We’ve all heard of this; I had my views reinforced while watching Larry Kudlow’s show tonight, Link to Larry Kudlow’s Show tonight. Basically it is widely held that small businesses through job creation and growth leads the US out of a recession.  During the show’s economic forecast Larry had two guests on:  David Goldman, First Things Magazine senior editor and Vincent Reinhart, AEI resident scholar.

David Goldman is a senior editor at First Things Magazine, he keeps up a blog called Spengler.  According to wikipedia he had a pretty successful career in finance along with a stint at a senior level with Bank of America Securities.

Larry Kudlow’s primary set of questions dealt with some slightly technical analysis of treasury rates and their associated yield curve (short v. long term) and the possible impact on inflation.  Primarily Kudlow thought that there would be a rally in 2010 along with inflation.  David took the question and said there was some evidence to Larry’s point.  David then stressed that small business will not be able to prompt  a recovery due to their limited ability to create jobs.  Thus, the yield curve is ahead of itself and not a true indicator of a decent 2010.

22% of workforce is without  full time work; Small business will not be able to create new jobs  sufficient to fill the gap created by the last year’s job loss; bad debts and  tighter credit availability all point to the yeild curve being ahead of itself  - David P Goldman

A few interesting points I observed as the 3 guys went back and forth.  1.  Larry Kudlow seemed more interested in having his yield curve assumption affirmed than getting the opinion of his guests.  2. David emphasized that typically recessions destroy old jobs in large companies while small business creates new jobs (that hadn’t yet existed).  3.  David indicated that Small Business is significantly hampered by lending restrictions, VC investment drying up, & government everything.

All these points supported David’s hypothesis that 2010 will be relatively flat and that any recovery will be muted by a lack of jobs.  This went against Larry Kudlow’s forecast that 2010 would see some sort of a rally along with inflation only to be followed by a difficult 2011.  Here’s a more detailed analysis done by David P. Goldman:  Employment Recovery

The process of job destruction (from big companies) and job creation (from small companies) are two sides of entrepreneurial “creative destruction.” The problem today is that we have the destruction without the creation.

I completely agree to all of David’s points.  Since we went bust a year ago I started growing concerned at the lack of a true job’s engine for our country.  I tend to believe that we have continue to create, innovate, and add value to society and the jobs will follow accordingly.  Think what the combustion engine did for jobs, or the assembly line, the internet….etc..  Ayn Rand saw this in Atlas Shrugged with the creation of a new type of engine.

I don’t think that healthcare (of any type), green energy, or any of the proposed job creators are going to do anything to move the masses into new jobs.  These efforts will create some jobs but nothing on the level that we need.  I also think that a consumer economy is like living on steroids and can only be done a for a short while.  When people become more driven to be entertained than to work trouble is around the corner.

So entrepreneurs get busy – get trained and get to The Entrepreneur School