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MONEY

Think the Government Can Help You? Think Again

Washington can't fix the economy. So we'll be counting on entrepreneurs and innovators like you to do it.

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Unemployment hovers around 8 percent. Meanwhile, if you've tried to raise money for a start-up, you know you still face as many challenges as ever.

Since most job growth in this country comes from new and emerging businesses, those problems are inextricably linked. In the middle of a presidential election year, what the heck is the government doing about it?

It turns out, not very much, in large part because it isn't organized to do very much. Instead--sorry to say--it's the same as it always has been. We're going to have to count on our entrepreneurs and innovators to fix our economy.

Here are the a handful of reasons why the government can't fix unemployment or really help your start-up--along with two looming issues that almost nobody is paying attention to yet (I call them "hidden monsters"), which could make things even more challenging.

Rabid partisanship is gumming up the works.

Both sides of the aisle in Washington have become far more radical than they were even just a few years ago. Moderate Republicans and Democrats have been replaced or retired, and the few who remain have to take more rigid ideological positions to retain their seats.

The result now is such gridlock that Congress can't even pass a budget, and that every few months we seem to be headed for brinksmanship to avoid a government shutdown.

It may be hard to remember, but it hasn't always been this way. For example, President Reagan achieved much of his agenda while Democrat Tip O'Neill of Massachusetts served as Speaker of the House. And President Clinton and Speaker Newt Gingrich at least worked together well enough to pass a budget.

How much power do elected officials really have?

In fairness, elected U.S. officials only have so many tools at their disposal with which to address the economy. Messing with interest rates is out, as they're controlled by the Federal Reserve (and rates are near historical lows anyway).

The government can't magically increase demand in the housing market to affect prices and improve American homeowners' portfolios. (That is to say, it can't do that anymore; arguably legislation that encouraged risky lending practices led to the collapse of the housing market in the first place.)

Of course, there's a presidential election coming up in November (to say nothing of an election for all members of the House of Representatives and one-third of the Senate).

You'd have to be an especially cynical observer--even for a Washingtonian--to conclude that members of Congress would fail to act in order to keep unemployment high--especially in battleground states like, say, Nevada (11.6 percent), North Carolina (9.4 percent), and Florida (8.7 percent). But at the same time, from a purely political perspective the last thing that the GOP would want to see is Obama heralded if the economy were to turn around on his watch, especially late in the game.

Wait, you might say, what about the JOBS Act? Isn't that an exception?

True, Congress passed the Jumpstarting Our Business Startups Act, which entrepreneurs and investors nearly unanimously agree will help startups and create jobs by making it much easier to raise capital. President Obama signed it into law in April.

But, importantly, the JOBS Act doesn't go into effect until after the election, to allow the SEC to create new regulations to enforce it.

Hidden monster No. 1: sequestration.

What's worse, there are two looming issues, built right into the law, which are likely to come to a head just before the election and make it even harder for the U.S. Government to work together in a positive way to impact the economy.

The first of these is defense sequestration, a spring trap in the law that will lead to $1 trillion in Pentagon budget cuts.

The deadline for Congress to act—basically by coming up with alternative cuts—is just after the election. However, the effects of sequestration will begin to be felt before November.

Contracts would be examined, government employees who would likely lose their jobs would have to be notified, and the level of anxiety among troops would rise as the media begins to cover the story.

Hidden monster No. 2: the debt ceiling.

Remember a year ago, when the president and Congress went to the brink of default because it took until the very last minute to agree to raise the debt ceiling? Yeah, that was fun. Part of the result was that Standard & Poor lowered its rating on U.S. Treasury debt.

Well, it turns out that the government's debt growth has grown so quickly even since last year that we're likely to reach the new debt ceiling again, just before voters go to the polls November 6. So, we'll all look forward to that.

Can anyone help?

Well, this turned out to be a more depressing column than I'd first intended. But there are two bright rays of sunshine coming through the clouds. The first is legislative: The JOBS Act will in fact become effective in January, and it should then become a lot easier for startups to raise money.

The second is more systemic. Fortunately, for all the doom and gloom, we're in a time of great entrepreneurial ingenuity. Innovators and entrepreneurs have always gotten this country out of most of the messes we've been in before. We'll just have to step up and do it again.

IMAGE: Wikimedia
Last updated: Jun 21, 2012

BILL MURPHY JR. is a journalist, ghostwriter, and entrepreneur. He is the author of Breakthrough Entrepreneurship (with Jon Burgstone) and is a former reporter for The Washington Post.
@BillMurphyJr




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