原文标题：High Interest Rates And Their Threat To The American Dream
Original author: Lule Demmissie
Original source: Forbes
Compiled by: Mars Finance, Eason
Jerome Powell, Chairman of the Board of Governors of the Federal Reserve Bank of the United States. Photo credit: Chip Somodevilla/Getty Images
There are many different crosscurrents in a nation’s economy. Conventional wisdom holds that the economy is made up of the haves and the have-nots. However, this binary view of the economy ignores the more critical and nuanced story of the hardworking Americans who aspire to be the innovators and small business owners of today and tomorrow. These people neither want nor need handouts, but do need a policy and economic framework that makes it easier for them to start new businesses, large and small. This group needs support from a cultural, regulatory, and monetary environment that fosters the growth of tomorrow’s innovators, small businesses, and more. Writing about small business economic policy can seem like a red herring given the more pressing civic crises in today’s democracies. Here, I’ll focus on a particular element of the economic puzzle that, if left free to develop, may lead to a more productive path for us.
The benefits of high interest rates
Despite high interest rates, the stock market remains at all-time highs; the S&P 500 has risen 142% since March 2020 (the last deep bear market). Earnings at the largest U.S. public companies have continued to grow despite high inflation and rising borrowing rates during this period. Why? Partly because of rising productivity and high employment, and partly because inflation has helped big companies raise prices. In addition, higher interest rates have helped these big companies earn higher interest on the cash on their balance sheets. And of course, asset-rich seniors continue to earn high returns on their fixed-income portfolios. With the exception of the 2020 decline in U.S. GDP, our country's economic growth rate has returned to a steady 2.5%-3.5% per quarter, driven by high employment and high prices. Granted, the most recent quarterly GDP growth rate was 1.6% in the March quarter, but one quarter does not make a trend.
It seems like a win-win, doesn’t it? Higher interest rates benefit big companies and seniors. Higher prices help big companies’ bottom lines. GDP is stable again, and unemployment is at normal levels. And of course, it helps monetary policymakers challenge dangerous inflation levels. So why give up savings and lower interest rates? Why not keep interest rates high for when we might need to stimulate the economy again?
The hidden dangers of high interest rates and strict regulation
In this environment, the social costs of restrictive monetary policy (i.e., higher interest rates) and regulatory policy (i.e., burdensome and hostile regulators) are not obvious. However, its impact on the American Dream over time and even earlier on the cultural zeitgeist is real. It is no mystery how big corporations can continue to win and how the rich get richer. The challenge is to create the environment and cultural context that fosters the entrepreneurs and small businesses of the future. Without fostering the growth of the private sector through the birth of more innovators and small businesses, whether on Main Street, Silicon Valley, or Wall Street, there is no way to close the wealth gap between underrepresented groups in the United States.
Higher interest rates are a deadly blow to startups and small businesses because, by definition, they are higher credit risks than the cash cows of large, established corporations or wealthy individuals in need of loans. Yet innovators and small businesses are the engine and soul of the U.S. economy. They account for nearly half of all business employment and the majority of the economic value created by U.S. businesses.
Startups founded by non-whites continue to have lower loan approval rates than startups founded by whites.
Source: 2023 Small Business Credit Survey
Borrowing rates for small businesses in the United States have now risen to a peak of 7.5% to 9.2%, compared with historical levels of 3.5% to 4.5%.
Source: Federal Reserve Bank of Kansas City SB Lending Survey.
The current environment of rising borrowing costs hides a moral hazard, i.e. people are unwilling to “bet” on innovators and small businesses. Moreover, the objectively stringent regulatory posture of the past three years is silently stifling this fragile economic sector at a heavy and unnecessary cost. Democracy requires not only well-informed citizen participation, but also a vibrant, non-hostile economic environment that encourages the creation of new and small businesses.
The silver lining is that we are getting a more balanced composition of GDP after government spending crowded out other elements over the past few years. In simple terms, GDP consists of consumer spending, government spending, and net exports. From 2020 to 2022, government spending peaked at 47% of GDP, crowding out the main engines of GDP growth - consumers and the private sector. A healthy economy cannot have government spending crowding out the private sector. Now, we need to focus on more normal interest rate levels and a less restrictive regulatory environment to make it easier for future job creators to thrive.
Normal to low interest rates are essential for new and small businesses to continue to realize the American Dream. It is the soul of America.
The economy is a complex cycle made up of many factors, but if small businesses and small companies are not growing and thriving then three things will happen:
(1) Competition will be further suppressed as large companies win by consolidating their market share and power;
(2) there will not be a surge in new entrants, thereby expanding the base of business founders and innovators in both Main Street and the tech sector;
(3) Social equity is further undermined as new potential founders and small business owners from underrepresented groups find it more difficult to obtain funding to become self-employed. This situation poses a threat to lasting economic, cultural, and, subsequently, civic life.
