Based on the history of previous economic downturns, America’s entrepreneurs will need to play a key role in helping to rebuild our economy.

So, just what is the current mindset and makeup of those in the entrepreneurial sector of the U.S. economy?

Even in a weak economy, or quite possibly because of it, there continues to be a strong interest among the millennial generation in pursuing an entrepreneurial career.

A recent survey of young Americans between the ages of 18 and 34 conducted by the Kauffman Foundation found that 54 percent of those surveyed have entrepreneurial aspirations, and about half of these have already launched a business.

An even higher percentage of young people of color — 64 percent of Latinos and 63 percent of African-Americans — expressed a desire to start their own companies. Although some previous studies have found an increased interest in business ownership among women, the Kauffman study found that women still lag in entrepreneurial intent (44 percent compared to 57 percent among men).

Given that there are an estimated 50 million millennials in the U.S., their interest in launching new businesses bodes well for the long-term health of the economy.

What we are finding is that not all of them are in it simply for the money.

The Global Entrepreneurship Monitor (GEM) 2010 National Entrepreneurial Assessment for the USA, conducted by Babson College and Baruch College, found that startup entrepreneurs are increasingly focused on both social and economic goals for their businesses.

Entrepreneurs no longer just want to do well financially with their ventures, but also want to use business as a means to support their commitment to their favorite social causes.

This shift in how small business owners measure their success is also evident in the results of The Hartford’s recent Small Business Success Study. This survey found that only 18 percent say that profitability is the most important factor in defining success. In fact, 82 percent say they place great importance on doing something they feel passionate about and enjoy.

A growing number of entrepreneurs are interested in keeping balance in their lives. The Hartford survey reported that for 79 percent of the entrepreneurs they surveyed, achieving a comfortable lifestyle from their business is most important to them.

There is a growing chorus of experts who are worried that entrepreneurs do not seem ready or willing to step forward and provide the economic push we need to begin a real economic recovery.

However, the good news is that the generation now coming into the workforce has a strong entrepreneurial spirit. That should help to eventually create long-term, sustainable growth for America.

I have been rebutting Scott Shane’s maligning of small business in the economy in this blog for some time.  Prof. Shane is an economist who teaches entrepreneurship at Case Western Reserve U.  (You can see those posts here, here, here, here, here and here).

Now we have a post at the Economist blog, Free Exchange, that examines the role of small business as an engine of jobs in the U.S. economy.  They start with this graph:

There are some recent reports suggesting that small businesses may be getting in a hiring mood.  Not so, says the latest survey of small business owners by the NFIB that is about to be released.

“We wish there was good news to report, says William C. Dunkelberg, chief economist for the NFIB.  “But sadly, we will give you more of the same: The prospects for a good jobs report are dim. In August, small-business owners reported job losses averaging .08 workers per firm over the last three months. This follows a loss of .23 workers per firm reported in June and .15 workers per firm in July.”

Dunkelberg tries to add a glimmer of hope by adding, “The good news is that the trend is moving in the right direction–losses appear to be decreasing.”

However, he goes on to point out that the change doesn’t seem to be moving fast enough to close the employment void we’ve been experiencing for the last several years.

“While the readings remain historically weak, we can find a grain of encouragement as we look at hiring prospects. Over the next three months, 11 percent plan to increase employment (up 1 point), and 12 percent plan to reduce their workforce (also up 1 point), yielding a seasonally adjusted net 5 percent of owners planning to create new jobs, which is a 3 point improvement over July. But, let’s not get ahead of ourselves,” cautions Dunkelberg.

That is good advice, since we have seen small business owners appear hopeful of future hiring in previous months, only to be disappointed.

So the bottom line is that the employment picture is largely unchanged.

Small business owners on Main Street are joining investors on Wall Street in worrying where the economy is headed, according to the latest survey from the NFIB.

For the fifth consecutive month, NFIB’s monthly Small-Business Optimism Index fell, dropping 0.9 points in July–a larger decline than in each of the previous three months–and bringing the Index down to 89.9. This is below the average Index reading of 90.2 for the last two-year period. Put simply, they are losing what little optimism they had been building during what had been hyped as the beginning of a recovery.  They now fear that there really was no recovery after all and more bad times are likely ahead.

Expectations for future real sales growth and improved business conditions were the major contributors to the decline in optimism. Remember that this survey was completed before the events of the last two weeks. 

“Given the current political climate, the protracted debate over how to handle the nation’s debt and spending, and the now this latest development of the debt downgrade, expectations for growth are low and uncertainty is great,” said NFIB Chief Economist Bill Dunkelberg. “And considering the confidence-draining performance of policy makers, there is little hope that Washington will stop hemorrhaging money and put spending back on a sustainable course. Perhaps we might begin referring to the ‘Small-Business Pessimism Index’ from now on.”

Indeed.

I am hearing economists who had been hopeful for our economy to muddle along and grow ever so slightly changing their tune.  More and more are talking “double dip”.  Since I do not agree that a true recovery has ever really taken root, I prefer to call it a “second plunge.”

“And what should the government do now?” 

That is the wrong question to frame the debate.  It is what the government has done over the past two administrations that has magnified the problems in our economy. 

Governments cannot create a sustained economic expansion through spending and monetary policy. 

Businesses and their customers do that.  Stop bleeding them of their money and get out of their way.