Gas Prices and the Summer Driving Season

The summer driving season is defined as running from April to September. The question, of course, is: How high might gas prices go?

In early March, the Energy Information Administration (EIA) released its latest "Short-Term Energy Outlook," which includes projections on the price of gasoline. The EIA offered the following estimate: "EIA expects regular-grade motor gasoline retail prices to average $3.79 per gallon in 2012 and $3.72 per gallon in 2013, compared with $3.53 per gallon in 2011. During the April through September summer driving season this year, prices are forecast to average about $3.92 per gallon with a peak monthly average price of $3.96 per gallon in May."

According to the Daily Fuel Gauge Report, as of March 28, the average price of a gallon of regular gasoline came in at $3.911, up from $3.698 a month ago and $3.587 a year earlier.

It's hard to ignore the fact that gas prices have crept higher before the summer driving season kicks in. Keep in mind that the highest average price for regular hit $4.114 in mid-July 2008.

Indeed, some look at the EIA estimates as optimistic. And a host of uncertainties do exist, such as the eventual outcome of the controversy over Iran's pursuit of nuclear weapons.

The increase in gas prices that already has occurred, no doubt, has taken a bite out of the economy. Prices going even higher will generate added negatives. But it is not just about summer vacations and leisure activity.

A TechnoMetrica survey of small business owners done recently for the Small Business & Entrepreneurship Council noted how small firms are impacted by higher gas prices, with 72 percent of respondents saying that higher gas prices are impacting their business, 41 percent of small business owners saying higher prices were affecting their plans to hire, 22 percent of small business owners having to cut back on employee hours, and 40 percent of small business owners having to raise prices. In addition, 43 percent of respondents agreed with the following statement: "My business will not survive if energy prices continue to remain high or increase further." (23 percent strongly agreed with the statement.)

Unfortunately, the Obama administration continues to work against expanded domestic energy development (thereby, working against lower energy costs) through, for example, increased regulation, proposed energy tax hikes, and restrictions on exploration and production.

But what about announcements on March 28 that supposedly move to increased offshore drilling? The Wall Street Journal, for example, reported: "With gas prices holding steadily higher, the Obama administration took steps toward oil and gas exploration off the coast of Alaska and in the Atlantic Ocean as it sought to combat criticism that it is hostile to fossil fuel development." Specifically, the Department of Interior approved Royal Dutch Shell's plan for responding to oil spills in Alaska's Beaufort Sea, and announced that seismic surveys off part of the East Coast could be allowed in 2013. Unfortunately, this is more rhetoric than substance. The Royal Dutch Shell step is positive, but more permits are needed. And as for the East Coast, the administration remains opposed to drilling there.

As gas price rise, the Obama administration is trying to say that there's nothing it could have or can do. In reality, though, oil prices, and therefore, gasoline prices, mot certainly can be affected by allowing for increased oil exploration and production. Indeed, anti-domestic energy production policies date back to the 1970s, with the current White House pushing it to new levels.

The U.S. needs real, major changes, away from anti-domestic energy policies. If so, summer driving, small businesses and the economy will all benefit accordingly.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Stopping Botnets

Just how secure is your firm's information, from intellectual property and trade secrets to financial data?

Well, a major online threat that has been around for a few years just received stepped up attention due to focus from the Federal Communications Commission, various Internet service providers, and the world's leading software maker.

The threat? Botnets. And it's a war against criminals at home and around the globe, in defense of both businesses and consumers on the Internet.

As described in March 22 recommendations from the FCC's Communications, Security, Reliability, and Interoperability Council (CSRIC) to combat botnet attacks, domain name fraud and IP route hijacking, "The growth of bot-infected end-computers poses a threat to the vitality and resiliency of the Internet and to the online economy. Botnets are networks of computers infected with bot malware, which can be controlled remotely. Criminals often use botnets to crash or deny access to a target website, and botnets can be used to steal passwords and financial information."

In a March 25 press release, Microsoft offered a further explanation of how the botnet threat works: "The computers that make up a botnet are usually conscripted without the knowledge of their owners, who unwittingly infect their machines after clicking on links in legitimate-looking e-mails for things like security updates from Microsoft and notices of tax refunds from the Internal Revenue Service. Clicking those links takes users to Web sites that exploit security holes in their browsers or other programs on their computers. Criminals use the holes to install malicious programs that siphon personal information from the infected computers, like online bank account passwords and credit card numbers. They can also harness the infected machines to send millions of e-mail messages to other users on the Internet, including scam messages that help propagate the botnet. Sometimes botnets are rented to clients to send spam messages advertising products like counterfeit pharmaceuticals."

These present serious worries for both personal and business information. So, what have been the recent actions and announcements?

On the FCC and ISP front, the San Jose Mercury News reported on March 22 that "eight large ISPs in an industry working group told the FCC on Thursday that they would not only work to detect botnets on their networks, but would also help affected customers find resources to clean up their computers." The eight firms are AT&T, Comcast, CenturyLink, Cox , Sprint Nextel, Time Warner Cable, T-Mobile and Verizon Communications.

On AT&T's policy blog, Bob Quinn, senior vice president-federal regulatory and chief privacy officer, pointed out: "AT&T has a long history of working to address both physical and cyber threats and has actively participated in the CSRIC process, including having representation on all three working groups. We view cybersecurity to be a cornerstone of the network management functions that we perform in the United States and worldwide. To that end, AT&T is already fulfilling the recommendations in the reports... [T]he Chairman's statements about the need for continued innovation in cybersecurity are probably the most important part of his message today. Effectively addressing cybersecurity is going to require the various stakeholders experimenting and innovating with different solutions and learning from one another."

Indeed, this is very much an ongoing battle fought on different fronts and by varying means. That is, by those various stakeholders.

For example, in that March 25 release, Microsoft announced that "in collaboration with the financial services industry - including the Financial Services - Information Sharing and Analysis Center (FS-ISAC) and NACHA - The Electronic Payments Association - as well as Kyrus Tech Inc., ... it has successfully executed a coordinated global action against some of the most notorious cybercrime operations that fuel online fraud and identity theft."

The May 26 New York Times reported it this way:

"Microsoft employees, accompanied by United States marshals, raided two nondescript office buildings in Pennsylvania and Illinois on Friday, aiming to disrupt one of the most pernicious forms of online crime today - botnets, or groups of computers that help harvest bank account passwords and other personal information from millions of other computers. With a warrant in hand from a federal judge authorizing the sweep, the Microsoft lawyers and technical personnel gathered evidence and deactivated Web servers ostensibly used by criminals in a scheme to infect computers and steal personal data. At the same time, Microsoft seized control of hundreds of Web addresses that it says were used as part of the same scheme."

Again, Microsoft noted: "This disruption was made possible through a successful pleading before the U.S. District Court for the Eastern District of New York, which allowed Microsoft and its partners to conduct a coordinated seizure of command and control servers running some of the worst known Zeus botnets. Because the botnet operators used Zeus to steal victims' online banking credentials and transfer stolen funds, FS-ISAC and NACHA joined Microsoft as plaintiffs in the civil suit, and Kyrus Tech Inc. served as a declarant in the case. Other organizations, including F-Secure, also provided supporting information for the case."

Microsoft's involvement in this law enforcement endeavor is seen as unique. According to the Times, Richard Boscovich, who is "a former federal prosecutor who is a senior lawyer in Microsoft's digital crimes unit," is the one who "devised a novel legal strategy to underpin the growing number of Microsoft's civil suits against bot-herders. Among other things, he argued that the culprits behind botnets were violating Microsoft's trademarks through fake e-mails they used to spread their malicious software."

Given the malicious intent, criminal incentives and technological skills, the botnet problem has been and will continue to be an ongoing battle, requiring action by law enforcement, legislators, courts, and private entities. Make no mistake, the government's role to protect property stands, whether offline or online, as a primary duty. At the same time, private businesses with the knowhow will need to be part of the effort, working with government and advancing their own safeguards, in order to make the Internet a safer realm in which opportunity, business and consumer choices can continue to fully flourish.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Consumer Confidence Takes a Dip

Business owners would love to see a sizeable and consistent rise in consumer confidence. However, in order for that to happen, businesses and investors need to be willing to take the risks of investing in new ventures, expansion and job creation. In order for that to occur in robust fashion, however, government needs to pull back from the big spending, higher taxes and increased regulation, including in the energy arena, that have dominated so much of the policy agenda and debate over the past four-plus years.

Therefore, given the significant level of uncertainty swirling around all of these issues, it's not surprising that consumer confidence took a bit of a dip in March, and remains at low levels.

On March 27, the Conference Board's Consumer Confidence Index came in at 70.2 for March, down from 71.6 in February. The Present Situation Index actually moved up from 46.4 to 51.0, while the Expectations Index declined to 83.0 from 88.4 in February.

The story on assessing business conditions was mixed. On current business conditions, those seeing them as "good" increased from 13.7 percent to 14.3 percent, while those appraising them as "bad" increased from 31.7 percent in February to 32.7 percent. And as for the short-term outlook on business conditions, consumers expecting improvement increased from 18.9 percent to 19.2 percent, while those expecting a worsening also increased from 11.8 percent to 13.5 percent.

As for the assessment of the current jobs situation, those saying jobs were plentiful went from 7.0 percent to 9.4 percent, while those declaring that jobs are "hard to get" also went up from 38.6 percent to 41.0 percent. Looking ahead, the assessment of the employment picture also was more negative compared to the previous month - with those anticipating more jobs decreased from 18.8 percent to 17.3 percent, and those expecting fewer jobs rose from 16.4 percent to 18.3 percent.

All of these levels, of course, are anything but positive. In fact, consumer confidence remains at depressed levels, especially compared to where it should be, for example, at this point in an economic recovery. And looking ahead, anti-growth policymaking puts a host of issues in question, including the overall level of economic growth, energy costs, and job creation.

If we want consumer confidence up, then U.S. policymakers needs a dramatic shift towards pro-growth policies of smaller government, further opening up of international markets and opportunities, and real and permanent tax and regulatory relief.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

House to Vote on Federal Communications Commission Process Reform Act

The following letter was sent to the U.S. House of Representatives. The House is scheduled to vote on H.R. 3309 on March 27.

Dear Representative:

The Small Business & Entrepreneurship Council (SBE Council) urges your support for the Federal Communications Commission Process Reform Act (H.R. 3309). From net neutrality regulations to its activity that derailed the AT&T/T-Mobile merger, the FCC has become far too intrusive and ideological – costing the economy jobs, investment and innovations. Tightening up boundaries with regard to FCC authority, and making it a more transparent and accountable entity is not only desirable, but timely.

SBE Council fully agrees with comments made by U.S. Rep. Greg Walden (R-OR), Chairman of the Energy and Commerce Subcommittee on Communications and Technology and sponsor of H.R. 3309, this past November when he observed: “At a time when job creators are crippled with regulatory uncertainty, Congress has the obligation to ensure that federal agencies carry out the public's business transparently. The technology and communications sector is the most innovative in our country - it deserves the most innovative and open government agency.”

H.R. 3309 would bring greater transparency, consistency and effectiveness to the FCC’s regulatory process. For example, it would establish and clarify procedures for when the FCC issues rulemaking notices, including citing the FCC’s authority for adopting and amending a rule. Also, the economic impact of a rulemaking would need to be considered, with the FCC required to assess the presumed market failure and consumer harm, the governmental failures warranting FCC action, as well as the burden of existing regulation. For good measure, it would have to be determined that the benefits justify the costs of new regulatory action. In addition, H.R. 3309 would establish greater openness when it comes to the Commission’s deliberations, agenda, meetings, and dissemination of information.

H.R. 3309 would open up, provide checks and balances for, enhance certainty, and rationalize the FCC’s rulemaking process. That would be positive for reining in unwarranted costs on innovation and investment, and a huge plus for the entrepreneurs that both supply and consume telecommunications services. This legislation warrants bipartisan support.

SBE Council urges you to vote for H.R. 3309 when it comes before the full House for a vote this week. Thank you, in advance, for your support of small business.

Sincerely,
Karen Kerrigan

President & CEO

Energy, Public Opinion and Obama

President Barack Obama talked a lot this week about energy. He's been trying to position himself as being pro-energy on development.

For example, on Thursday, he was in Cushing, Oklahoma, emphasizing support for the portion of the Keystone pipeline project running from there to the Gulf Coast. In response, House Speaker John Boehndr, according to TheHill.com, noted, "Today he's out in Oklahoma trying to take credit for a part of the pipeline that doesn't even require his approval. Now this is what I'm calling the Obama energy gap... There's a big gap between what the president promises and what he talks about and the actions that he's taking."

Apparently, though, it's not just the Speaker who has problems with the President on energy.

On March 19, TheHill.com released a poll of likely voters, and it was reported: "On energy, 58 percent say Obama's policies will result in gasoline prices increasing, while just 20 percent expect them to cut prices - and by a 46-percent-to-36-percent margin, voters believe they will cause the United States to become even more dependent on foreign oil."

One cannot seriously argue against such views given that the President, for example, has opposed expansion of offshore and onshore exploration and drilling; refused to approve the Keystone pipeline expansion project; allowed his EPA to advance regulations that will make energy far more costly and do serious damage to U.S. global competitiveness; and pushed for increased taxes on energy producers.

This policy direction, along with loose monetary policy, has helped push up the price of oil and, therefore, the price of gas at the pump.

Those increases in gasoline prices have very real effects on the economy, including on small businesses.

Consider the results of a survey done by TechnoMetrica for the Small Business & Entrepreneurship Council released in mid-March 2012 on how small firms are impacted by higher gas prices:

• 72 percent of respondents say that higher gas pricesare impacting their business.
• 41 percent of small business owners said higher prices were affecting their plans to hire.
• 22 percent of small business owners have cut back on employee hours.
• 40 percent of small business owners have raised their prices.
• 43 percent of respondents agreed with the following statement: "My business will not survive if energy prices continue to remain high or increase further." (23 percent strongly agreed with the statement.)

Those are significant negative effects that obviously present serious problems for an incumbent. The question is: Will people be fooled by political rhetoric that seeks to distract from the reality of policies that work against more affordable energy?

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

China's IP Challenge for U.S. Small Business

The protection of intellectual property is important to all entrepreneurs, investors, innovators and businesses. And of course, the encouragement that such protection provides for these creators benefits consumers in terms of new and improved products and services.

It follows that if a government wants to maximize opportunity and economic development, then the protection of intellectual property is critical. And while IP protections have been important dating back to the dawn of the Industrial Revolution, it is more so now than ever before given the vast technological changes and opportunities in the twenty-first century.

For good measure, the role that government plays in terms of establishing the rule of law whereby contracts are enforced, and strong rights, protections and enforcement are established in terms of patents, copyrights and trademarks, is more important to small businesses, given the limited resources that smaller enterprises possess. And this goes for domestic and international protections of intellectual property.

That international aspect was highlighted in an interesting article about China in the March 19 USA Today. The piece, titled "Chinese copycats challenge U.S. small businesses," focuses on a U.S. firm, SylvanSport, that has a patent for a recreational camper trailer that "folds to a trailer that can be used to carry boats and bikes on top then converts to a camper with a self-inflating mattress and a tent that sets up in minutes."

A company in China copied the trailer, and now threatens the firm's growth and, ultimately, its survival. According to SylvanSport founder Thomas Dempsey, as noted in the article, "‘Our politicians, when they describe the companies that are necessary for the economic recovery, (they are talking about) companies like ours' ... But because of SylvanSport's lost sales, ‘There's a very real chance that the Chinese company could be the survivor here and we could go out of business.'"

A few important takeaways can be found the piece:

• "Yet in Asia, ‘The Western idea of intellectual property seems not yet fully established,' says Peter Zec, the founder of the Red Dot Institute for Advanced Design Studies in Essen, Germany, and a former president of the International Council of Societies of Industrial Design. The severe copycat problem in China and other Asian nations exposes foreign companies, big and small, to copyright, patent and trademark infringement issues, legal experts say."

• "In the past, it was ‘fairly common' for Chinese factories that produced legitimate products to be used at night to make counterfeit goods using the same raw materials, says Leon Perera, chief executive of Spire Research and Consulting, a Singapore firm that specializes in emerging markets. Today, what's more common is for Chinese companies to reverse engineer a product, or take it apart to figure out how it's made, then order parts to produce a similar product, according to Perera."

• "Only 15% of small companies that do business overseas realize that U.S. patents and trademarks protect them only within the U.S., according to the U.S. Patent and Trademark Office. Companies should file patents and trademarks in countries where their products will be made and sold, as well as where they're based..."

The story and points raised in this article point to the responsibility that the U.S. government has in terms of pushing for strong IP protections in the global marketplace, as well as the potential pitfalls and opportunities that entrepreneurs have to be aware of in that same international market.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Senate Small Business Committee Chair is Out-of-Touch

“I mean, somebody made a mistake on this, and it should’ve gone through a committee.” – Quote by U.S. Senator Mary Landrieu, Chair, Senate Committee on Small Business and Entrepreneurship on the JOBS Act, H.R. 3606, – the bill that includes key capital formation provisions supported by SBE Council. (Read the quote in its context here.)

So, Chairwoman Landrieu has become the biggest opponent of H.R. 3606, the JOBS Act. She claims the White House made a mistake in supporting it. As did 407 members of the U.S. House of Representatives when they first voted "yes" for H.R. 2930, the "Entrepreneurs Access to Capital Act" (the crowdfunding bill), and a second time 390 members for the JOBS Act, H.R. 3606, which includes H.R. 2930 as well as several other capital formation bills strongly supported by SBE Council.

There is no reason why the Senate Small Business Committee couldn’t have held hearings on the current crowdfunding space, how it works, why fraud is nonexistent, etc. so she could better understand this marketplace. Crowdfunding has been one of the hottest issues of discussion among entrepreneurs for several years, yet seemingly no interest from a Committee that is supposed to be keeping up with issues of importance to small business. In fact, the Committee has held only two hearings this year in total (one on March 20), according to the hearing schedule posted on its website.

The various provisions of H.R. 3606 were properly vetted in the U.S. House where, again, it received wide bipartisanship support -- TWICE. Chairman Landrieu needs to get out of the beltway bubble to understand the modern entrepreneurial marketplace and the innovation that is taking place to better serve the needs of America's small businesses. Unfortunately, she is standing in the way of entrepreneurs and small business owners who desperately need capital to startup and grow their businesses.

Karen Kerrigan, President & CEO, SBE Council

Small Business Tax Measure Proposed by U.S. House Leaders Will Free Up Capital for Entrepreneurs

Cash flow and access to capital are major concerns for small business owners as they struggle through the weak economic recovery. The pressure of rising costs, including the spike in gas prices and increares in health coverage premiums, are squeezing small business owners and they need immediate relief. That is why the Small Business & Entrepreneurship Council (SBE Council) is supporting House Majority Leader Eric Cantor's (R-VA) "Small Business Tax Cut," as it will provide critical assistance to capital-starved entrepreneurs.

SBE Council chief economist Raymond J. Keating said, "In the current atmosphere, small business owners are worried about the threat of higher taxes. Moving in the opposite direction would be a welcome change. The debate should be about how to reduce tax burdens on the entrepreneurial sector of our economy. This 20 percent tax cut for smaller businesses is a step in the right direction."

SBE Council President & CEO Karen Kerrigan added, "Ideally, the Congress and the White House should have moved on early opportunities to fundamentally restructure the tax system where all rates are cut and the fix is permanent. This did not happen, yet small businesses desperately need relief. The 20 percent tax deduction would infuse small businesses with the capital they need to withstand economic headwinds and costs that continue to work against them."

A strvey released last week by SBE Council found that higher gas prices were adding to the strain of small business owners. In fact, 43 percent of small business owners said their firms would not survive if gas prices remained high or increased further.

"Getting our nation's economy back to strong and sustained growth needs to be a top priority for our elected officials. High confidence and robust job creation in the small business sector is central to that end. The 20 percent tax cut for small business owners is not only needed, it will have an immediate impact on the economy," added Kerrigan.

Entrepreneurs and SBE Council Working to Push JOBS Act Through U.S. Senate

The JOBS Act, H.R. 3606 will finally get a vote late today or tomorrow in the U.S. Senate. SBE Council remains confident for passage, but we are not resting on our laurels. Our members and staff are working the Senate to make sure H.R. 3606 passes with a big bipartisan vote. (It will need 60 votes for Senate passage).

Here is a media release SBE Council sent out today:

A vote in the United States Senate is expected today or tomorrow on the Jumpstart Our Business Startup Act (JOBS Act), H.R. 3606, a package of important capital formation reforms supported by President Barack Obama. The legislation passed the U.S. House of Representatives with overwhelming bipartisan support (390-23) on March 8, 2012. Entrepreneurs and small business owners are galvanized about this important legislation, and are working to ensure the package sails through the U.S. Senate.

The JOBS Act includes practical measures to update archaic Securities and Exchange Commission (SEC) rules, and helps to construct a new regulatory framework that leverages technological innovations and practices that will open new pools of capital for small businesses. Besides reforming regulations that will make it less costly and burdensome for small firms to go public and accelerate their growth in the public markets, the legislation allows for crowdfund investing which presents new opportunities for entrepreneurs to access capital.

“Crowdfunding and the JOBS Act need to pass so we can get capital to our nation's job creators. This important piece of legislation addresses the startup and seed-funding gap that was left after the financial meltdown of 2008. It will allow the community to step in and fund fraud-free entrepreneurs and small businesses. Main Street will be able to evaluate becoming investors in our nation's neighborhood shops or the next great startups and will also share in that prosperity,” said Woodie Neiss, founder of StartUp Exemption, who developed a crowdfunding framework upon which the legislation is based upon.

According to Small Business & Entrepreneurship Council (SBE Council) President & CEO Karen Kerrigan, Democrats and Republicans not only listened to entrepreneurs regarding their plight on the issue of capital access, but they also found assurance in solutions that protect investors through new technologies, as well as a modern regulatory framework that will increase transparency and investor engagement.

“The legislation provides a sensible regulatory approach that takes into account the power of technology and the ‘sunshine’ capabilities of social media in protecting investors. Key reforms provide regulatory flexibility and relief, and will enable capital formation. A strong entrepreneurial ecosystem depends on access to capital. Freeing up new sources of capital – as the JOBS Act will do – will strengthen our nation’s small business sector, and add to their job creating capacity,” said Kerrigan

The Senate is expected to vote on H.R. 3606, the JOBS Act, either later today or tomorrow following votds on a Democrat alternative (Reed Amendment) to the JOBS Act and an amendment to fully fund the Export-Import Bank.
For more information and background about the JOBS Act, or crowdfunding and crowdfund investing, please visit www.sbecouncil.org or call 703-242-5840.

Tell your U.S. Senators to vote for the JOBS Act, H.R. 3606! You can contact them at 202-224-3121!

A Look at Ireland's Economy After St. Patrick's Day

It's after St. Patrick's Day, but it is still worth taking a look at a brief analysis on the economy of Ireland. Consider the following SBE Council Cybercolumn from late last week:

On Saturday, March 17, everybody's Irish. After all, it's St. Patrick's Day.

As Americans celebrate all things Irish, it's worth taking a quick look at the state of the economy of Ireland.

Of course, it must be understood that all of Europe has been suffering, and the near-term outlook is negative.

According to a report in the March 15 Irish Times, "Bloxham Stockbrokers has revised downwards its economic forecast for the year, blaming uncertainty in the global economy for a weakening of the country's prospects. Its report projects growth of just 0.5 per cent in real gross domestic product, compared with previous estimates of 1.1 per cent. Next year, GDP is expected to grow by 2 per cent, according to Bloxham's estimates." It was pointed out that slowing exports were a main reason for the growth outlook downgrade.

At the same, it was noted, "However, the country is in a much better position than other euro zone peripheral debt countries to grow once the world economy picks up, Bloxham said."

Consider three critical points.

First, Ireland in fact is in a far better position than most of its neighbors. Keep in mind that, while Ireland's GDP performance was worse than the EU in general over the last four years, for more than a decade prior, Ireland's economic growth far outdistanced the EU (not to mention the U.S. as well).

Second, part of Ireland's growth story was that government spending as a share of GDP was far below the rest of Europe. For example, before the recent economic mess hit, Ireland's government expenditures came in at 34.3 percent of GDP in 2006, compared to 46.3 percent among the 27 EU nations, according to the European Commission's Eurostat data.

However, Ireland's government spending exploded recently, reaching 66.8 percent of GDP in 2010. That level will have to come down to where it was previously - and do so rapidly - in order for Ireland to get back on a solid growth track.

Third, given that economic freedom is the necessary foundation for entrepreneurship to flourish, and therefore, for the economy to grow, it is critical to point out that on the Heritage Foundation's "Index of Economic Freedom 2012," Ireland ranks an excellent number 9 out of the 179 nations ranked.

But it also was noted that Ireland's score dropped, due in part to that increase in government spending. It was noted in the index: "Its score has decreased by 1.8 points from last year, reflecting poorer management of government spending and reduced monetary freedom. The Irish economy fell to 2nd place in the Europe region behind Switzerland. Ireland recorded one of the 20 largest score declines in the 2012 Index."

Looking ahead, Ireland's strengths - for example, strong property rights; a low corporate income tax rate (12.5%); a "streamlined regulatory process is very conducive to dynamic investment and supportive of business decisions that enhance productivity" (as noted in the index); and openness in terms of global trade and commerce - put the nation in a far better position to get back on a strong growth track compared to much of Europe.

Getting government spending rolled back, though, will be critical. If that happens, we can get back to celebrating all things Irish, including the Irish economy.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

SBE Council Economist on Latest Inflation Numbers and Fed Policy

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), offered the following statement in reaction to the CPI inflation numbers released this morning by the U.S. Bureau of Labor Statistics:

“CPI inflation running at 0.4% in February provides a worrisome reminder of the potential fallout of historically loose monetary policy that the Fed has been running for the past three and a half years.

“There are two consequences of loose monetary policy – the risk of higher inflation and the problem of price volatility. Threats continue to loom regarding the value of the dollar, energy prices, future interest rates, and the inflation-adjusted capital gains tax.

“Throw in risks on the fiscal side of the policy equation – such as unprecedented levels of government spending, and the threats and realities of increased tax and regulatory burdens – and entrepreneurs, investors and business managers continue to face too many questions for the good of the economy.”

Some Senators Have No Clue

Very interesting debate in the Senate today on the JOBS Act. It is interesting to watch Senators opposed to the capital formation and crowdfunding provisions of the JOBS Act decry a subject they know absolutely nothing about.

These members have a stone-age view of public policy and how the economy works. In addition, they feign "shock" at the speed the bill passed the House (it was about 11 months) claiming "special interests" had something to do with it. Well, it is small business owners and entrepreneurs behind the movement to make these common sense changes.

Please contact your Senators on Friday and early next week and demand that they pass the JOBS Act! Let them know regulations need to be modernized to allow small businesses to raise capital, grow their businesses and create jobs! You can call the Capitol Hill switchboard at 202-224-3121 -- ask to be connected to your U.S. Senators -- tell them small businesses (and President Obama) support the House passed JOBS Act!

Karen Kerrigan, President & CEO

Small Business Needs the JOBS Act

In a letter to the U.S. Senate today, SBE Council President & CEO Karen Kerrigan urged Senators to support the JOBS Act (H.R. 3606), which passed the House with wide bipartisan support and could be voted on by the full Senate today.

Here is the text of the letter:

March 15, 2012

Dear Senator:

On behalf of the Small Business & Entrepreneurship Council (SBE Council) and our more than 100,000 members nationwide, I am writing to urge your support of the Jumpstart our Business Startups (JOBS) Act, H.R. 3606. The JOBS Act offers powerful reforms that will help small businesses at various stages of growth and development. The common sense reforms that are included in H.R. 3606 will provide regulatory flexibility and relief, and will promote and unleash new sources of funding for capital-starved small businesses.

The JOBS Act is critical to our members and our nation’s small business owners and entrepreneurs. Small business owners and entrepreneurs continue to lack the capital they need to hire, invest and grow. Capital formation is central to a dynamic and healthy entrepreneurial sector. Without adequate sources of capital, the economy will continue to underperform, and the recovery will remain less than robust. Healthy entrepreneurship requires access to capital, yet funding streams remain cautious, locked or tentative. Entrepreneurs need solutions that will create options for accessing capital. The JOBS Act offers such solutions, while protecting investors.

The crowdfunding piece of H.R. 3606 will enable new platforms for raising capital. The platforms will protect investors by utilizing proven technologies, sensible regulation and tapping into ‘the sunshine’ of social media. On these transparent platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses with significant promise. Crowdfund investing will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors. Americans will have the opportunity to invest in small businesses in their local communities, or support entrepreneurs in rural or urban areas where business formation is critical to sustaining those communities.

This is what has made gift-based crowdfunding so successful, and why crowdfund investing has been a major success in other parts of the world. The crowdfunding piece of the JOBS Act, along with the sensible changes made to Reg D, are two powerful provisions that will produce significant benefits for the broader small business community.

Other regulatory reforms in the JOBS Act are important for helping small firms access and accelerate their growth in the public markets. By creating a new category of issuers -- the “Emerging Growth Company” (EGC) – which phases in certain regulations over a five year period (or until a firm exceeds $1 billion in annual gross revenues), small firms will have the opportunity to scale up more efficiently while providing investors and regulators with critical information.

The JOBS Act will also make it easier for a small business to go public by increasing the offering threshold from $5 million to $50 million. In addition, the bill raises the outdated shareholder registration requirement threshold from 500 to 1,000 shareholders. Originally adopted in 1964 and not altered since, this threshold rule restricts company growth as firms need flexibility in a competitive global marketplace to develop. Finally, the JOBS Act increases the number of shareholders that can invest in a community bank (from 500 to 2,000). This common sense change will allow these critical institutions to better compete, and serve small businesses.

The small business community is very excited about this bipartisan legislative package that directly addresses a central challenge – access to capital. Unfortunately, the naysayers who are spreading a message of “fear” and “fraud” lack an understanding about the modern economy and how innovative technologies are transforming practices and tools that protect consumers and investors. Our outdated laws must be reformed to reflect this reality and provide U.S. entrepreneurs an opportunity to succeed in the competitive global marketplace.

Thank you, in advance, for your support of America’s small business owners and entrepreneurs.

Sincerely,

Karen Kerrigan
President & CEO

Small Businesses Getting Slammed by Rising Gas Prices

Results of a survey released by the Small Business & Entrepreneurship Council (SBE Council) find that high gas prices are taking their toll on the nation's small business owners. In the group's most recent "Entrepreneurs & the Economy: Trends, Issues and Outlook" survey, 72 percent of respondents say that higher gas prices are impacting their business.

"The fragile economy is being undermined by high gas prices. The weak recovery and policy uncertainties are already weighing on the confidence and minds of small business owners. Now they must find a way to cope with higher fuel costs. Unfortunately, their choices are limited," said SBE Council President & CEO Karen Kerrigan.

The survey, fielded between February 21 and March 2, 2012 by TechnoMetrica, polled 304 small business owners (overall margin of error +/- 5.4 percentage points at the 95 percentage level). During the course of the survey and following its completion, gas prices continued to increase. For example, according to the Energy Information Administration, the weekly average price for regular gasoline climbed from $3.641 per gallon as of February 27 to $3.747 per gallon as of March 12.

Small business owners are dealing with these higher costs by cutting employee hours and raising prices - two options that hurt their competitiveness and the health of the overall economy, according to SBE Council. When asked about their responses to higher gas prices:

• 41 percent of small business owners said higher prices were affecting their plans to hire.
• 22 percent of small business owners have cut back on employee hours.
• 40 percent of small business owners have raised their prices.

Astonishingly, 43 percent of respondents agreed with the following statement: "My business will not survive if energy prices continue to remain high or increase further." (23 percent strongly agreed with the statement.)

SBE Council chief economist Ray Keating noted, "Very few businesses are immune from the negative effects of rising energy costs. As a result, entrepreneurs and managers have to make tough decisions, none of which are positive for their businesses, for workers seeking employment or worried about their current jobs, or for the economy in general."

According to the survey, there is intense dissatisfaction with the overall direction of federal policies meant to help the economy in general: 61 percent of small business owners are not satisfied with economic policies from Washington. Only 6 percent are "very satisfied" while 30 percent are "somewhat satisfied."

In terms of stress levels related to their business finances, 46 percent of small business owners are feeling the same level of stress today as in the past three months, 38 percent say they are more stressed, while 14 percent feel less stressed. Despite this, 42 percent believe their financial conditions will get better. However, 42 percent say they will remain the same, while 13 percent believe their finances will get worse.

Keating added, "While prices at the pump are affected by various factors and events, including political risks in the Middle East and U.S. monetary policy, the President and the Congress play key roles as well by either erecting or removing obstacles to domestic energy production."

Kerrigan added: "The surge in gas prices underscores the need for the Administration to move without haste on advancing pro-energy policies, including the approval of the Keystone XL pipeline. The U.S. cannot allow world events, supply disruptions and global demand surges to control the fate of our economy or global competitiveness. We must take full advantage of the natural resources we have been blessed with as a nation and move forward on a genuine 'all-of-the-above' energy strategy."

Positive Trends on Trade?

When looking at monthly trade data, it is not the trade balance that matters. Instead, it's the trend on both exports and imports.

Namely, if both are growing, that's good news for the economy. Rising exports means expanding opportunities for U.S. enterprises and workers. Meanwhile, increasing imports is not an economic negative; instead, import growth generally reflects a growing domestic economy.

The latest trade data released from the U.S. Bureau of Economic Analysis on March 9 shows positives in terms of both exports and imports.

Exports rose in January, and that made for the second consecutive month of growth after two months of declines.

As for imports, they also rose in January for the third straight increase after a roller-coaster up and down ride for nine months.

Many uncertainties remain on the trade front, including European economic woes, questions swirling around the Middle East, the possibility of slower growth in China, and a lack of vision and leadership on free trade from the Obama administration.

The hope is that the recent months of growth in trade will develnp into a substantive trend. That would be good news for the small businesses that account for more than 97 percent of U.S. exporters. Of course, it would help a great deal if the U.S. would get back to a serious effort at reducing governmental obstacles to trade, so that opportunities can expand.

__________

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), released the following statement in response to the February employment data reported by the U.S. Bureau of Labor Statistics:

"The news on the jobs front in February was good across the board. According to the establishment survey, payrolls increased by 227,000 in February, with private sector payrolls up 233,000. That's the third straight month where payroll gains exceeded 200,000.

"The household survey, which better captures small business activity, showed employment gains of 428,000, with the labor force also increasing by 476,000. The data show solid gains for two straight months now.

"These employment gains have come in spite of fiscal and monetary policymaking that has kept uncertainty alive. Serious risks remain, including energy prices and misguided energy policies, new taxes and regulations associated with ObamaCare phasing in, European woes, looming tax increases, new regulatory threats and monetary policy risks. The path of these trends and policies all need to change to get the U.S. economy firmly on a path of solid economic growth. We need pro-entrepreneur, pro-growth tax and regulatory relief, an aggressive free trade agenda, and sound monetary policy focused on price stability."

SBE Council Praises Bipartisan Passage of JOBS Act in House, 390-23

Today, the U.S. House passed the Jumpstart Our Businesses (JOBS) Act, H.R. 3606, with strong bipartisan support (390-23). Passage of the legislation will help expedite U.S. Senate action on this critical capital formation package, according to the Small Business & Entrepreneurship Council (SBE Council).

President Barack Obama was supportive of the legislation's passage, and Senate Majority Leader Harry Reid (D-NV) has pledged to move forward on a similar package. SBE Council, a leading advocacy and research organization dedicated to promoting entrepreneurship, has been advocating for many elements of the JOBS Act for the past year. The group praised the bipartisan collaboration that fashioned the legislation and guided it through the House.

"Access to capital remains a daunting challenge for small to mid-size firms at all stages of development and growth. The JOBS Act addresses a number of smart reforms that will boost capital formation and funding opportunities for small businesses. The legislation provides regulatory flexibility and relief from rigid and costly regulations for small firms, while modernizing outdated laws that restrict investment and capital formation," said SBE Council President & CEO Karen Kerrigan.

In a KEY VOTE letter to all U.S. House Members, SBE Council wrote: "Without adequate sources of capital, the economy will continue to underperform, and the recovery will remain less than robust. Healthy entrepreneurship requires access to capital, yet funding streams remain cautious, locked or tentative. Entrepreneurs need solutions that will create options for accessing capital. The JOBS Act offers such solutions."

The JOBS Act bundled an array of legislative measures focused on helping to increase business startups, and accelerate the growth of existing firms. SBE Council supported all the measures, including the crowdfunding piece of H.R. 3606, which will enable new platforms for raising capital. On these transparent platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses with significant promise. The platforms will operate under a new, and transparent, regulatory framework.

As SBE Council noted in its KEY VOTE letter: "Crowdfund investing will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors. Americans will have the opportunity to invest in small businesses in their local communities, or support entrepreneurs in rural or urban areas where business formation is critical to sustaining those communities." The platforms will protect investors by utilizing proven technologies, sensible regulation and tapping into 'the sunshine' of social media.

On March 6, the Senate Banking Committee hosted a hearing on the capital access bills. SBE Council is encouraging the Senate leadership of both parties to move quickly on package of bills.

"Economic conditions remain fragile, and rising gas prices have the potential to undermine the economic gains that have been made to date. The package of capital formation bills will provide a needed boost to business confidence, while offering meaningful solutions to entrepreneurs who are strapped for capital. We urge the Senate to move quickly," said Kerrigan.

On to the Senate!

Grading the States on Health Care Costs

On the morning of February 26, the health committee of the National Governors Association met. According to The Washington Post, the goal was to come up with ideas to reduce state health care costs.

Temporarily putting aside deep divisions over the costly ObamaCare scheme, which faces attacks from Republicans on the presidential campaign trail as well as a Supreme Court challenge with arguments to be heard in March, there was a different emphasis. The Post reported that "both Obama's assistant health secretary, Howard Koh, and Iowa Gov. Terry Branstad, a major opponent who sued to block the law, focused Sunday on what they could agree on: cutting medical suffering and costs by encouraging disease prevention and healthier lifestyle choices."

Unfortunately, this is either political fluff, at best, or an expansion of government intrusiveness and busybody-ness, at worst.

A more substantive endeavor would start with a look at the SBE Council's "Health Care Policy Cost Index 2012," which ranks the 50 states and District of Columbia according to key public policies affecting health care costs and the costs of health insurance coverage.

For example, as noted in the report, the Kaiser Family Foundation/Health Research & Educational Trust reported, based on its "2011 Employer Health Benefits Survey," that the average annual premium for employer-sponsored family health coverage increased by 9 percent in 2011 to $15,073.

In terms of broader costs and spending, national health spending continued to rise, but at a slower rate in 2009 and 2010. The latest data from the Centers for Medicare & Medicaid Services noted that expenditures increased by 3.8 percent in 2009 and 3.9 percent in 2010. At the same time, though, government health care spending, and therefore taxpayer costs, have continued to rise rapidly - increasing by 9.7 percent in 2009 and 6.5 percent in 2010.

What drives health care costs higher? Part of the increase is positive, due to new and improved treatments and care. As for the negative aspects, though, costs are pushed higher due to third-party payments (e.g., when employer-provided insurance or a government program pays for treatment, neither the health care provider nor consumer needs to be concerned about costs, as a result prices and utilization increase); and more regulations and mandates, with government overruling the marketplace and forcing health insurers to extend coverage, or assess risk and price services based on political preferences.

The 2012 index ranks the states according to eight criteria. They include both negative measures, along with some positive reforms:

• Health Savings Accounts (HSAs). Health Savings Accounts provide much-needed choice, competition and consumer control in the health insurance marketplace. HSAs are tax-free savings accounts owned and controlled by individuals, with funds deposited tax free into the account by the employee, employer or both, and earnings accumulate tax free. The funds are used to cover regular, predictable medical expenses, and each HSA is tied to a traditional catastrophic insurance plan to cover large health care expenditures.

• Guaranteed Issue for Self-Employed Group of One and the Individual Market. Health insurance represents a significant cost for businesses. Taxes, mandates and regulations increase health care costs, increase the number of uninsured, and act as another disincentive to starting up or locating a business in a high-cost state. Guaranteed issue means that individuals may not be turned down for health insurance coverage no matter the condition of their health or risk status. So, incentives for people to purchase health insurance before they become ill are removed. A guaranteed issue mandate raises health care costs, in this case for the self-employed. The index looks at guaranteed issue for self-employed group of one and for the individual market.

• Community Rating for Small Group Market and the Individual Market. Community rating mandates that an insurer charge the same price for everyone in a defined region regardless of their varying health care risks. So, no matter what the risks involved, everybody pays the same price for insurance. That translates into higher costs across the board. The index includes community rating gauges for both the small group market and the individual market.

• High-Risk Pools. For individuals that cannot get health coverage due to pre-existing conditions, some states have set up high-risk pools. According to the Council for Affordable Health insurance, high-risk pools "provide a safety net for the ‘medically uninsurable' 1% to 2% of the population, who have been denied health insurance coverage because of a pre-existing health condition, or who can only access private coverage that is restricted or has extremely high rates." CAHI notes that "state high-risk pools are a much better alternative to providing coverage for the medically uninsurable than imposing guaranteed issue laws on insurers which eventually increase the cost of insurance for everyone."

• Number of Mandates. Beyond regulations like guaranteed issue and community rating, state laws impose a host of mandated benefits on insurers. These mandates, while often sounding reasonable, carry real and sometimes significant costs. Health care mandates are easy to impose, as politicians take credit for expanded benefits while denying the related costs.

• Per Capita Medicaid Spending. Taxes imposed on entrepreneurs, businesses and consumers are a reflection of the level of government spending. Medicaid spending is a significant cost for taxpayers, whether paid at the state or federal levels. For good measure, as government spends more on a service, in this case health care, the opportunities for waste, fraud, abuse, etc. increase, and spending accelerates faster than it otherwise might due to the incentives at work in government, which can best be summarized as elected officials and their appointees spending other people's money. In the end, as government spends more on health care services, the costs in those services accelerate.

According to these measures, the best 15 states in terms of state health care policies are: 1) South Carolina, 2) Iowa, 3t) Indiana, 3t) South Dakota, 5) Nebraska, 6) Utah, 7) Wyoming, 8) Montana, 9) Alabama, 10) Wisconsin, 11) North Dakota, 12) Oklahoma, 13) Kansas, 14) Alaska, and 15) Tennessee.

Meanwhile, the worst states are: 34t) Florida, 34t) Colorado, 34t) Maryland, 37) Michigan, 38) Pennsylvania, 39) Minnesota, 40t) Delaware, 40t) California, 42) Oregon, 43) District of Columbia, 44) Connecticut, 45) Washington, 46) New Jersey, 47) Vermont, 48) Rhode Island, 49) Massachusetts, 50) Maine, and 51) New York.

In the end, at the federal and state levels, three policy paths actually exist on health care. One is about political fluff and platitudes, which means the status quo. A second option is more government control and interference, and therefore increased costs and diminished care. And the third would mean pro-market reforms that expand choice and competition for consumers and businesses, and restraining the growth in negative costs. The choice is clear, but apparently many elected officials fail to see the obvious.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

On Deck in the House: 20% Tax Cut for Small Businesses

The U.S. House will vote on a bundle of capital formation bills on March 8, which includes the crowdfunding measure long supported by the White House. This package is expected to handily advance as it has wide bipartisan appeal, and several of the measures have already passed the House with large bipartisan majorities. In the next several weeks, the House will move to tax issues where it will focus on a major tax relief initiative for small businesses.

The proposal calls for a 20 percent tax cut for small businesses that employ fewer than 500 people. As Majority Leader Eric Cantor (R-VA) announced earlier in the year, "Our pro-growth proposal will provide every small business that employs fewer than 500 people with a 20 percent deduction, helping them retain and create new jobs. I hope every Democrat will join us in passing the small business tax cut by April 15."

Such a tax cut will free up resources for small business owners, which they can invest in their businesses and hire needed employees. With health coverage, energy and other costs on the rise, small business owners and getting squeezed. The business environment remains challenging and accessing capital is difficult. Indeed, with President Obama proposing a major (and SBE Council would argue needed) tax cut for corporations, small businesses also need tax relief. SBE Council looks forward to House action on this tax proposal.

Karen Kerrigan, President & CEO

The Mystery of Regulation Via the Federal Reserve

Call it another case of "regulation without representation." Well, it might not be just another case; instead, it could rank as one of the most blatant cases of "regulation without representation" in recent history.

Our elected officials in the nation's capital are notorious for writing legislation that regulates all kinds of activities, and then leaving the actual details of regulating to the bureaucrats. For good measure, there is no follow up, such as requiring that Congress actually vote for or against these rules and mandates. The federal regulatory process, quite simply, is a glaring abdication of lawmakers' responsibilities.

The Dodd-Frank financial regulation law stands out as a glaring example of nonsensical law, which puts enormous power in the hands of government bureaucrats and hurts the economy.

When President Obama signed the measure into law in July 2010, a New York Times report noted, "A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years." That was the epitome of understatements. As for the epitome of overstatements, the Times piece went on: "But ‘because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes,' Mr. Obama said before signing the legislation. ‘There will be no more taxpayer-funded bailouts. Period.'"

In reality, Dodd-Frank in no way bars taxpayer-funded bailouts. Indeed, there are only two broad things that we know for sure about Dodd-Frank.

First, we know that it did nothing to redress the problems that generated the housing/credit mess, unprecedented taxpayer bailouts, and one of the deepest recessions since the Great Depression. The causes of this historical meltdown were loose monetary policy, and an assortment of federal laws, entities, subsidies, incentives, rules and regulations that detached home ownership from sound economics. In turn, the private sector acted in accordance with the incentives set up by government, which amplified some of the worst impulses among many borrowers and some lenders. So, all of the key mistakes made by government remain in place. Loose money, imposed in the hopes of ginning up the housing market, is running full throttle; the role of federal entities like Fannie Mae and Freddie Mac, after receiving enormous taxpayers bailouts, actually has been expanded; and nothing has been done to fix assorted laws and regulations that push non-economic mortgages.

Second, given this reality, we know that the massive Dodd-Frank regulatory endeavor will generate enormous costs that will further distort markets; create a false sense of security among the electorate; and further empower unelected government bureaucrats.

Consider Dodd-Frank's much-vaunted Volker Rule, named for former Federal Reserve Chairman Paul Volker, which prohibits banks from undertaking proprietary trading. The rule maker is the Federal Reserve. But Fed Chairman Ben Bernanke told Congress in late February that the Volker Rule would not be ready by its July 2012 deadline, and he was not sure when the rule would be ready. The problem? The Fed is having trouble figuring out what kind of trading by banks would and would not be allowed. That's not surprising. After all, what kind of trading is done on behalf of customers and what is done on behalf of shareholders? For good measure, if one understands markets and the reality that shareholders only benefit in the end when the firm serves consumers well, how can various types of trading really be disentangled?

So, the Volker Rule was silly from the start. It does nothing to redress the actual causes of the 2008 credit/economic mess, and only limits banks abilities to enhance value for both bank shareholders and customers.

As for the enhanced power of bureaucrats via regulation, on February 21, The Wall Street Journal published a powerful front-page story on how the Dodd-Frank regulatory undertakings by the Federal Reserve are going on behind closed doors. While the Fed has emphasized greater transparency in its monetary policy decision-making process, it's rule-making process ranks as the most secretive in the federal government, according to this report.

Consider the following from the story:

"While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions. The Fed is making these sweeping changes-the most dramatic since the Great Depression-almost completely without public meetings. Rather than discussing rules and voting in public, as is done at other agencies with which the Fed often collaborates, Fed Chairman Ben Bernanke and the Fed's four other governors have held just two public meetings since July 2010. On 45 of 47 of the draft or final regulatory measures during that period, they have emailed their votes to the central bank's secretary."

That's not just troubling. It's scary.

Obviously, the Fed carries heavy responsibility for its own actions, as it is breaking with tradition and with what goes on at other federal regulatory entities. At the same time, though, as the Journal noted, the Fed is not breaking any laws. Congress must take responsibility for not specifically dictating that the Fed needs to hold an open process.

Of course, perhaps those in Congress who passed Dodd-Frank are not too keen on having an open process. After all, an open process just might reveal how clueless and misleading lawmakers were when they passed the law, and how bankrupt and costly the law will turn out to be.

All of this matters to the entrepreneurial sector of our economy, as increased costs, limited returns, and government dictates regarding risk for banks inevitably translate into restraints on the availability of credit and ability to grow.

A February 23 Wall Street Journal story further drives home this disturbing reality. Since stepped up regulations occur when regional banks top $10 billion in assets, the incentives to restrain growth are substantial. The Journal noted, "The new Consumer Financial Protection Bureau oversees the banks above $10 billion in assets, and bank regulators require them to strengthen risk-management measures. Under a Federal Reserve proposal, they also would have to undergo an annual stress test to prove they can withstand economic hardship."

What's the reaction? As reported, "As such, some banks have made the unusual decision of growing more slowly and even turning away money to stay under the regulatory benchmark. Some banks have lowered the interest rates they pay for customer deposits in an effort to attract less cash. And the timing of growth initiatives also is now a factor, as some banks think it makes little sense to trip the $10 billion trigger unless they are to grow much bigger."

The astoundingly misguided Dodd-Frank then has incentivized an entire portion of the banking industry to avoid growing, unless that growth is large and quick enough so as to more easily absorb the added regulatory costs. That's a recipe for reduced savings, restricted credit, less business growth, and therefore, reduced economic and employment growth.

Politicians excel at blaming the private sector for the problems they usually cause, and then causing more problems with additional misguided actions. This most often is the case with regulation, as elected officials make grandiose claims, pass legislation, and leave bureaucrats to sort out the details and private sector businesses and consumers to absorb the costs. Dodd-Frank is a glaring, costly example. What the economy needs is to repeal this grossly misguided law, and instead, implement reforms that actually address the problems underlying the 2008 mess.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

House Expected to Vote on Package of Capital Formation Bills This Week

GOP leaders introduced the Jumpstart Our Business Startups Act (JOBS Act) on February 28-- a package of bipartisan bills that will encourage capital formation, and help businesses grow. Several of these bills - which are strongly supported by SBE Council -- have previously advanced in the House on a bipartisan basis. President Obama signaled his support for the initiative. SBE Council is confident these bills will advance in the House, and remains optimistic that the Senate will take action as well. Senate Majority Leader Harry Reid (D-NV) announced that the Senate will move forward on these capital access bills, and the Senate Banking Committee is hosting a hearing on March 7.

As SBE Council President & CEO Karen Kerrigan noted in a recent Politico.com article regarding Reid's announcement to move on the bills, "Access to capital continues to be a major struggle for small businesses and entrepreneurs. It is a no-brainer for the Senate to move forward with this package of capital formation bills."

The JOBS Act -- which includes provisions to modernizes existing regulations, update thresholds or provide compliance relief - is bundling the following provisions:

(The following information is provided by Majority Leader Eric Cantor, R-VA)

REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES ACT (H.R. 3606): Approved by Financial Services Committee 54-1

H.R. 3606 reduces the costs of going public by providing companies with a temporary reprieve from Securities and Exchange Commission (SEC) regulations by phasing in certain regulations over a five-year period. The bill creates a new category of issuers called an "Emerging Growth Company" (EGC), which would retain its status for five years or until it exceeds $1 billion in annual gross revenue or becomes a large accelerated filer. H.R. 3606 ensures investors are protected by requiring the EGCs to provide audited financial statements as well as establishing and maintaining internal controls over financial reporting.

THE ACCESS TO CAPITAL FOR JOB CREATORS ACT, H.R. 2940: Approved by the House 413-11

H.R. 2940 removes an SEC regulatory ban preventing small businesses from using advertisements to solicit investors. H.R. 2940 allows small companies offering securities under Regulation D to utilize advertisements or solicitation to reach investors and obtain capital. The SEC's ban on solicitation, first adopted in 1982, limits the pool of potential investors and severely hampers the ability of small companies to raise capital and create jobs.


THE ENTREPRENEUR ACCESS TO CAPITAL ACT, H.R. 2930: Approved by the House 407-17

H.R. 2930 removes SEC restrictions that prevent "crowdfund investing" so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered "accredited" by the SEC. H.R. 2930 allows companies to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides investors with audited financial statements. Individual contributions are limited to $10,000 or 10 percent of the investor's annual income, whichever is less.

THE SMALL COMPANY CAPITAL FORMATION ACT, H.R. 1070: Approved by the House 421-1

H.R. 1070 makes it easier for small businesses to go public by increasing the offering threshold for companies exempted from SEC registration from $5 million to $50 million. The SEC has the authority to raise this threshold but has not done so for almost two decades. Amending Regulation A to make it a viable channel for small companies to access capital will permit greater investment in these companies, resulting in economic growth and jobs.

THE PRIVATE COMPANY FLEXIBILITY AND GROWTH ACT, H.R. 2167: Approved by Financial Services Committee Voice Vote

H.R. 2167 removes barriers to capital formation for small companies by raising the shareholder registration requirement threshold from 500 to 1,000 shareholders. Many small businesses are forced to file as a public company because of an obscure regulation that requires companies with 499 shareholders and $10 million in assets to file with the SEC. This current shareholder threshold rule was originally adopted in 1964 and has not been modernized since. This regulation restricts the number of shareholders and assets these companies can have. In turn, this severely limits the growth stages for companies, which need time and flexibility to develop.

THE CAPITAL EXPANSION ACT, H.R. 4088: House Version of S. 1941, Referred to Financial Services Committee

H.R. 4088 increases the number of shareholders permitted to invest in a community bank from 500 to 2,000. This bill would enable banks to better deploy their capital to make loans and create jobs rather than comply with burdensome SEC requirements.

It looks like the House will vote on the JOBS Act on March 8, and SBE Council will KEY VOTE this important legislation, as a vote for small business, in its Ratings of the 112 Congress.

Karen Kerrigan, President & CEO

UN Control of Internet

Since having written a novel myself, I'm always looking for an idea or premise that would make for an interesting, exciting story.

How about the following? At the behest of authoritarian and communist regimes, the United Nations is used as a vehicle for gaining more control over the Internet, thereby allowing those governments to gain more resources and power, limit freedom, and undermine parts of our economy.

Unfortunately, this is not farfetched fiction. It's a very real concern due to a United Nations effort that was kicked off in Geneva in late February and will proceed to a culmination in Dubai towards the end of this year. The considerable risk is that a treaty, which would only need approval of a majority of 193 nations, would result in an attempt at centralized regulation of the Internet, which would result in a de facto fragmentation of the Internet. That, in turn, would restrict opportunity, communication, prosperity and freedom.

As reported on October 20, 2011 by Bill Gertz in The Washington Times, "Last month, Russia, China, Uzbekistan and Tajikistan submitted a resolution to the U.N. General Assembly calling for giving individual states the right to control the Internet. The resolution, submitted Sept. 14, calls for ‘an international code of conduct for information security.' It requests ‘international deliberations within the United Nations framework on such an international code, with the aim of achieving the earliest possible consensus on international norms and rules guiding the behavior of states in the information space.' China tightly controls the Internet through a cybersecurity police force estimated to be more than 10,000 people who monitor Internet users and websites. Russia's authoritarian government has taken steps in recent years to curb Internet freedoms. Uzbekistan and Tajikistan also are authoritarian regimes that seek to control Internet use."

Writing in The Wall Street Journal on February 21, 2011, FCC Commissioner Robert McDowell explained, "On Feb. 27, a diplomatic process will begin in Geneva that could result in a new treaty giving the United Nations unprecedented powers over the Internet. Dozens of countries, including Russia and China, are pushing hard to reach this goal by year's end. As Russian Prime Minister Vladimir Putin said last June, his goal and that of his allies is to establish ‘international control over the Internet' through the International Telecommunication Union (ITU), a treaty-based organization under U.N. auspices."

Concerns have come from various corners.

For example, Gertz reported, "The commander of the U.S. Cyber Command said Thursday that he does not favor giving the United Nations the power to regulate the Internet... But asked whether the U.N. should have a regulation role, [Army Gen. Keith Alexander, who is also director of the National Security Agency,] said: ‘No. I'm not for regulating, per se. I'm concerned about it, and this is a tough question. I would say, generally speaking, I'm not into that portion of regulating as you would espouse.'"

On February 27, FoxNews.com highlighted that a memorandum from the Obama administration. It was stated in the article, "The memo, dated Jan. 23, states that in January 2011, U.S. officials harbored ‘great and widespread concern' that the conference ‘would be a battle over investing the (International Telecommunication Union) with explicit Internet governance authority.' However, American diplomats, the memo maintains, succeeded in ‘narrowing the focus' of the conference by emphasizing the administration's ‘deregulatory position at every opportunity.' The memo concludes that the likelihood of the conference posing any ‘foundational' threats to the freedom of the Internet ‘seems low at this time.'"

That's a bit of a mixed message. While the emphasis on fighting off international regulation is correct, there seems to be a somewhat disconcerting lack of urgency.

FCC Commissioner McDowell is obviously far more concerned.

First, he noted the great success of Internet deregulation and privatization. He pointed out, "If successful, these new regulatory proposals would upend the Internet's flourishing regime, which has been in place since 1988. That year, delegates from 114 countries gathered in Australia to agree to a treaty that set the stage for dramatic liberalization of international telecommunications. This insulated the Internet from economic and technical regulation and quickly became the greatest deregulatory success story of all time." A bit later, he added, "This consensus-driven private-sector approach has been the key to the Net's phenomenal success. In 1995, shortly after it was privatized, only 16 million people used the Internet world-wide. By 2011, more than two billion were online-and that number is growing by as much as half a million every day. This explosive growth is the direct result of governments generally keeping their hands off the Internet sphere."

Second, McDowell warned, "Even though Internet-based technologies are improving billions of lives everywhere, some governments feel excluded and want more control. And let's face it, strong-arm regimes are threatened by popular outcries for political freedom that are empowered by unfettered Internet connectivity. They have formed impressive coalitions, and their efforts have progressed significantly." He also noted the desire to increase governmental revenues through possible and varied fees.

Third, he drove home the fundamental problem: "A top-down, centralized, international regulatory overlay is antithetical to the architecture of the Net, which is a global network of networks without borders. No government, let alone an intergovernmental body, can make engineering and economic decisions in lightning-fast Internet time. Productivity, rising living standards and the spread of freedom everywhere, but especially in the developing world, would grind to a halt as engineering and business decisions become politically paralyzed within a global regulatory body."

For good measure, in late February, Google's executive chairman Eric Schmidt declared his worries. At the Mobile World Congress 2012, as reported by ZDNet UK, "Schmidt said handing over control of things such as naming and DNS to the UN's International Telecommunications Union (ITU) would divide the Internet, allowing it to be further broken into pieces regulated in different ways. ‘That would be a disaster... To some, the openness and interoperability is one of the greatest achievements of mankind in our lifetime. Do not give that up easily. You will regret it. You will hate it, because all of a sudden all that freedom, all that flexibility, you'll find it shipped away for one good reason after another,' Schmidt said. ‘I cannot be more emphatic. Be very, very careful about moves which seem logical, but have the effect of balkanising the Internet,' he added, urging everyone to strongly resist the moves."

Entrepreneurs should take note, and be concerned. After all, few technological advancements or tools have expanded opportunity for entrepreneurs, small businesses and their employees more so than the Internet. Any move to international governance and regulation will only serve to reduce those opportunities - and drastically so. The Obama administration needs to make clear that UN regulation of the Internet is not an option, and it should be building an international coalition to protect Internet freedom and opportunity.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Governors and Energy: Economics and Politics

Apparently, federal energy policy is frustrating at least a couple of governors.

When politics mixes with anything in the economics realm, including energy and energy policy, one can never be quite sure as to what the outcome will be.

For example, after a lengthy process that dated back to the previous administration, President Obama wound up rejecting the proposed Keystone XL pipeline project, which would boost U.S. economic growth, employment, and energy affordability and security. The unmistakable political desire was to push the decision beyond the 2012 elections. For good measure, the Obama administration has been slowing or stopping offshore and onshore oil production, pushing increased taxes on domestic energy producers, and proceeding with EPA regulation of emissions.

Two governors spoke out recently on energy policy emanating from the nation's capital.

According to a February 26 report in TheHill.com, Indiana Governor Mitch Daniels, a Republican, provided an interesting reminder on what the objective of the Obama administration's policies seems to be. The article noted:

"‘Let's give the president credit for one domestic policy that works. He wanted higher gas prices and he got them,' said Daniels on Fox News Sunday. ‘Secretary Chu said $8 are about what they pay in Europe. It would be great. Secretary Salazar said $10 and it still wouldn't be for drilling in the places where we know there's an awful lot of domestic production. And so, they have gotten the doubling of gas prices and perhaps worse, it's a conscious policy of this administration. Maybe the one thing they set out to do and actually accomplished.' he said."

TheHill.com went on to explain, "Republicans have leaped on comments from Energy Secretary Steven Chu to the Wall Street Journal in September 2008 saying that government needed to ‘figure out how to boost the price of gasoline to the levels in Europe.'"

Daniels added, "When you have environmental regulations that are going to raise the price of refining gas, possibly put some of our scarce refineries out of business, guess what? You are going to get higher gas prices."

While as a Republican, Daniels obviously wants to score political points, his basic economics are undeniable.

Meanwhile, a Democratic governor is none too pleased as well. In a February 23 report by The Canadian Press, Montana's Brian Schweitzer criticized the politics swirling around the Keystone pipeline. But he did so in a rather unique fashion.

Schweitzer is a big supporter of the project. The most interesting aspect of the article was the following:

"Mr. Schweitzer said Keystone runs through Montana more than it does any other state and would be a boon for oil producers. Oil activity in Montana and North Dakota has picked up, he said, but the oil has to be transported to its destinations by rail. ‘Rail is not safe, it's not environmentally sound and it costs $20 [U.S.] to $30 a barrel more to get to market, so our producers are taking deep discounts because we don't have pipeline capacity and we've negotiated that with TransCanada."

That, of course, just adds more value to the project.

As for his criticisms, Schweitzer got colorful in pinning blame on Washington, D.C. But his wrath was not directed at the administration's political games. Instead, it was directed at Keystone supporters.

The Canadian Press quoted Schweitzer saying, ""Blah, blah, blah, Washington, D.C., politics. If you want to get something a) not done and b) cussed and discussed, send it to Washington, D.C. It's going to get built. Ninety per cent of these jackasses that are complaining about the Keystone pipeline in Washington, D.C., one year ago wouldn't have even known where the Keystone was. While we were doing the heavy lifting here in Montana and in South Dakota and in Kansas and Oklahoma ... in Washington, D.C. ... all these great defenders had never heard of Keystone before."

Hmmm. Why would a Keystone supporter go out of his way to take his Keystone allies to task? Well, while Schweitzer apparently gets the economic benefits of the project, he apparently cannot turn off the politics on the issue. So, he ignores that his fellow Democrats in the White House are the problem, and instead, highlights a point, whether accurate or not, that is meaningless in terms of the substance of the issue.

Like I said, when politics mix with economic policy, especially energy, you never quite know what the outcome will be.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.