The Two-Tiered Economy

In normal recoveries and normal economies, small business leads the charge in job creation. Because it's more difficult for the government and other gatherers of statistics to figure out the good things small businesses are up to, analysts usually tend to underestimate what will appear in initial reports on economic growth and jobs. Additionally, subsequent revisions to originally reported data tend to surprise on the upside. This is generally what occurred while I was tracking these things from 2005 until the spring of 2008 under Bush 43.

Anything resembling normalcy ended when the POR economy kicked in. Since then, downward disappointments have happened so often that the word "unexpectedly" associated with bad news has become a running joke in the center-right blogosphere. This is occurring because so many small businesses are either out of business, seriously contracting, or treading water. For the most part, they're not hiring. Understandably, it takes the statisticians a while to figure this out.

A prime example of disappointment occurred when the Bureau of Labor Statistics adjusted its originally reported job losses for calendar 2009 in its January 2010 report. All of a sudden, the number of people employed fellĀ by over 600,000.

The worst example of a subsequent statistical meltdown occurred with GDP during the third quarter of 2008. That quarter also "just happened" to be the first quarter of the POR economy and of the recession as normal people define it. At the end of its initial round of reports, the government thought the economy had contracted by an annualized 0.5%. Subsequent comprehensive revisions took that number first to -2.1%, then to -2.7%. The government's July 30 GDP report whacked it down to an annualized -4.0% -- eight times worse than originally thought. The cratering occurred because businesses large and small, entrepreneurs, and investors saw the regime uncertainty that was coming (some call it "utter lawlessness") and battened down the hatches.

Since then, though some of their behavior smacks of trying to be the last guy who gets eaten by the alligator, large firms, thanks to the special advantages cited above, have sort of figured out how to cope. Small businesses without crony connections in the ruling class aren't as fortunate. As a result, neither are the rest of us, especially those who don't already have jobs.

This situation doesn't seem likely to improve significantly until the current atmosphere of regime uncertainty ends. I'm afraid that won't occur until there is regime change.