OK, I rarely talk politics here -- actually, I never talk politics here, aside from my occasional non-partisan libertarian side comment.
But this AIG thing has me tweaked. Earlier this week, the U.S. Government bailed out the failing financial institution to the tune of $85 billion dollars, taking an 80% ownership stake in the company in the process. Issues of government ownership of a bank aside, the "for" argument basically says that this is a necessary step to stabilize the U.S. economy.
Will the AIG buyout help stabilize the economy? In the short term, maybe. That's actually not my argument against it.
$85 billion is...
- About $280 for every man, woman and child in the United States.
- About $800,000 per AIG employee.
- $170,000 for each of the 500,000 small businesses that closed in the U.S. last year.
Now let's think about that last one. According the U.S. Small Business Administration, small businesses:
- Represent 99.7 percent of all employer firms.
- Employ about half of all private sector employees.
- Pay nearly 45 percent of total U.S. private payroll.
- Have generated 60 to 80 percent of net new jobs annually over the last decade.
- Create more than half of nonfarm private gross domestic product (GDP).
- Hire 40 percent of high tech workers (such as scientists, engineers, and computer workers).
- Are 52 percent home-based and 2 percent franchises.
- Made up 97.3 percent of all identified exporters and produced 28.9 percent of the known export value in FY 2006.
- Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
And yet, most small businesses are constantly struggling to get the capital they need to launch and grow their businesses. This is especially true when the founders have poor personal credit, as so many displaced corporate workers and other potential entrepreneurs do now.
So which do you think would have greater economic impact? $85 billion for AIG? Or $85 billion to support small business?
But guess what? Since taking office, President Bush has cut the SBA's budget and staffing more than any other federal agency. Today, the agency's budget is less than half of what it was when Bush took office. Not only that, in the past few years, several investigations have shown that billions of dollars in government contracts have been reported as small business awards, but actually went to Fortune 1000 corporations (see ASBL and SBA for more details).
I'm not suggesting a handout. Frankly, many of those 500,000 business closures probably deserved to close being run how they were. But that support could come in all kinds of forms -- short-term financing, training, business development, etc.
And while the AIG bailout was a direct loan, the SBA loan program is just guaranteed by the government, not directly financed by it. In other words, $85 billion of guarantees to the participating lending institutions could support an order of magnitude more than that in federally-backed loans. Or perhaps more appropriately, a fraction of that amount could guarantee $85 billion in financing to small businesses (last year, charged off loans cost the SBA about $9 billion on disbursements of $150 billion).
Bottom line: $85 billion for AIG may help stabilize the economy, but I believe that same money spent on real support for small business would have far greater, longer-lasting impact.
If you're not outraged, you're not paying attention. Make this an issue in the coming election. Learn where the candidates stand on small business issues. Write your representatives. Tell them we won't stand for multi-billion-dollar corporate bailouts while small businesses, the lifeblood of the U.S. economy, become increasingly disenfranchised by the federal government.
And most of all...vote! (Don't forget to register!)