By Jon Miltimore
This week FEE sat down with Carol Roth, an American entrepreneur, TV personality, radio host, investor, and bestselling author.
Rothís latest book, The War on Small Business: How the Government Used the Pandemic to Crush the Backbone of America, examines the governmentís response to the coronavirus pandemic in 2020, which triggered the sharpest economic collapse in American history.
In a wide-ranging interview, we talked about the winners and losers in the 2020 pandemic, lockdowns, and how the American Dream can be saved.*
First, what made you decide to write this book? What led you to realize that this book was needed?
ROTH: Iíd written a book ten years ago called The Entrepreneur Equation. It was about all of the risks you take on as a small business owner and how difficult it is to be a small business owner. So I was highly aware of the plight of the small business owner. Little did I realize that the government shutting them down and taking away their business by mandate while leaving their big competitors open was actually their number one risk.
So HarperCollins approached me early in the pandemic. They knew this was going to be historic economically in some way, shape, or form. They wanted someone who had deep economic knowledge to be able to give a fair assessment and get into the nitty gritty, not something based on high level talking points.
So like a crazy person I said, ďOh, that sounds like fun!Ē
Did anything surprise you during the process?
I didnít realize at the time this was going to be the herculean task that it was. Obviously things were unfolding in real time, information would dribble out and Iíd have to piece it together. So I kind of wrote three and a half different books during the pandemic (laughs).
Ultimately, I knew small business was going to be a big part of the story. I didnít realize the extent to which it would involve government picking winners and losersónot based on data or science but purely on political clout and connections. Government enabled the most historic wealth transfer weíve seen in our lifetimes from Main Street to Wall Street.
We were the first person to market really making this case. So we were really excited. Unfortunately, itís largely falling on deaf ears. Itís striking to me that no one is talking about this.
You write that government bureaucrats have been looking for the chance to destroy small businesses for years. Why would government declare war on small businesses? As you point out, they are in many ways the backbone of the US economy.
It sounds counterintuitive until you get into the details and see how the government has been slanting the playing field towards big businesses and away from small businesses for years via regulatory capture, anti-competitive regulations, tax structure, and so on.
As I write in the book, really whatís happened over the last twenty years or so is that weíve moved away from free market capitalism toward central planning.
Many people today would say America is a capitalist country. You seem less sure.
I specifically use the term central planning because I donít want to get caught up in terms like socialism and communism and democratic socialism. It doesnít matter. Itís a handful of people who are making decisions for the masses using force and coercion and control. That always benefits the people in the ďin club.Ē
If you think about the way the economy is builtóand most people donít think about itóitís basically split in half. Half of it is very decentralized and looks more like a free market. Before COVID, it was about 30.2 million small businesses that accounted for about half the GDP and half the jobs and represented about 99.9 percent of all business entities. This half of the economy is very hard to corral and get lobbying dollars from and so forth.
The other half of the economyónext to these 30.2 million or so businessesóyou got 10,000 or 15,000 big businesses. If youíre trying to centralize power and make the government more powerful and increase its purview and spending, what are you going to do?
Are you going to focus on the half thatís easy to work with or focus on the decentralized, independent 30.2 million?
When you start thinking in that direction and looking at what theyíve actually done, you just ask yourself: If you were intentionally trying to do this to small business, would you have done anything differently?
You write in the book that even before the pandemic arrived central planning was here and wreaking havoc on the US economy. What kind of havoc. Do you have some examples?
Obviously it depends on your perspective of what you think havoc is, but if you look before COVID, governments at all levels were spending somewhere around $8.1 trillion. Thatís insane.
If you look at the number of laws passedóthe numbers are cited in the bookóitís more than a million over a fifty-year period. That doesnít even include the last 20 years. More recently youíve had 12,000 or 15,000 laws passed at the state level and 15,000 federal regulations passed.
If you look at these laws and how theyíve disrupted wealth-creating opportunities for the average American, itís very real. Theyíve made it harder to get appropriate health care. I know people will argue about the ACA, but I can tell you most people are paying more and getting less. Itís become harder to generate wealth in the stock market or even off a money market because the Fed has disrupted risk in the market. Itís become more expensive and difficult to purchase a home and create a small business.
These are all the ways that people create wealth in this country. If youíre disrupting wealth creation opportunities for the average American and youíre building this Frankenstein behemoth that is increasing its purview and doing everything inefficiently and ineffectively, thatís havoc in my opinion.
(laughs) You know, Iíve given this a little thought.
Letís talk about lockdowns a minute. At FEE, we spent much of the last year writing about the unintended consequences of lockdowns, which have been severe. Iíll ask you point blank. Were the lockdowns the right move?
We didnít have lockdowns. This is the big issue. We didnít have liberty and we didnít have lockdowns. We targeted individuals who were deemed ďnon-essentialĒ and locked them down. But we had a whole host of individuals and businesses who were declared ďessentialĒ by politicians. Whether it was an Amazon warehouse or a weed dispensary that had been illegal just a few years ago, we all had these businesses that were magically declared essential.
So we didnít have lockdowns. We didnít have everyone sharing equally in the pain. And because of the Fedís actions, we didnít have sustained pain the market. So I canít say if the lockdowns were the right move, because we didnít have one.
If your strategy is to do this to just part of the peopleóbased on whim, not scienceóthen you need to appropriately compensate them. And to that point, itís not like we didnít spend $6 trillion, we just didnít spend it on the people who deserved due compensation.
Letís talk about that. You write that when the federal government stepped in with its ďassistanceĒ during the pandemicó$1.9 trillion CARES Actóit clearly favored the wealthy and well connected. You offer numerous examples. The Kennedy Center got a $25 million grant (even though it furloughed most of its staff). The countryís wealthiest universities were allocated millions of dollars even though they had multibillion dollar endowments.
Why was so much of this money flowing to the Kennedy Center and universities and not to small businesses that were ordered closed?
Cash for cronies. This is the whole issue. When there is an opportunity to do the right thing, the people are not angels who are going to organize society for us, as Milton Friedman quipped.
They are power-hungry, greedy individuals who are going to give favors to the people that they know. And they never let a good crisis go to waste. Thatís what we saw last year.
The Kennedy Center had hundreds of millions in assets. It received all kinds of funding, this random arts center for the hoity toity. And they werenít even open! They were given $25 million and one of the stated reasons was deep cleaning of the building? Are you kidding me?
Itís funny, but itís not funny. Same thing with the universities, who by the way already get tax advantages and have been able to drive up their prices because of the government effectively nationalizing most of the student lending business. They had already been paid for the semester by their students. They were losing zero revenue and had a lower operating cost structure because no one was there. Frankly, they should have been refunding their studentsí money, not receiving money from us.
The worst part is that nobody reported on it. I tried to keep this on the DL because I donít want to get targeted, but I was the one who brought up the Harvard thing on Twitter that went viral and eventually forced them to give the money back.
One of my followers brought the table to my attention. I started making it a big deal that Harvardówhich I always call a hedge fund with a university attached to itógot millions of dollars for nothing. They didnít have to jump through hoops or do anything. They were just gonna get it handed to them.
Meanwhile, my local dry cleaner, pizza parlor, and hair dresser were duking it out with everyone over what was a couple hundred billion dollars. What does that say? You tell small businesses theyíre non-essential, and then you back it up with how you allocate the money.
Itís the government picking winners and losers. It always works out well for those who are connected. It doesnít work out for those who arenít in the inner circle.
It was recently pointed out that the top 1 percent in America hold more wealth at any time in history since the Federal Reserve has tracked the statistic. Are you suggesting itís not a coincidence this happened during the greatest expansion of government in modern history?
Their increase in wealth closely matches what the Fed has printed over the last twelve to fifteen months! Itís no surprise, but it comes at the expense of Main Street and the average American.
You as a saver or a retiree are earning next to nothing on your savings that are being lended out and then multiplied by free Fed money to give to big companies who are using that to get a competitive advantage and get bigger. I talk in the book about how the money is used to prop up zombie companies that probably shouldnít even exist anymore. Itís all to the detriment of innovation and small businesses and fair competition.
Black Rock going in and buying up residential housing is a direct result of these policies. Artificially low interest rates that need to go and find yields because risk has been completely disrupted, and all of this government money is coming to compete with the average American.
As far as the 1 percent, Iím a free market capitalist. Thereís always going to be a top 1 percent. I donít care. If you innovate and the market determines you should get all this wealth, great! But I have a huge problem when that comes as the result of government mandate and action.
During this spending bonanza, untold numbers of Americans who owned small businesses were being crushed. Weíve all seen the Yelp figures, but those only scratch the surface. Do we have any hard data on how many small businesses went under over the last 15 months?
Different sets of data say different things. The Biden administration has said more than 400,000. We know thatís a floor for sure. They wouldnít say it if it was less than that.
That figure was reported by Opportunity Insights and the Hamilton Project out of Harvard in June 2020. I know for a fact that many small businesses have closed since then.
The Opportunity Insights data also say 38 or 39 percent of all small businesses across the country have closed permanently. I do not believe that figure is correct. But it could be true of employer small businessesóthat number was 6 million of the 30.2 million small businesses pre COVIDówhich would put the total at about 2 million.
I donít think people really understand how staggering that is. And that number is going to be obfuscated because an epic number of small businesses were also started last year.
I donít know about you, but I had a good year in 2020. Stocks were great. Value of my home increased a lot. A lot of people like me did really well. How do we convince these people that what government did in 2020 was really bad?
You have them read The War on Small Business (laughs). Thatís why I wrote the book.
Look, weíve seen what Iíve called an E shaped recovery. A capital letter E has three tiers. This very top level just killed it; they consolidated wealth and power and value. The bottom tier did not do well. Itís not okay to say, ďWell, Iím not in that part, so I shouldnít care about it.Ē
It was done by government choice. This isnít the natural outcome of someone not working hard or making the wrong decisions. This was by choice and by mandate. That is scary.
And what if you donít get the golden ticket next time? You need to care about these principles. If you give up on the principles, theyíre just going to move everyone toward socialism and the government mandates and soon there will not be wealth creating opportunities in this country.
Weíll turn into France or the UK, and thatís the best case scenario. The worst is we turn into Venezuela.
Was there someone you interviewed or a story you heard that drove home just how damaging lockdowns were for families that owned small businesses?
Two stick out. Iíll share the less grim one first.
I live in Chicago. Thereís a place called South Port Lanes. Itís in the Lakeview neighborhood.
Itís a bar that had been in Chicago forever under a couple different names. It was a year away from celebrating its 100-year anniversary. It survived Prohibitionóas a bar. But it could not survive the mandates and the long tail effects of the mandates. Itís closing after nearly a hundred years as a bar. That gives you the scope of this.
And the other one?
Right. This one broke my heart.
Thereís a gentleman who Iíve known for a long time. He had a friend who cleaned carpets in northwest Chicago. His business was one of the first forced to shut down and he didnít qualify for PPP because heíd had some debt issues in the past. He was in a bad financial situation and he turned to drinking more. He ended up taking his own life.
It was a direct outgrowth of the mandate and not getting the compensation. That shifted his life. And by the way, there are many examples like that. I just happened to know a guy who was friends with this individual.
Thatís what people donít understand. When someone has a business and they risk their own money, a lot of times it becomes their identity and their reason for being. And how are they treated?
Youíre told first, ďYou didnít build that.Ē Then youíre told youíre not ďessential.Ē What does that say to people? How is it that weíre supposed to be the bastion of free markets and the American Dream and you got the government coming down to the place where businesses are built telling people those kinds of things? Itís disgusting.
And frankly the organizations who should be standing up for small businesses just werenít there.
You write that decentralization is the key to saving small business and preserving American prosperity. How does that happen?
It happens with people pushing back. Youíre seeing the movement organically. Youíre seeing people start businesses. Youíre seeing workers turn to gig work instead of corporate work. Youíre seeing people turn to cryptocurrencies instead of trusting the Fed and the government. Youíre seeing media creators turn to the creator economy and to report and share outlets on different platforms outside the corporate press.
People are naturally doing all this. Consider how you spend your dollars. We have choice in how we spend our dollars, and I think people should also really consider that. I saw a statistic yesterday that said 85 percent of back to school shopping is going to be done on Amazon. Thatís a choice people can make or not make.
We have some responsibility to vote with our dollars. We have some responsibility to stand up to bad legislation.
Iíve been telling small business owners to sue. I think we need to say, you used eminent domain to subjugate our rights. We didnít get appropriate compensation. Pay us. If we donít challenge this unconstitutional behavior, weíre going to have more of it.
Letís talk about you a little bit. What was your process for writing the book?
Iím super anal retentive. So I took my deadline for the manuscript and gave myself a buffer of a month. Then I broke it down and said, how many words do I need to write each day to make sure I get my work done.
I did have a couple people helping me with research. But then you have to go back and verify all that.
Overall, it was a pretty methodical approach.
Final question: Itís March 2020. Carol Roth is president of the United States. Does Dr. Anthony Fauci keep his job?
Nope. In fact, Anthony Fauci probably wouldnít have had a job to begin with. And he definitely doesnít get on TV to do the whole little tour to begin with.
*Editorís note: This interview has been edited and condensed for clarity and brevity.