America is a country made for and often by entrepreneurs. An economic downturn in some ways represents the best time for these individuals to start a business. Fear is high, but the costs of founding a company are low. Yet, according to the Kauffman Foundation, during this most recent downturn the number of start-ups dropped a staggering 27%. To Washington Post columnist Robert Samuelson, the reason is simple: Even the entrepreneurs are afraid.
This deep-set fear, a "let's wait and see" sort of risk-aversion, is dangerous because it puts in jeopardy the job creation and innovation that are the hallmark of start-ups. Samuelson looks at consumers, corporate managers, small-business managers, and investors and sees the same story of fear:
"'Risk aversion' — understandable for individuals and firms — has become a collective curse. When everyone is super-cautious, the result is stagnation or worse. Imagine an economy doing just slightly better: Consumers work off some pent-up demand; stock prices are 10 percent higher; companies channel $200 billion of their cash to new products or plants; entrepreneurs nurture 10 percent more start-ups. A stronger recovery would be self-sustaining."
Today's risk-aversion is a product with many sources, from high debt burdens around the developed world to that foreclosure letter that just came in the mail. Ultimately, fear is personal and infectious; it feeds on itself as it joins together a multitude of factors across markets, ultimately turning into the widespread retrenchment that we see today. Risk-aversion needn't outline a path toward stagnation. The tide of fear can wash away as fast as it came in, and consumers and businesses are busy working off the excesses of the past. As Samuelson concludes,
"Many real devils stalk the economy: housing’s collapse; Europe’s debt problems; persistent budget deficits. This is no time for happy talk. But acute risk aversion is a self-inflicted wound. Franklin Roosevelt was right: What we have to fear is fear itself."