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In two of my previous blogs, Health Care, the Next One Down? and How did this Economy get into a Recession? I had identified the crucial business demographics to be the small businesses for two reasons:

  1. Small businesses  account for half of the working population in the US; and
  2. Small business employees in general do not have substantial discretionary incomes and are thus very susceptible to economic pressures.

If we look at the recent Bush Administration (no blaming here, just objective lessons) their focus was tax cuts to help big businesses under the assumption that a few big businesses employ a lot of people, and therefore would be the fastest way to economic recovery and sustainability. 2008 showed us that this was an incorrect assumption.

I therefore have two recommendations for the Obama Administration:

1. Focus on small businesses. 

  • It has not been tried. It is different from previous ‘answers’. 
  • Most importantly, as small business employees have small discretionary incomes, a small change in their discretionary incomes will have a big impact on their spending patterns. 
  • That is what we want – to stimulate consumer spending – and that is how to do it.
  • My guess is that the Reagan Tax Cuts worked marvelously because the biggest beneficiaries were the small businesses employees with smaller discretionary incomes.
  • Create new jobs through new small businesses. It does not matter if other countries benefit as a result, just so long as Americans benefit first.

2. Protect discretionary income. 

  • Do what it takes to prevent or remove spikes in energy and raw material prices. 
  • Especially move away from fossil fuels.
  • Reduce medical insurance premiums so that small business employers can ‘pay this forward’ to their employees as additional income.

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.
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