Magazine article Economic Trends

The Economy in Perspective

Magazine article Economic Trends

The Economy in Perspective

Article excerpt

Fabricating the truth ... We hear and read so many opinions, from so many sources, that it is often difficult to tell fact from fiction. Some opinion makers seem to operate under the premise that there are no longer any facts--that everything today is just a matter of subjective interpretation. But most people want to believe that what they value is true, and there is a plethora of interest groups whose livelihood depends on spin, hype, and packaging.

Economists are trained to resist these foibles of human nature, but we are not perfectly immune to them. Diversity of opinion is not rare among our ranks, and we have even been known to overreach in debate. However, economists are also critical consumers of news stories, and there are days when so-called "economic reporting" drives us up the wall. Here are a few pet peeves, culled from numerous news accounts.

Small businesses create most of the jobs in the U.S. economy. It's easy to get a warm, fuzzy feeling about the role of small businesses. They're the stuff that the American dream is made of: the opportunity to begin a venture in your garage and end up a millionaire. But exactly what are small businesses, and how do they contribute to jobs? Although definitions vary for certain purposes, the U.S. Small Business Administration suggests that a small business is generally one that employs up to 500 people. Data on the distribution of firms by size indicate that roughly 99.5 percent of all businesses in the United States fit this definition. Moreover, although small businesses account for about three-fourths of the new jobs created, only half of all employment is located in small businesses. This means that the one-half of 1 percent of the firms that are not small businesses account for the other half of employment. These figures also show that although small businesses generate newjobs, they also contribute the overwhelming fraction of all jobs lost in the U.S. economy.

Business reporting may miss the mark in two respects. Some stories focus on small firms' importance in economic development, when large firms' expansion might be equally virtuous. Other stories focus on big companies' layoffs, not realizing that employment growth in small firms might offset corporate reorganizations. More informative reporting might result from paying less attention to a firm's size and more to industry dynamics and underlying economic issues.

Trade barriers protect jobs. …

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