This column from Louis Hernandez, Jr., originally appeared in The Ohio Community Banker, which can be found here.
To some, the American Dream may seem like a quaint idea from a bygone era. But as a self-made entrepreneur, and the son of parents who came to America searching for and finding opportunity and success, I can attest to the truth and power of the American Dream. The opportunity to pursue advanced education, career growth, entrepreneurial passions and material comfort based on ambition and hard work rather than race, class, or background have not only made the United States a preeminent world power, but a model for the nations everywhere and a beacon of hope for generations of people like me.
Our political leaders have long championed the American Dream. Yet right now, it is our own policy makers who are slowly killing it. The American Dream is being buried under the cumulative weight of regulations that are making it harder than ever for individuals to start and run the small businesses that provide jobs and impeding the ability of community banks to support these businesses.
The U.S. economy is tracking $2 trillion below where it should be, even after 11 consecutive quarters of positive GDP growth. In addition to the regulatory environment, community banks are challenged by low loan demand from over-leveraged consumers who are unwilling to borrow. But we cannot pin our economic struggles on consumers, whose fears are warranted with the current unemployment situation.
Excessive regulations consume valuable business resources and increase costs, making a robust job market impossible. At the same time, toughened lending standards and capital constraints put in place since the financial crisis are preventing community banks from providing small businesses with the credit they need to grow and hire employees. Let’s be honest: the American Dream needs jobs. When jobs are abundant in America, opportunity exists and consumer confidence is high, creating strong economic growth and long term stability.
It is a simple equation:
- 70 percent of U.S. economy is consumer spending
- Consumer spending is directly correlated with jobs and employment
- More than 65 percent of new jobs created by entrepreneurs and small business
- Main Street community banks provide almost 60 percent of loans to these small businesses
It is not just regulations affecting small businesses and community banks that are killing the American Dream. Key government policies that over-facilitated the attainment of the American Dream and weakened the ambition of the American people are also to blame. Housing policies, interest rate policies and easy credit made the American Dream almost too easy to achieve and drove us inexorably toward the 2007 financial crisis. Sadly, the policies put in place since the financial crisis not only failed to address these core problems, they also created a disconnect between Wall Street and Main Street that is now making things much worse.
The Wall Street recovery isn’t being felt on Main Street. In fact, when it comes to the economy or personal financial security, small businesses and American consumers are not feeling positive at all. They believe they have been left out in the cold. While earnings for large corporations surge, the unemployment rate remains at a 70-year high. Household income, when adjusted for inflation, has been basically flat for 35 years. And the five biggest U.S. banks emerged 20 percent larger after the financial crisis than they were before, while the number of smaller financial institutions has dwindled.
Policy makers seem oblivious to the disadvantages community banks face in complying with the demanding regulations introduced since the financial crisis. Historically, the cost of regulatory compliance as a share of operating expenses is two-and-a-half times greater for community banks than for large ones. Additionally, while large banks have extensive access to capital and numerous sources of income to cover increased compliance costs, community banks have limited access to capital and considerably fewer sources of income, as they focus on the basic needs of their communities.
This is not the economic environment needed to sustain the American Dream. What is needed is an environment where rewards come from hard work rather than financial legerdemain, where those who want jobs can find them, where people feel secure about the jobs they have, and where the small businesses that employ more than 70 percent of the workforce can access the credit needed to grow and expand.
The road to economic recovery begins and ends with Main Street America, and the backbone of Main Street is community banks. Community banks disproportionately loan to small businesses, providing a foundation for the creation of new enterprises, new jobs, new opportunities and, most important, strong economic growth and long-term stability.
Policy makers need to stimulate economic growth by supporting community banks, not stifling them with burdensome regulations. The financial services industry needs to comply with nearly 400 new rules mandated by Dodd-Frank, which it is estimated will result in 2,260,631 labor hours and approximately $866 million in direct costs for the industry.
Small businesses face similar compliance hurdles. Today, there are 845 federal regulations directly affecting small businesses, an increase of 22 percent since 2009, and the highest number ever recorded. As the Small Business Administration notes, complying with these regulations costs firms with 20 or fewer employees $2,830 more on a per employee basis than it costs firms with 500 or more employees. Again, not fair…and killing the American Dream.
To save the American Dream, we first and foremost must relieve the disproportionate regulatory burden that has been placed on our Main Street businesses and banks. These regulations are preventing us from creating new opportunities and fulfilling our economic and social potential. We must also create new policies that reconnect with the core tenets of the American Dream: where hard work, responsibility and ambition – and not entitlements – enable anyone to pursue the opportunities they seek for education, enterprise, home ownership and financial self-sufficiency.
Finally, we must strengthen our individual resolve as citizens, recognizing that the American Dream has been co-opted by other nations that have used its principles to become strong competitors economically, educationally and entrepreneurially. We are at a crucial juncture in America’s history and we must do more to prevent further legislative threats to our existence. For example, I have started a movement to Save the American Dream that challenges our policy makers to repeal or revise regulations that have undermined our Main Street businesses and community banks, stifling economic growth. I ask everyone to join this movement and sign the petition at www.SavingTheAmericanDream.org so that we can deliver this important message to The President and Congress after the November elections.
There are obstacles in the road ahead, but also opportunities that offer great promise for the future. We cannot afford to be outdone when it comes to the American Dream. We must continually fulfill its promise or risk a legacy as the land of lost opportunity.