The War on Small Business

How the Government Used the Pandemic to Crush the Backbone of America

Carol Roth

For years, government bureaucrats have been looking for ways to destroy small businesses. With coronavirus, they finally had their chance.

 In 2020, the American economy suffered the biggest financial collapse in history. But while Main Street suffered like never before, the stock market continued to reach new highs. How could this be? The answer is that government had slapped oppressive restrictions on small businesses while propping up Wall Street and engineering a historic consolidation of power and wealth.

This isn't a new problem. During the last financial crisis, Washington bailed out large banks, saying they were "too big to fail." When the federal government finally pushed out the CARES Act in 2020, it clearly favored the wealthy and well-connected, showing that small businesses were too small to matter. People across the political spectrum constantly complain about the tyranny of big business, and they're not wrong. However, too many think government is the solution. In reality, government is the problem.

In The War on Small Business, entrepreneur Carol Roth unveils the many abuses of power inflicted on small businesses during the COVID-19 pandemic. Small business owners were thrown in jail for trying to make a living. Individual rights were discarded. Big government did what it does best—intentionally protect the rich and powerful.

This is the most underreported story coming out of the pandemic. The government chose winners and losers, who would thrive and who would fight to survive, based on not data or science, but based on clout and connections. This enabled the government, with the aid of the Federal Reserve, to oversee the largest wealth transfer in history from Main Street to Wall Street. The issues started long ago and continue today with a highly tilted playing field that favors those "in the club" to the detriment of the average Americans.

This book is about the Davids vs. the Goliaths and the decentralization that can help the small, independent businesses and individuals participate in wealth creation.

If Americans don't wake up and stop it, politicians will continue to produce policies that intensify their war on small business and individuals and all that stands in the way of centralized power and control. 

Chapter 1

The Government Black Swan

An Unpredictable, Unprecedented Pandemic Reaction

“Black swan” is a term often used in the world of investing, popularized in a book of generally the same name by the noted author, professor, and former Wall Street quantitative trader Nassim Nicholas Taleb.

The phrase has been adapted in popular culture to talk about major, unpredictable, yet very severe events that ultimately have a grave impact.

In early 2020, I went on Cheddar, a streaming financial news channel targeted at millennial investors, to talk about the size of the US debt, earnings, and the possible impacts of the new coronavirus on global markets and the Chinese economy. The anchors asked me about my biggest concerns. I replied that one of the things that could most significantly impact the market was a black swan.

A short while later, a black swan hit America.

Though many people will argue that the black swan was the coronavirus, it was not. Though the particular strain of the virus was not known previously, other coronaviruses had existed. And though we didn’t expect a pandemic in 2020 per se—it wasn’t on my upcoming events calendar, for certain—many high-profile people, from scientists to Bill Gates, had been warning of and planning for a pandemic for years. In fact, the federal government had run a several-months-long series of pandemic preparation drills across a dozen states just the year prior.

Taleb, who was “irritated” about people calling the virus a black swan, told Bloomberg Television in late March 2020, “‘The Black Swan’ was meant to explain why, in a networked world, we need to change business practices and social norms—not . . . provide ‘a cliché for any bad thing that surprises us.’”¹

Because it was not a black swan, preparation for the virus could be undertaken. In fact, Taleb, who focuses his research in part on probabilities, coauthored a paper in late January 2020 saying that the virus’s growth would likely be nonlinear and that behaviors such as what we now know as social distancing were prudent to take early on.

In his Bloomberg interview, he further said that governments “did not want to spend pennies in January; now they are going to spend trillions.”

Though the pandemic itself was not a black swan, an actual black swan was born in its wake. What was that? The US government’s reaction to the pandemic. The unprecedented decisions resulting in a historic, ongoing shutting down of a large part of the economy by direct order—that was a black swan. Nobody saw that coming. Government hadn’t taken actions like that for other recent viruses; even in January, no one had been looking at the Chinese response and hoping to import it to the United States. In an era when information, technology, and resources are plentiful, no models or pundits were saying that at some point, the government’s reaction would be to force people to stop working and doing business, let alone for months on end.

Yet the government did just that.

In terms of the virus, the government had a few paths to take. The first was early containment and eradication of the virus. That was blown by big government via a combination of arrogance, red tape, and typical bureaucratic confusion and inefficacy.

The second path was moving toward herd immunity, whether naturally or in conjunction with a vaccine. With vaccines known to take a long time to develop, even on an accelerated schedule, herd immunity via vaccination was not a near-term solution.

The final option was to suppress the virus.

The federal government suggested that people pitch in for just about two weeks—fifteen days—to ensure that hospitals wouldn’t become overrun treating the new virus. Governors across the country mandated people to stay home and businesses to close. They locked down individuals and the economy. That is, unless they deemed your business “essential,” leading to a game of the government deciding who would thrive and who would fight to survive.

Let me be clear: there was no full lockdown. In fact, there was no lockdown for large parts of the country, even in states and cities with a lockdown mandate. Notably, if you were a big or otherwise well-connected company, you were likely to get the nod to stay open, even if a competitive small business a few hundred yards away had to close.

The suppression “plan”—I put it into quotes because it was hardly a plan—was to lock down some people and businesses, not based on age, vulnerability, or other epidemiological evidence but at the government’s whim.

There was no clear discussion of or communication about what length of time, cost, or other collateral damage would be acceptable for a lockdown strategy.

Fifteen days turned into hundreds of days with little reversal of course. The virus wasn’t fully contained, and the costs—financially, individually, socially, and otherwise—were enormous and imbalanced.

Once lockdowns were initiated, those who were most vulnerable and needed the most protection received the least care. Small businesses were, unsurprisingly, disproportionately affected by shutdowns, as were lower-economic-status individuals and households, who bore the brunt of performing “essential” jobs and struggling through child care and remote learning challenges that didn’t impact households with more resources similarly. People who were struggling with issues ranging from mental health to domestic violence were also largely disregarded.

The elderly, who were known to be the most vulnerable to the disease, were not given special protections or allocations of resources. At the same time, those who were at low risk for COVID morbidity weren’t allowed to live their lives freely.

The inflexibility of government entities to adapt, admit their mistakes, and change course meant that this harmful policy went on for months on end, with no clear end point, compounding the damage.

A little more than halfway through the year, the review platform Yelp did an analysis of the companies on its platform. Although Yelp-listed businesses account for only a fraction of the overall businesses in the United States, they are a useful proxy for businesses in general. As Yelp’s platform typically rates consumer-facing companies (stores, restaurants, home service providers, and so on), it is also a good proxy for the types of businesses that would be most directly affected by shutdown orders.

Though in April, 175,000 businesses had closed on the Yelp platform alone, as of July 10, Yelp’s data showed that still more than 132,500 US businesses were closed either temporarily or permanently. Though some businesses were opening, bringing the overall number of closures down, the percentage of permanent closings was rising, accounting for a staggering 55 percent of all closed businesses. In the Chicagoland area, 4,400 businesses on Yelp reported being closed, and of those, 2,400 said they were closing permanently (aka, going out of business). As expected, in terms of overall closures as well as permanent closures, restaurants and retail outlets were the hardest hit, with beauty services, financial services, and home services as some of the other most affected industry sectors.²

In the restaurant sector, 60 percent of the businesses that were closed had posted that they were closed permanently.³

Though the Yelp data give a peek into specific industries, the reverberations from the closures of businesses such as restaurants and retailers affect the economy in a chain reaction. In addition to the direct jobs lost by the employees of those businesses, there is the economic activity lost—in whole or in part—by the companies that supply and service those businesses. From providers of produce and beverages to cleaning services and HVAC maintenance firms, other companies and their employees are impacted when their own clients are shuttered. This leads to fewer dollars spent in the economy, which ultimately affects other businesses as the cycle continues.

A report by the Hamilton Project, which looked at only the 6 million small businesses with employees (excluding the pre-COVID 24.2 million one-person businesses), found that more than 400,000 small businesses had closed permanently by June 2020. That means around 6.7 percent of all employer businesses in the country were forever shuttered by midyear.⁴

Ultimately, the small business closures, both temporary and permanent, played a substantial role in more than 40 million Americans’ filing jobless claims by the end of May.

Meanwhile, the equity markets, which trade the stocks of larger companies, were seeing a different outcome. With many publicly traded businesses deemed “essential” while smaller businesses were not and others shielded from government actions by being technology based, plus an extra financial boost from the Federal Reserve, the stock market continued to soar. The Nasdaq Composite Index reached an all-time high on June 8, and the Dow Jones Industrial Average and S&P 500 were on the climb back toward theirs.

Though small businesses and individuals were struggling to survive, the second-quarter earnings cycle of 2020 saw blow-away numbers for large companies such as Amazon and Facebook, among others. On August 19, Apple hit a $2 trillion intraday market cap, making its market value greater than Canada’s entire GDP.

Walmart blew past its second-quarter earnings expectations. A same-store sales increase of 9.3 percent and a near doubling of its online sales led the retailer to incredibly strong revenue ($137.7 billion for the quarter) and earnings.⁵

Target also reported a strong quarter, picking up around 10 million new e-commerce customers and increasing its profits by 80 percent, per its CEO and reporting.⁶

With people scared and out of work, small businesses struggling, and the number of unemployment claims making history, the government had induced an unfathomable recession and severe psychological damage. Yet the stock market, led by the world’s biggest companies, was soaring to new highs.

This divergence of economic outcomes continued throughout the back half of the year, as the S&P 500 and Nasdaq Composite hit highs again in December, while many small businesses were forced by government to shutter once more.

How could this be? And was Taleb right—should this government action have been predictable?

Was this just another part of a long-standing campaign against small businesses and others too small to matter and in the way of consolidating power? What other damage lay ahead in 2020 and beyond?

To answer that, we need to start at the beginning.

Chapter 2

Hindsight Is 2020

How Overreliance on Government Led to History-Making Mistakes

When 2020 is looked back upon in the history books, it will show that the government at all levels—local, state, and federal—made a set of inane, irresponsible, and costly policy mistakes, both economic and social, that changed the course of history for the worse.

It will also show that there was a direct consolidation of power among government, big business, and other special interests at the expense of decentralized small businesses and individuals.

A Deadly Distraction

A few weeks into January 2020, the most prominent business and political leaders in the world arrived in Davos, Switzerland, for the fiftieth World Economic Forum Annual Meeting. Billed as an ideas exchange and widely lamented as a fancy mutual flattery festival among the powerful, rich, and famous, Davos is where the elite go to be seen and to network against the backdrop of exchanging heady political and societal ideas.

One of the biggest topics of discussion was China.

However, those “thought leaders” were not bunkered down, strategizing risk management for a new mystery virus that had been discovered in China. Instead, they were discussing the first phase of the long-promised multiphase trade deal between the United States and China signed by President Donald Trump and Chinese president Xi Jinping on the fifteenth of the month.¹

That deal, announced on the final day of 2019, had carried stocks up to end the year, making 2019 a banner year for US equity markets, with the Dow, S&P 500, and Nasdaq Composite closing up 22.3 percent, 28.9 percent, and 35.2 percent for the year, respectively. Overall, the US economy was still in the longest economic expansion on record, ending 2019 with only a 3.5 percent unemployment rate, the lowest since 1969 and reaching historic lows across demographic groups.²

Though the US-China trade deal had many people, including the CEOs at Davos, skeptical about its specific tangible benefits, it did stem th...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Introduction
• Chapter 1: The Government Black Swan: An Unpredictable, Unprecedented Pandemic Reaction
• Chapter 2: Hindsight Is 2020: How Overreliance on Government Led to History-Making Mistakes
• Chapter 3: Fifteen Days to Slow the Spread: Exploring Government Choosing Winners and Losers via the Myth of “Non-Essential” Businesses
• Chapter 4: Breaking America’s Backbone: More Than a Trillion Dollars for Cronies, COVID Crumbs for At-Risk Small Businesses
• Chapter 5: Selling Out Main Street to Wall Street: The Federal Reserve’s Decades-Long Role in Helping Government Transfer More Wealth to the Wealthiest
• Chapter 6: Social Justice and Social Costs: How Small Businesses Bore Significant Costs Due to Government’s Economic and Civil Injustice
• Chapter 7: A Couple Hundred Days’ Worth of “Fifteen Days to Slow the Spread”: A Rapid and Historic Consolidation of Power and Wealth
• Chapter 8: Protecting the Smallest Minority: How Individual Rights and Capitalism Set the Foundation for Economic Freedom
• Chapter 9: America’s Worst Trade Deal: Why Central Planning Is Doomed to Fail
• Chapter 10: Losing the Branding on Capitalism: How a War of Words Led to Weakened Individual Rights and Centralized Power
• Chapter 11: Trading Capitalism for Cronyism: Why the “Game Being Rigged” Is Coming from Government, Not Capitalism
• Chapter 12: Trading Places: China’s and the United States’ Respective Shifts to and from Capitalism
• Chapter 13: Decentralization Versus Centralization: How to Prevent Further Central Planning Attacks on Small Business
• Epilogue
• Acknowledgments
• Notes
• Index
• About the Author
• Also by Carol Roth
• Copyright
• About the Publisher