Jun 24, 2009

Is Entrepreneurship Really That Easy?By Scott ShaneBoss.Blogs.NYTimes.com

Today, I received an e-mail message from the Ewing Marion Kauffman Foundation announcing White House support for the Kauffman Foundation-New Economy Initiative to revitalize Detroit. The message made me wonder if the White House has found an entrepreneurship-based solution to all of our economic problems.

The Kauffman Foundation’s program involves a three-year $9.5 million investment “to assist auto suppliers and advance entrepreneurship.” The foundation claims that the program will create 1,200 new companies, generate 5,000 new jobs, save 20,000 existing jobs and generate $300 million in “spending power for the local economy.”

If this is true, then the White House should take notice. And it shouldn’t be Ed Montgomery, the executive director of the White House Council on Automotive Communities and Workers, who should be commenting, it should be President Obama himself. If the program does what the Kauffman Foundation says it will do, then we’ve got the solution to our job loss and G.D.P. shrinkage problems.

The Kauffman Foundation is suggesting it has found a way to create or save jobs at a price of $380 each. Moreover, it has found a way to create $31.58 of economic spending power for each $1 of investment.

Let’s apply these numbers to our overall economy and see how easily their program would solve our problems. First, consider the lost jobs. Since the recession began in December 2007, the United States economy has lost six million jobs, according to the Economic Policy Institute. To keep up with population growth, the Institute’s analysis explains, we would have needed to create an additional 2.2 million jobs. Therefore, the Institute estimates that we are currently down 8.2 million jobs from what we would need to have the rate of employment that we had before the recession began.

But the Kauffman Foundation’s program can create or save jobs at the bargain price of $380 each. That means that if we just scale up the Kauffman Foundation’s program nationally, we can create or save 8.2 million jobs for the very low price of $3.1 billion.

The program could also solve our problems with shrinking G.D.P. I’m not entirely sure what “spending power for the local economy” is, but let’s assume it refers to the local G.D.P. The Bureau of Economic Analysis reported that first quarter G.D.P. fell at an annualized rate of 3.1 percent, resulting in a $110.6 billion decline. If the economy had generated $221.2 billion more in economic value, we could have had a healthy 3.1 percent annual rate of increase in G.D.P. over the first quarter of 2009 instead of a 3.1 percent decrease.

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