantial money – or at least enough (through their Patreon and merchandise sales) to eke out an existence.

  28. wkevinw says:

    Small businesses have been shrinking as a percentage of the economy for decades. I couldn’t find the chart I had seen, but I think it’s at about half the level it was 50 years ago.

    Small manufacturers don’t survive unless they have some kind of specialty niche; often defense contractor as a customer, for example.

    Corporatism (cronyism) isn’t capitalism (competitive free enterprise.)

    The size of the big corporations relative to the smaller businesses has been growing.

    https://hbr.org/2019/08/the-gap-between-large-and-small-companies-is-growing-why

  29. Betty says:

    This is a wonderful positive thing. Yeoman Yankee entrepreneurship at its best.

    You can help your fellow countrymen by always paying them in cash, thus allowing them to participate in the voluntary income tax system to whatever degree they choose.

    Remember, cash helps a struggling small business avoid the 4% skimmed by credit cards, 15% Social Security, 3% state disability, plus advance payments for state self employment tax, plus federal income tax on profits.

    This is why cash traditionally gets a 20% discount, sometimes more on labor.

    • Drago says:

      Cash doesn’t need an internet connection, a functioning app or even electricity, nor does it have to pay a service charge:

      “Square’s payment system malfunctioned over the weekend for several hours, a glitch that cost workers at affected businesses a meaningful portion of their earnings during the most lucrative day of the week.

      The messier version played out in small businesses around the US as workers at coffee shops, nail salons, and other service-oriented ventures found their payment screens unable to accept tips – which amount to more than half of the earnings of waitstaff and bartenders, according to the National Employment Law project.”

      Erica Escalante, owner of Café Reina in Portland, Oregon, signaled her dissatisfaction with Square via Twitter.

  30. Michael Gorback says:

    My attempt to become an influencer with my YouTube typewriter channel has been a miserable flop.

    • Xavier Caveat says:

      Don’t tell me you used a Corona…

    • BuySome says:

      If you can’t get a typewriter to work by saying “Dyslexa, send a hapless and confusing letter.”, then you’ve lost most of this world’s current occupants. Maybe target the crafters segment by showing how to convert it to a stylish flower pot/candle holder/incense burner while re-using the old keys to create a word-jumble board for wall displays.

  31. Eastwind says:

    I hear you on the demotivation of the 50% failure stat. Reality is more nuanced than one number.

    Some percent fail because they operate at a loss.

    Some just can’t find enough customers to fully employ even the owner.

    Some make operating profits that pay the owner so little they throw in the towel. 80 hours a week for 40k a year is not a success either.

    Some even make the owner enough for them to feel like they’re succeeding, but they haven’t done the math and aren’t counting the depreciation of the assets they invested in to start with, and after 5 years they realize that they need a new truck and the profits are not there to buy it and pay them their “salary”.

    All these cases are rolled into the 50% failure stat, but they are a spectrum of non-success.

  32. eg says:

    Any chance this development is related to the earlier post about quit rates?

    • Wolf Richter says:

      There is probably some of that, there is always some of that, but now especially with work from home allowing for dual jobs, until the side hustle takes off and the day job gets the boot.

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