Ensconced in a strip mall behind a Carpeteria outlet, Derek Smith has been tinkering for two years with a wireless electrical system that he says can help schools and office buildings slash lighting bills. With his financing limited to what he earns as a wireless-technology consultant, he has yet to hire his first employee.

This is a far cry from his last start-up, which he cofounded in 2002. At the two-year mark, that company, which makes radio-tracking gear for hospital equipment, had five employees, about $1 million in funding from angel investors and offices with views of downtown San Diego.

Derek Smith appears in a Wall Street Journal report on how few start-ups and jobs our current economy is creating. New companies are the key source of jobs; they drive the economy. Unfortunately the creation of new companies is lagging behind closings of older ones.

One problem, of course, is that less capital is available. Credit cards and home equity loans are no longer good sources of capital, and the venture capitalists have enough to do to hold onto struggling companies. But these aren’t the only hurdles:

Some entrepreneurs say it’s not all about financing, though. They express concern about taxes, health-care costs and the impact that wrangling in Washington over the federal budget deficit will have on them. “I can’t determine what the cost of providing health care for employees would be,” says Kevin Berman, 47, who is starting a local-produce company in Orion Township, Mich., called Harvest Michigan. Starting a company “is harder than it was at any time I can remember.”

It’s good news that the so-called Paycheck Fairness Act (here, here, here) failed in the Senate this week. It was a job killer. It would have strangled many small businesses. Another thing that makes the economy weak: the amount of money the government takes from people’s pockets to spend as it sees fit. Last night, I was on a TV show, and there were two members of Congress also on the show.  The members were angry that another extension of unemployment benefits had been voted down in Congress. One of the two dared to argue that, if the GOP couldn’t bring itself to be really big-hearted and vote for the extension, they should at least have extended befits through the holiday season!

Unemployment benefits for a limited amount of time are humane. They cusion the blow of unemployment and give the recipient a reasonable period of time to get a new job. But somebody pays for these benefits. And it’s not unemployment benefit extensions we really need–it’s jobs. Instead of extending benefits, already stretched way beyond what was originally invisioned, the Congress should be making all the Bush tax cuts permanent and working to repeal and replace a job-killing health-care reform.

It not up to the government to bring us Christmas. But it would be nice if next Thanksgiving we can be grateful for a vibrant economy, with lots of jobs. It’s going to take some major changes in policy.