The “American Dream” has always been an evolving ambition.
Just over a half century ago, human behavior was much different for middle-class Americans than it is today.
Americans married earlier. Some started families in their teens and early twenties. Some went to college, but many happily worked for factory wages and built wealth through homeownership and pensions.
Sometime between Reagan and Obama, the dream changed. Or rather, human behavior changed.
More people aspired to go to college. After all, politicians told us that people with college degrees tended to make more money over their lifetime than those with just a high school diploma.
We’re not here to debate the merits of that statement, but the important thing is that people, including yours truly, bought into that notion.
The result was that people began to marry later in life, after they finished school. Thus, they started families later in life.
College debt began to take a stranglehold on an entire generation, which caused many to delay homeownership well beyond marriage and kids, thus diminishing wealth for average Americans.
It’s not the first time a broad brush used by politicians led people down a wayward road, and it certainly won’t be the last.
The latest evolution in our dream state seems to be leaning heavily toward entrepreneurship.
This trend could be explained by a number of different factors, COVID-19 being one.
But that probably doesn’t account for the entirety of the small business fever.
When Mississippi Secretary of State Michael Watson visited the Indianola Rotary Club this summer, he noted that there were just over 3,000 net new businesses in Mississippi in 2019.
That number, he said, rose to an astounding 33,000 net new businesses in 2020.
He told SuperTalk radio this week that Mississippi business creation in 2021 is outpacing the previous year.
COVID-19 will certainly account for a large number of new businesses in the state, and nationwide.
Some, I imagine, were created specifically for the purpose of collecting Payment Protection Program monies that were doled out multiple times to help businesses offset losses and keep their labor employed during hard times generated by the pandemic. Watson made reference to this during his talk at Rotary, even noting that some of these bogus businesses would eventually get popped by the federal government during audits, because their formation dates cannot be post-PPP, and the funds must be used in the spirit of their intended purpose, which is to cover payroll.
Another, perhaps more poignant COVID connection is the fact that so many people were laid off or furloughed during the first part of the pandemic.
Generous unemployment funds were available from the state and federal governments, at first, but many of the federal benefits have been phased out in Mississippi, which means that many people are faced with trying to make ends meet on the meager state benefits, going back to work at a low-wage job or finally starting that dream business.
Let’s face it. Everybody wants to be their own boss. Everybody has the dream of opening that storefront and growing it into a billion-dollar business.
For the ones who were always on the fence about starting a small business, those who were always just one snarky interaction away from a “Take this job and shove it” moment, COVID made this dream a potential reality.
Mississippi’s labor force, like most other states, didn’t have to have a bridge-burning Johnny Paycheck walkout. They simply did not come back to work when the pandemic’s first surge subsided.
And for the new small business owner, it’s a fairly decent gamble.
There have already been multiple rounds of PPP loans, and who’s to say the Democratic-controlled House, Senate and White House won’t push for another prior to the 2022 mid-terms.
A single round of PPP for these new qualifiers might just hold them over long enough for actual revenue to catch up, bringing profitability.
If PPP doesn’t come, and the business fails, jobs might be waiting for them on the other side.
No matter what the reason is for this ridiculous influx of new businesses, the laws of economics will ultimately prevail, which means there will be inevitable fallout.
The statistics on new businesses are not good, and they could be even more detrimental to the economy with this kind of bulk.
The reality is that at the end of the first year, about 20% of small businesses fail. That number jumps to about 30% after the second year and 50% after the fifth year.
That means that at some point very soon, instead of 660 failed small businesses from an average year like 2019, we are going to have around 6,600 failed businesses in the state of Mississippi.
By 2022, that number will likely jump to around 10,000. By 2025, roughly 16,000 of the businesses created during the COVID year will be no more.
And since the entrepreneur craze is still with us – remember Watson said we’re currently outpacing 2020 – we might be looking at tens of thousands of dead businesses within the next decade.
This will have ripple effects on the economy, as many of these businesses will become dependent on Small Business Administration loans and other debt to stay afloat. Unlike PPP, this debt will likely have to be repaid, with interest.
It’s unlikely we’ll see an SBA bubble to the tune of America’s $1 trillion in college debt, but if the statistics hold up, people will suffer from this small business bubble that will inevitably pop.
We could also see a modest bust in brick and mortar, as bankruptcies could leave landlords unpaid from long-term lease agreements.
Coupled with the costs associated with building and renovating commercial real estate space, this could mean hard times for developers and commercial landlords across our state.
On the flip side, these entrepreneurs will someday need gainful employment again.
Industries like retail, restaurant and fast food will likely spend the next few years adapting and innovating in order to curb the current labor shortage.
In other words, they’ll figure out how to run their businesses without all of these folks who are now starting their own.
This could mean fewer jobs available for these prodigal sons and daughters when they attempt to return to the labor force.
Small businesses have always been lauded as one of the main drivers of the economy, but an unnatural influx like the one we’re seeing could actually drive the economy in a downward direction.
Like the decline of U.S. manufacturing and the rise of student debt, the “American Dream” may soon be a nightmare for those taking the plunge into small business ownership.
