By Nicholas Bolton

The  economy today is probably in worse shape than it has been in the lifetimes of most Americans.  Whatever actions the new president takes, they must be bold. As Nobel Prize-winning economist Paul Krugman has said, “Caution is risky.” 

About twice as much money is invested in the stock market today as the stocks are worth.  But lost value in the capital markets—the devaluation of the market—is  not in itself the problem, but a symptom of a much worse condition.  The market is just exposing its value-- or lack thereof.  Obviously, people want to find better value, so the demand is lowering while the supply remains high.

Actually, Wall Street is undergoing an economic adjustment.  The value of the market is probably about half the amount of money that has been invested in the market.  Any company that sells a defective product for more than its true worth will eventually see a loss of market.  People wanted to sell off current investments in the market and seek safer and better investments elsewhere.   Capital is being transferred from the stock market to treasury notes, bonds, and gold as well as energy investments.  But he transfer of dollars into these and other areas will consume only part of the investment dollars.   If the remaining dollars are not  invested in Main Street,  the economy will continue to flounder.  If most publicly-traded stocks are inflated, how is an investor to invest prudently?

The direction for future investments is in startup  businesses that have not undergone the inflated stock values of Wall Street,  and in any number of strong industries, including clean industry, service businesses,  new technologies,  and so on.  To shift the investment focus from Wall Street to Main Street will require promotion and investor incentive.  Small Business Investment Companies (SBICs) can be a tremendous catalyst in America’s economic recovery.  The funds are partially guaranteed or financed by the federal government.  If government money is to be used in reviving the economy, as it has been in bailing out the mortgage industry, it seems logical to direct some of that money into small businesses. 

If the government could infuse five hundred billion dollars into the SBIC system, this would fund 500,000 new businesses,  of which 250,000, statistically, could be expected to succeed.  These successful businesses would  employ an average staff of  twenty people.  This would mean the creation of five  million new jobs.  Through residual products and services purchases made by those newly operating businesses,  an equal number of jobs could be created or sustained. Moreover, many of these companies will grow.   With provisions for  high standards of employee payroll for businesses obtaining funding through SBICs,  and with government focusing on depression-resistant industries, we will have begun to restore the workforce and  begin rebuilding the economy. 

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Article also published at Associated Content