Mises Wire

Business Owners Understand Why the Economy Can’t Just Be “Reopened”

My oldest turned seventeen last month. To commemorate the occasion, she and I watched Once Upon a Time in Hollywood. I’d taken her to her first (allegedly) rated-R movie a couple years ago to see the quite good Baby Driver, but this was Tarantino.

Brad Pitt won an Oscar for portraying Cliff Booth, the personal stuntman for Leonardo DiCaprio’s struggling actor Rick Dalton. Early on, Cliff consoles Rick after Rick interprets a dinner meeting as a signal that he is officially a “has-been.” The next morning, as he’s dropping Rick off on set, Cliff reassures him that “you’re Rick [expletive] Dalton. Don’t you forget it.”

I turned to my daughter and said “(Rick)’s his meal ticket,” to which she responded “Huh?”

The coronavirus scare has laid bare the tradeoffs acceptable to many in a time of crisis, real or perceived. Of particular notice is the blasé attitude that “economies can be rebuilt.”

This outlook usually emanates from those without much work experience, or folks who make their living in nonmarket activities. Surprisingly however, some commercially successful wage earners don’t totally get it either.

I occasionally hear hints of such presumptuous cluelessness in casual conversation but just grin silently. A recent one really got my attention, though.

Entrepreneurs Are Our Meal Ticket

I was chatting with a group of friends, a mix of successful employees and successful employers. Though I usually eschew ascribing political labels to individuals, it’s safe to say that all involved would feel at home in the Thomas Massie/Rand Paul wing of the Republican Party.

Or so I thought.

After the exchange got a bit heated, one of the employees declared that he did indeed build the company for which he works. Shortly after a couple of double takes and “you didn’t build that” zingers thrown his way, the conversation ended.

That was unfortunate, because he never answered a question I put to him: “Have you ever considered going into business for yourself, taking your clients with you?” If he has, I have to imagine that the reason he decided not to boils down to one word: risk.

As Cliff was driving Rick home from the aforementioned dinner, he showed humility when he told Rick that given his own mediocre career he couldn’t relate to Rick’s anxiety. Sadly, too many people lack Cliff’s self-awareness.

In reality, we wage earners are free agents. It’s true that, particularly over a long period of time, our skills become baked in. Nonetheless, with prudent living, there are always affordable options to change gears if necessary or desired.

Entrepreneurs/business owners, whom I do not see expressing similarly nonchalant sentiments about the economy (despite health vulnerabilities of their own), are different.

Many times they give up a regular paycheck to pursue an idea they have, perhaps leveraging themselves after they’ve exhausted personal savings. They have to take a flyer on some of the rest of us whom they hope will help their venture succeed.

Some have to deal with high and/or regular turnover of low-skilled labor, while others have to keep their highly skilled employees sufficiently compensated lest they get lured away, or worse, poached by a competitor.

All the while they have to make sure the customer is happy with the product or service.

And those are the pleasant dilemmas.

When demand, and subsequently revenue, dries up as a result of an industrial and/or economic downturn, they have to conserve resources to ride out the storm. Unfortunately, that means they can’t compensate all their staff. Hence, they face the unenviable task of letting some go.

Having personally endured five rounds of layoffs (once as a casualty), experience has informed me that the pop culture portrayal of “The Man” as being cold blooded is sensationalized rubbish.

It’s not hyperbole to say that a person’s business is like one of her children. It’s of nearly equal, though different, importance. In fact, an interdependency exists. She can’t simply walk away during down times. She has to nurse it back to health.

There’s the note on the building that must be paid. There’s capital investment to maintain. There are vendor/customer relationships to preserve. Her family depends upon her having the fortitude to keep the enterprise afloat.

That’s what rides on her shoulders while we move from one job to another.

Sure, she could join the workforce just like the rest of us, and she’d likely make a damn fine employee somewhere. But what a waste of talent that would be.

When we study the four factors of production (land, labor, capital, entrepreneurial ability), my students learn that the latter is the spark that brings the first three into productive use. Much labor and capital arguably wouldn’t even exist without it.

Certainly “economies can be rebuilt,” but assuming it’ll just happen reflects a level of flippant naiveté similar to that which supposes that entrepreneurs should factor government-shutdown-by-fiat into their risk calculation.

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