2020 was a bad year for small business. Government waged war on the entrepreneur in the name of public safety — imposing harsh lockdowns on those deemed “unessential.” Carol Roth, author of a new book “The War on Small Business: How the Government Used the Pandemic to Crush Small Business,” makes an important observation that large corporations tended to be exempt from the lockdowns. Isn’t that funny!
Roth is a content creator, “recovering” investment banker, entrepreneur, TV pundit and host, and New York Times bestselling author. With 300+ pages of evidence, her new books makes the case that the government has been treating the little guy unfairly since long before COVID. However, the pandemic provided a perfect excuse to ramp up its preferential treatment of privileged cronies at corporations.
Can we even call this capitalism anymore?
TRANSCRIPT
The Winners and Losers of 2020
Bob Zadek 01:15
In the phrase “free market system,” everybody thrives simply as a result of individuals being allowed to voluntarily trade with one another, buy what they want at the price they want to pay for it, whether it’s goods or services, whether it’s for personal family or household use or for commercial purposes. Freedom is the ultimate natural resource of a country.
This morning’s guest, Carol Roth has written the perfect book for the perfect time to sound a loud clarion call about what is happening to our economic system in America — perhaps the last great refuge for a free market system. Carol has written the book The War on Small Business. Before that, Carol had authored the best-selling Entrepreneur Equation, where she evaluated the realities, risks, and rewards of having your own business. In short, Carol is the best postman one could possibly want for the free market and for entrepreneurship.
Entrepreneurship is the world in which I have spent my entire working life. I passionately love it. I’ll do whatever I can to defend it. With that motivation, Carol, I welcome you to the show this morning. Thanks so much for being with us.
Carol Roth 02:45
I love the fact that you emphasize that part about the “free” in the free market because that’s the crux of everything that we’re talking about right now.
Bob Zadek 03:00
The year 2020 was a very bad year for small businesses. Why did small businesses take the brunt of the economic pain? COVID doesn’t cause economic peril. The government caused the economic peril. COVID was just out there as a circumstance. Carol, help us understand the magnitude of how bad it was for small businesses during the COVID era.
Carol Roth 04:05
This was not about COVID. It was about the government’s reaction to COVID. What happened is that the government picked winners and losers. They decided who would thrive and who would fight to survive. They did this not based on data, not based on science, but based on political clout and connections. That really enabled the greatest wealth transfer that we had ever seen in our lifetime.
How bad was it in 2020 and now 2021? First of all, the government told you that you were non-essential. It was enough that you’d heard a decade before that “you didn’t build that.” Now you were told that you were non-essential. If you were putting food on your table and adding value to your community, obviously that is essential. There’s no data or science to say the liquor store can be open or the pet store can groom dogs’ hair and nails, but you can’t get a person’s hair and nails groomed. You were told that you were not essential.
Then they had an opportunity to make it right by compensating you because basically the government took the people’s property for the common good, which under the Constitution is considered eminent domain. The other side of eminent domain is that they have to appropriately and justly compensate you for doing so. The PPP provisions of the CARES Act, and the small amount of other aid that they offered up, was not only a fraction of the overall dollars that were spent, but was a fraction of the overall dollars that were needed.
You have these two different worlds going on. One where we know at least by the middle of 2020 that hundreds of thousands of small businesses were murdered. They closed — permanently, shuttered, never coming back again. Millions more were struggling to survive. At the same time, you had seven technology companies in 2020 that gained $3.4 trillion in value. It was a record year for initial public offerings. It was a record amount of value that was raised through these SPAC vehicles. If you were big, if you were inside the club, if you had access to capital, you actually had one of the best years ever. At the same time, the smaller guys were struggling. This was all by mandate.
Why Small Businesses Get Hosed While Big Business Thrives
Bob Zadek 06:55
The important question to me is why? Small business, as you have explained in your book, accounts for approximately half of the business activity in the country. Small businesses are the engines of wealth creation. They employ lots of people. Now, the government responds only to political pressure. That’s how the government works. They don’t respond, as you said, on the basis of science or mathematics, objectively. Small businesses have a lot of people and economic power. Why were they totally ignored?
In comparison, there are lobbies like the South Florida sugar lobby — one family, which in effect dictates world sugar prices. They’re one family in one area of one state, and yet they have profound political clout. You spent your life as an investment banker in economics. You are not — to your great credit — a politician or a political operative. Help us understand what accounts for the lack of collective political power on the other, so that they didn’t get their share of the COVID goodies?
Carol Roth 09:09
There are two theses. If you go back to when the banks during the Great Recession took on too much risk, causing incredible havoc to the economy worldwide, they were told they were too big to fail. On the flip side, as we got to 2020, through no fault of their own, through government mandate, the small businesses were shut down.
Either they were too small to matter or they were too hard to control.
Whether you think that this is government incompetence, whether you think that this was nefarious intentions, or whether it is too difficult to navigate, it doesn’t matter because the outcomes are going to be the same. This goes back to the entire thesis of decentralization versus central power. About half the economy before COVID was in the hands of about 30.2 million small businesses — that is decentralization; that represents the free market; that represents freedom, choice, and transparency that we want to have.
“Either they were too small to matter or they were too hard to control.”
The other half of the economy is in the hands of about 10 to 15,000 big businesses. When you’re trying to get lobbying dollars as a politician, or get support for your campaign or try to move the needle, it is just frankly easier for you to deal with those fewer entities having so much power.
Either you can say that this was intentional — an opportunity to get rid of some of those small businesses and transfer wealth to the side of the economy that’s in the hands of a handful of businesses. Or you could argue that the politicians wanted to look like they were doing something. They made the small businesses cannon fodder. You can make a number of other related arguments, but it doesn’t matter. As we move toward central planning, you’re going to get more of that unholy triumvirate between big government, big business, and big special interest. That comes at a very big expense to our economic freedom and to the wealth creation opportunities for this country. We saw that play out in real dollars and cents over the last 17 months.
“As we move toward central planning, you’re going to get more of that unholy triumvirate between big government, big business, and big special interest.”
Bob Zadek 12:07
The reason the government has an inherent bias in favor of big business, and an animus against small business, is that small businesses do not speak with one mouth and operate through one mind. They are by definition, discrete — all over the place geographically, all over the place politically. They just want to be left alone. The small businesses of hairdressers and nail salons and gyms and restaurants do not sit around collectively scheming how they can get goodies from the government. They have a dream, and they want to make money and employ people.
Therefore by definition, they are the last vestige of entrepreneurship and free enterprise in America. Therefore, they are anathema to what the government is selling. As a result, the government finds it incredibly convenient to, on the one hand, reduce the number of players, and second of all, increase the power of the remaining players. Then the government can trade goodies for goodies with fewer players.
Looking at banking in America, which is the poster child for what Carol has just explained, we used to have 15,000 banks in America. Small towns all had their own privately-owned bank, not part of a national chain or operation but owned in the community. That doesn’t work if you want to control the economic economy. There are too many of them. Therefore consolidate power in JP Morgan and Chase and Wells Fargo, and Bank of America, then you only have to make three phone calls when you want to do something as opposed to making 50,000 phone calls.
The government loves the concentration of business, which is the natural enemy of small business in America. Remember her title, The War on Small Business. Wars are not accidental. They are planned. What is the goal of war? The acquisition of more power, whether it’s power over real estate or power over people, and the government wants power over business, and therefore, the natural enemy of that power is small business.
Dispatches from the Frontlines of the War on Small Business
Bob Zadek 15:26
Now, Carol, give us some examples of how COVID policies specifically — I’ll say targeted, whether it was intentional or not — clearly and directly harmed, and I’ll add irreversibly in many cases, small business because you tell those stories with such passion in your book. Help us put a human face behind the statistics.
Carol Roth 16:12
I’m going to start macro and then go micro into the story, because this is being done by the government on two levels: One that’s very easy to see, and one that is a little bit more opaque, but it’s probably as important. The first is obviously the picking of the winners and losers and the shuttering of the small businesses. If you shutter a small business, and somebody can’t spend their dollars there, they’re going to go spend them with the big businesses. We saw the Walmarts of the world and the Targets of the world and the Amazons of the world, who were allowed to stay open. Amazon is online, but they have a warehouse that was allowed to stay open, and delivery trucks and whatnot. We saw them gaining record revenues. There’s that revenue shift that’s direct.
The second piece, which not enough people are really tuned into, is what happened with the Fed intervention in the market. That is what really shifted so much power and so much value from Main Street to Wall Street because if you are a saver, or a retiree, or a small business that doesn’t have access to capital, you’re not benefiting. In fact, if you have money, you’re getting no return on your investment — you have to take on more risk to get the kinds of returns that you would have 10 years ago — while these big companies have the opportunity, not only to borrow at very low rates, and use that money to compete with these small businesses, but the valuation multiples in the market expanded. That’s how you have those seven tech companies gaining $3.4 trillion in value. There’s sort of these two different levels that are going on.
Now in terms of stories, I’ve heard so many that are so ridiculous, but one that came about that I just think shows the complete politicization that happened in your neck of the woods, out on the west coast in California, was Pineapple Hill Saloon & Grill. This was a local business that had been in the community for years. They were obviously shut down by mandate, but eventually the mandates came back and said, “you can do outdoor dining.” The report showed that they spent around $80,000 to comply with outdoor standards because they needed to be able to stay in business. They didn’t know how long this was going to go on for. In the parking lot, they transformed the outside of their business with all this money, so that they could have outdoor dining. Lo and behold, the city that they were in fell under the purview of Los Angeles, and said, “We’re going to shut down outdoor dining,” which again, was completely against the science, but let’s just put that piece to the side for one second. This entrepreneur who spent all this money complying was once again given another roadblock.
You’re asking yourself what’s going on? She went completely crazy, and she should have, because right when this was happening, a movie production got the green lights to not only go ahead with the movie shooting, but they set up a catering tent to feed the staff and the crew. Where did they set it up? 100 feet away from Pineapple Hill Saloon & Grill and right in the same parking lot. You’re gonna say, “How is it that you can’t have this outdoor dining but this movie company got the go ahead to have the equivalent of outdoor dining?”
Then it was found out that Gavin Newsom had dinner breaking his own mandates at the French Laundry. One of the folks in attendance was a lobbyist for the movie industry. Then you start to see all the dots being connected. There’s no science behind all of this. This is complete political tyranny.
Bob Zadek 20:40
Carol, I would have been disappointed if he didn’t surreptitiously sneak in a plug for Recall Newsom, even though that is not the topic of the show. You’ll gain five minutes of extra airtime on my show as a reward for doing. Thank you very much.
Carol Roth 21:00
We had a bracket tournament on Twitter to find out who was the worst governor in America for small business. By the way, the competition was fierce. I am happy to report that Gavin Newsom took the title as the worst governor for small business in America. If you need any more reason to go out and recall him, there’s another little piece for you.
Is America Capitalist Anymore?
Bob Zadek 21:30
Now, Carol, your book does some interesting and provocative analysis of the free market in general — more specifically, examining capitalism, and helping us play with the question, “are we a capitalist society today” given how we are mistreating small business and making it so hard for people to fulfill what is called by many to be the American Dream. Everybody tries to capture that wonderful phrase and apply it as they wish. One of the components is you can come here and with your own skill and grit, and investing your own money, you can build a business from scratch and employ people the way you want to do it. That is for sure part of the ethos of the American Dream. That can only take place in a bottom up capitalist society.
What is happening to small businesses in America? What does that do to the concept of who we are as a capitalist society? Are we losing it? How does it fit in with what we all think of as part of our founding DNA?
Carol Roth 23:52
Sometimes people who are resistant don’t have a good grasp of economics, and we have terms that have been completely bastardized. I go back to concepts and principles and give people tools to have these conversations to convince people who believe the same thing at their core.
We have a choice to organize an economy and freedom along a spectrum. On one side you have capitalism or free markets — freedom, choice, transparency with the guardrails of property rights. It’s very, very simple. It’s not even a system really — I call it an unsystem because nobody’s organized it, right? We’re just doing what we want to do freely by choice, and that determines the outcome. That’s the beauty. We have proven throughout history that it is the best way to create prosperity. As you mentioned, it doesn’t have to just be financial prosperity, although a lot of people attribute that as part of the equation. It’s also just the ability and flexibility to do what you want to earn a living. The fact that we even have that choice is a privilege. Many parts of the world where they don’t have the choice, they just have to think about survival.
On the other side of the spectrum is central planning. Whether you want to call it socialism or communism, or dissect it, I don’t think it really matters. The point is, you have a handful of people who are making decisions on behalf of the masses, and they are using force, they’re using control, they’re using coercion, and usually much of this is very opaque. That’s the part that we care about. We don’t really care about the name.
It really has accelerated in the last 20 years, and then the last 17 months has been insane. If you look at the amount of government spending, if you look at the parts of the economy that the government has, in effect, nationalized, like the student lending business, if you look at the number of laws, if you look at the purview of the things that government is now involved in making decisions, instead of us making them freely as individuals, you would argue that we were in definitely, at least a hybrid centrally-planned economy.
If you look forward into the immediate future, the $3.5 trillion budget framework that is currently being proposed, that just came out of the Senate, takes us further in that direction. If you take all the things that happened over the last 17 months — the stimulus checks, the enhanced unemployment benefits, now you’ve got proposals for expanding education to pre-K and “free tuition” for community college that is walking people into universal basic income — that is walking people into more government control.
They’re proposing lowering the age for Medicare and expanding the benefits. That’s trying to move us towards Medicare for all. All of these things that are being done and have been done over the last 17 months, are, in effect, trying to consolidate more and more power. What it’s doing is limiting the wealth creation opportunities. It’s harder to succeed in a business, it’s harder to succeed in the stock market without taking on more risk, certainly harder to be a retiree or a saver, without “government help.”
The Fed is destroying the dollar. You’ve got all of these things that are limiting wealth creation opportunities, that have been orchestrated by the government. At the same time, when they are generously offering you a lifeline, “Oh, we’re going to be there to help”, what people forget is that the government doesn’t do anything productive. It’s not their money. It’s the money we pay as the individual taxpayers or it’s them printing money out of nowhere that basically either decreases the value of our dollar today or takes on debt that has to be paid back by us eventually. At the end of the day, we’re paying one way or another. We’re just adding a sort of mafioso-like middleman in the middle of all of this. That is really the big threat to our economic freedom, the overarching message of the book.
Property: The Lynchpin of American Capitalism
Bob Zadek 29:32
If listeners carry away one message, it’s your summary of what a free market system is like, with protection of property rights being the guardrail by which people can trade. There’s so much wisdom in that one sentence that you mentioned, Carol. When third world countries want to become more economically significant, they almost invariably, if they are motivated in that direction, ask the United States and other parts of western Europe to help them build a stronger economic system. The first place they start is to build a system where we protect personal property.
It’s only with protected property rights that any economy can grow because you will not spend money to try to build a productive activity if what you built can be taken away on a moment’s notice by the government. It is the protection of property rights that is crucial. As property rights diminish, the economy becomes more fragile. You share that message so powerfully in your book. That itself ought to be the lodestar by which we guide ourselves: protect property rights, and the economy will prosper.
Carol, during COVID what happened to property rights? You explained beautifully in your book in discussing the COVID era, how property rights became cheapened. When property rights are cheapened, we are saying freedom has become cheapened and devalued. Once that happens, there’s no coming back. Expand upon that if you would, Carol, or disagree with it.
Carol Roth 33:13
A lot of people come to me and say that the government grants you property rights. No. You’re endowed with rights by your Creator. That’s what makes it a right. The government’s role is supposed to be to protect those property rights — to help you do so and create a system to ensure that your property rights are upheld, and instead, they were the primary infringer upon those rights. You obviously saw things like you couldn’t travel interstate to your home. You saw that you couldn’t go to church. The shuttering of small businesses, and saying that you could not use your business that you had built, obviously, is the biggest one that was out there. If they had given appropriate compensation for that, even though it’s again our money and is an ideal, at least it preserves that principle, but that was completely thrown out of the window. Small businesses got crumbs, and they did not get what was due compensation. There are several organizations that are actually taking up class action lawsuits finally, on behalf of small businesses who are suing their states and their local jurisdictions over this very thing so I’m a little bit heartened to see that. You’ve seen it.
More recently in this CDC moratorium on evictions, you have a health agency making mandates about the economy and saying that a small landlord cannot evict tenants, even though they may owe you all kinds of money. There again, we’re seeing the infringement upon property rights in a way that is unconstitutional. The more that the government is able to just completely sidestep the Constitution, the less the Constitution retains any value. It’s a set of principles. It’s a piece of paper. It’s a guiding force. If we all don’t buy into that and ensure that that’s upheld, then do we really have that Constitution? Do we really have those protections that make the United States the unique example of what you know as protecting individual rights in the world? That’s the really scary part. You have this decimation of individual rights, including property rights. You have an increasingly powerful government. You don’t have enough people to say no. That was the craziest part to me. We were starting to get some of these lawsuits, but you didn’t have enough of the small business owner saying no. That’s why I highlighted folks like Shelley Luther from Texas or Atilis Gym in New Jersey that basically said, “I’m sorry, you don’t have the authority to do this.” I’m going to go ahead and do what I have the right to do. We just didn’t have enough entities willing to do that.
The Eviction Moratorium: An Impeachable Offense?
Bob Zadek 36:54
Give our listeners just a little bit of background about the eviction moratorium. It’s a moratorium, which is an economic measure imposed by a bunch of doctors who couldn’t make it in private practice, so they went to work for the government. The government needed to protect an important constituency, renters. There are more renters than landlords, and renters are more powerful.
The way they decided to do it, as they met in their sinister backrooms, is let’s prevent landlords from evicting tenants who don’t pay their rent. Somebody else no doubt said, “What a great idea!”
Then somebody else in the room in my hypothetical storytelling said, “Wait a minute, we don’t have the power to do that. Why do we not have the power? Let’s find the power.”
They dusted off some quite old statute, which empowered the CDC to take all steps necessary to prevent the spread across state lines of a communicable disease. Then the statute went on to say that this included things such as killing the rats and quarantining people who are sick — all of the usual stuff that anybody listening to this show would have included as a sensible health measure. CDC said, “Since we can take all steps, including blah, blah, blah, all steps are unlimited. Therefore, as doctors let us reason that if people are evicted, they’re going to be in the streets, and they have to find a place to live. Everybody who’s evicted from New York might very well move to New Jersey, it’s only a train ride. Therefore they are going to take their COVID infested bodies that just got evicted, and they’re going to bring the COVID to New Jersey.”
“That works,” say the doctors. Therefore the CDC became the only congressional constitutional justification for a nationwide moratorium on evictions. Now who got hurt? Landlords are not all Donald Trump. It’s also small businesses — lots and lots and lots of small business in America. They are, to borrow a phrase from Frederic Bastiat, the “unseen,” but they have been damaged. Now they lose their rental income and can’t pay their mortgage. Tough luck. You take a hit for the common good. That’s another example.
The war on small business is not hyperbole, it is actually going on. Once again, the small businesses who own rental real estate are invisible, and they are the victims. They are the cannon fodder — the road kill of the government’s war on small business.
In my opinion, President Biden is committing what is arguably an impeachable offense. Here, we haven’t heard the word impeachment for about six months. Biden has said, “I know it’s probably unconstitutional. It takes us a while to get slapped down in the courts. Let’s run with it for as long as we can.”
Carol Roth 42:14
That violates his oath of office to uphold the Constitution. We had the Supreme Court basically say, after July 31, that he can’t do this because it is basically unconstitutional. They said, “We’re not going to strike it down just because it’s about to expire.” He had all of these constitutional scholars to say that this doesn’t pass muster. Then he said the quiet part aloud. They used to be quiet about this. Now they’re just throwing it out there.
“I know it’s not constitutional, but we’re gonna go ahead and do it anyway.”
The kinds of things they’re just willing to throw aside, namely the Constitution, should be horrifying to everyone. I want to go back to what you were talking about with the eviction moratorium, and the small businesses not being able to pay rent or mortgage, or maybe just not wanting to deal with the headache. This goes back to the larger thesis of the consolidation of wealth and power. The small landlords give up, or they don’t pay or whatnot. Who do you think is stepping in to buy these properties and to replace them? It’s these big companies that are flush with cash from the Fed. Whether it’s BlackRock or different kinds of private equity firms, and even pension funds — they’re coming in to compete not just with small landlords for rental buildings, but also with individuals for properties. It goes back to these roadblocks to wealth creation opportunities. They don’t want you to be financially successful. They want you to be on the government dole, and they want the people who are in the club to be able to consolidate all of that wealth and power. That is the underlying frightening thing that is going on right under our noses that not enough people are screaming about.
The book is to educate people so you can start seeing these things, because wealth creation opportunities, economic freedom, and overall freedom hangs in the balance.
Hey, Government, Lose the “We”
Bob Zadek 44:37
In your book, you remind us that the government mantra was, “We are all in this together.” As you point out, how cynical that phrase became in the carrying out of the so-called policy of lockdown. How contradictory was the concept as you have explained in your book, “we’re all in this together,” with the concept of lockdown, which was hardly all of us.
Carol Roth 45:18
This is the big gaslighting lie. If you go and talk to somebody who believes the policies were appropriate, the first thing that they’re going to tell you is that lockdowns were important because we have to save grandma. We all had to pitch in. People believed that we actually locked down everybody and that we were all in this together. The reality is that we locked down about a third of the economy. Mostly that was done by mandate, and the burden almost entirely fell on small businesses.
If you had locked down Walmart, if you had locked down Target, if you had told Amazon, “I’m sorry, you can’t have your warehouse open, and you can’t do deliveries,” if the Fed had not propped up the stock market and reversed that huge dive that started at the end of February and continued into March before the interference, and all of these big players were really feeling the pain the way that the small players were, there’s no way that these lockdowns would have lasted even two weeks. Those with the power would have been screaming and saying, “We can’t do this.”
The fact of the matter was that they got the golden tickets, they got the free pass. As we talked about in the beginning of the program, in many cases, they were getting the dollars directly from the small businesses that were shut down, as well as this Fed intervention that was doing nothing but juicing the valuations of their stock. They loved it.
I keep saying, there are a lot of very powerful people who don’t want this pandemic to end.
We keep hearing about the delta variant and the lambda and omega and the alpha male, and whatever it is that they’re coming up with, because it was just a power grab. Anybody who says that they were in full lockdown or that we’re all in this together… that’s one of the first myths that we have to push back on. It’s important to document these things in reality before the entire narrative has changed in the media.
“I keep saying, there are a lot of very powerful people who don’t want this pandemic to end.”
Bob Zadek 47:45
COVID is the petri dish — the fertilizer by which power is accumulated is fear. As soon as large numbers of people become fearful, it is natural to look around for an institution or a person to offer a cure for the fear.
The government is perfectly happy to come in and offer that solution. COVID created a fear for which the only help people believed was not themselves, not their own resources, and working together and making intelligent decisions, but some wise people far away in government.
Right before my show I heard Dennis Prager use the phrase “as we return to normalcy…” I found that to be naïve. What do you think is the new normal? What should we be alert to and press for last when the abnormal comes to normal?
Carol Roth 50:00
I don’t see any return to normalcy because we continue to move on the spectrum towards more central planning and the laws and the spending and the proposals and the programs that are being put out at a rapid rate, are continuing to rapidly transform that landscape and move us further away from economic freedom. We always have to remember that economic freedom is the best path to prosperity. Nobody’s going to get wealthy other than the politicians and their lobbyists friends, being on the government dole.
The system is broken. We’ve created a Frankenstein monster and we need to get, at a minimum, the right people in there to start disabling that monster. We should also be doing everything we can to vote with our dollars and support those decentralized small businesses and stand in the way of more power consolidation.
Bob Zadek 51:05
This is Bob Zadek. I was speaking to Carol Roth, who has just written The War on Small Business. How can our friends out there follow you, Carol?
Carol Roth 51:17
The best way to connect with me is on Twitter @caroljsroth. If you like economic freedom and have a slightly warped sense of humor, you will enjoy it. The War on Small Business is available everywhere, but get it from your local bookstore or go to a bookshop that orders them. I’m a capitalist, you can obviously buy it wherever you want. If you liked this discussion and you want to support decentralization, again, think about how you spend your dollars.
Bob Zadek 51:43
Carol, thank you so much for sharing your wisdom. The book is a very important book and you tell it with a style that makes it impossible to put the book down.
LINKS:
- AMAZON: The War on Small Business: How the Government Used the Pandemic to Crush the Backbone of America, June 29, 2021
- Biography | Carol Roth
- Carol Roth (@caroljsroth) / Twitter
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