Will JOBS Act Actually Produce Them? Unfortunately, We Don't Know

March 28, 2012 - 3:54 PM
Perhaps federal truth-in-advertising laws should be extended to cover the names Congress gives legislation it passes.

This week the U.S. Supreme Court has been hearing testimony regarding the "Affordable Care Act," which has made health insurance premiums more expensive -- less affordable -- in its two-year existence. But the law, popularly called "Obamacare," probably wouldn't have passed if Congress had named it "The Drive Up Health Premiums And Force You To Buy It Act."

Now, this week, Congress has passed the "JOBS Act," which it promises will create jobs by increasing the access business start-ups have to capital. And it might well do that.

The JOBS Act would exempt young companies with annual gross revenues of less than $1 billion from Securities and Exchange Commission reporting rules in order to reduce the costs and red tape of raising capital, and phase in SEC regulations over a five-year period in order to allow smaller companies to go public sooner.

Firms that have annual gross revenues of less than $1 billion would enjoy this "emerging growth company" status. Another provision of the JOBS Act facilitates the practice of "crowdfunding" in which the Internet is used to solicit a large number of smaller investors.

The name of the legislation is an acronym for "Jumpstart Our Business Startups."
Supporters of the bill made some very specific claims, and few media outlets really bothered to question the predictions. Bloomberg columnist Susan Antilla did, though, and found that the basis of one key prediction was nothing more than smoke and mirrors.

Supporters of the bill, which awaits President Barack Obama’s signature after passing the House today, cite new provisions that will allow so-called "crowdfunding" as fuel for new jobs. Under the plan, private companies will be able to tell their stories to investors over the Internet without the muss and fuss of registering their shares with the Securities and Exchange Commission.

Representative Patrick McHenry, a North Carolina Republican and a supporter of  crowdfunding, said in a March 8 press release that “Economists predict the legislation will lead to a ten percent increase in new business startups, helping to create at least 170,000 jobs in the next five years.”

Antilla did some digging. She asked Ryan Minto, McHenry’s spokesman, for source information for the  prediction and was told that economists at Regional Economic Models Inc., known as REMI, had done a study and “provided us with the figure.”

Antilla next asked REMI’s associate economist Scott Michael Nystrom for a copy of the study. "He e-mailed a four-page summary that predicted only 100,000 new crowdfunding-related jobs, not 170,000. And those jobs would arrive within eight years, not five," she reported.

100,000 new jobs is still a good number.

But wait, there's less, as Antilla explains:

“The 10% increase in start-ups is not a product of research,” Nystrom explained in an e-mail. Bad news, crowdfunding fans: All the economists did was come up with an “if-then” scenario. If business startups were to rise 10 percent as a result of crowdfunding, then the economic models predict 100,000 new jobs by 2020. Problem is, we don’t know if there would be a 10 percent increase -- or any increase at all. Nystrom said “it is difficult to anticipate” what effect crowdfunding might have on startups.

To be sure, the JOBS Act could lead to more jobs, via crowdfunding. The legislation reduces government regulation and increases freedom and flexibility for entrepreneurs so it probably will result in more jobs. But how many? The truth is, nobody has any idea.

Congress just passed a significant piece of legislation affecting the economy based on nothing more than speculation, assumptions and rosy scenarios not rooted in any actual facts.

Let's hope it works.