As stimulus talks drag on, 'Main Street is burning': Stanford business expert

  • Stanford Graduate School of Business professor David Dodson says the 850,000 Covid-related bankruptcies that occurred over the summer will "look like nothing" if the federal government does not offer more financial relief to help small businesses right now. 
  • "Washington is fiddling while Main Street is burning," Dodson, who once ran for a Senate seat in Wyoming and has served as CEO of multiple companies in the past, told CNBC on Wednesday.

As talks in Washington, D.C. over a new round of financial and economic stimulus continue, Stanford Graduate School of Business lecturer and small business advisor David Dodson doesn't like what he sees on Main Street or for the U.S. economy.

Dodson, who once ran for the U.S. Senate in Wyoming and has served as CEO and chairman at multiple companies including an auto parts retailer and trucking company, told CNBC that the fourth quarter is make-or-break for many Main Street owners and retailers and the lack of progress on stimulus could lead to another wave of bankruptcies that end up doing significant damage to the national economy.

"We knew in April the bridge that we built wasn't going to get us to the other side. We squandered five months during an election process. … we've got an emergency on our hands. It's make-or-break," for small retailers, he said.

The retail sector is entering the crucial fourth quarter that includes holiday sales which represent the largest annual revenue period for many. "If it doesn't do well, it could have ripple effects on the rest of the economy," Dodson said. "The 850,000 Covid-related bankruptcies we saw in the summer will look like nothing."  

While some economic indicators have improved, the U.S. economy has been showing some signs of slowing in the recovery from the Covid recession.

Dodson explained that while politicians argue over financial and economic relief, retailers need to be making key decisions on inventory.

"They can not wait until November to decide how much inventory to order," Dodson said. "They need to be doing this right now."

The retail economic effect is not only about the struggles of the smallest Main Street shops. Even the Targets of the world hire janitorial services, snow plow services, window washers — small businesses. So the ripple effect of a bookstore is large (when added to all the other small retailers) but the impact to small business is also profound when a larger retail entity goes away, Dodson told CNBC.

Dodson sees a situation that continues to let business owners down. "At breakfast, [Fed chairperson] Powell tells us we have an emergency on our hands, and at lunch, Trump says let's just wait until after the election, and at dinner, we have a new bill on the table."

Powell said in testimony to Congress this week, "Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. … Over time, household insolvencies and business bankruptcies would rise."

Karen Kerrigan, president & CEO of the Small Business & Entrepreneurship Council, said in a statement after Trump's Tuesday tweet saying talks were off until after the election, "To close the door and scrap negotiations on a COVID-19 relief and recovery package is to close the door on vital support for small businesses and their employees. Doing nothing will result in a painful outcome for local economies nationwide. … Walking away from the negotiating table equates to walking away from Main Street and our nation's small businesses. The closure of millions of small businesses is at stake."

Trump later tweeted that he was in favor of certain relief programs, including for airlines, small business and direct stimulus checks to individuals.

Dodson said the first round of the Paycheck Protection Program in April was a relief for many small business owners, and it kept them in business, but they have needed more visibility since then and the federal government has failed them.

"So what's happening right now is those employers, those companies are on hold. They're not hiring people, they're not expanding, they're not buying inventory, they're waiting," Dodson said. "That's the problem. We need the economy to be active but it is on hold waiting for Washington to stop fiddling while Main Street is burning."

Another round of the PPP is under consideration, with changes to encourage more use by business owners as part of current stimulus talks. Confusion over the loan programs terms, including forgiveness, was cited as a reason that money from the first round of the program was untapped in the spring and summer.

Small and medium sized businesses continue to keep an eye on Washington for a possible stimulus deal, with anxiety and frustration.  

"Small businesses have waited far too long for needed relief, and the consequences of delay have meant hundreds of thousands of closures impacting the labor market and economy. This is no time for political brinkmanship," Amanda Ballantyne, executive director of small business advocacy Main Street Alliance, said in a statement. 

While small businesses have become more optimistic about their survival chances since the worst of the nationwide shutdowns in the spring, according to surveys, many remain concerned about doing enough business amid social distancing measures.

"We cannot be doing this anymore because once the retail sector goes down, the suppliers to retailers are gonna get hit, then the real estate industry gets hit, and then it hits the banking industry and then you've got a systemic failure in the economy," Dodson said.

He says arguments from conservatives, including President Trump, that local government has mismanaged aid, and more federal stimulus will go to "blue states," are missing the point about municipalities as a key to economic growth. 

Local government represents 17% of the economy, and that includes everything from buying football uniforms for schools to fire trucks and sewer projects that employ multiple small businesses. 

"This is a huge sector of the economy that has grown at 5% a year in the past decade," he said, and while he added it is fair to argue over whether public spending has increased too much, the result of a stall on more stimulus will hit the small business selling the football uniform and ripple through the economy.

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