Why Isn’t the Economy Recovering?
This is Gary Becker, writing at his blog:
In addition to repeated attacks on American business … the health care bill Congress passed seems likely to increase the cost to small and large businesses of providing health insurance for employees. Congressional leaders proposed high taxes on carbon emissions, large increases in taxes on higher income individuals, corporate profits, and capital gains as part of vocal attacks on “billionaires”.
Many in Congress wanted to cap, or at least control, compensation of executives. Proposals were advanced to make anti-trust laws less pro-consumer, and more protective of competitors from aggressive and innovative companies. Congress passed and the president signed a financial reform bill that is a complicated and a politically driven mixture of sensible reforms, and senseless changes that have little to do with stabilizing the financial architecture, or correcting what was defective in prior regulations.
It is no surprise that this rhetoric and the proposed and actual policies discouraged business investment and slowed down the recovery.
Corporations are sitting on large amounts of cash. The uncertainty of sweeping regulations and taxes coupled with a down economy is enough to make many companies afraid to invest.
This is total nonsense. There is a failure of demand due to the recession which originated during the Bush administration, due to the housing meltdown, caused by a lack of regulation of the Mortgage market, which even Greenspan acknowledged was a mistake.
In fact, when a graph of unemployment is compared with the percent of GDP which is due to investment, the Obama administration looks as good or better than the previous administration’s record. There is no evidence that there is an Obama administration confidence factor holding down investment.
http://krugman.blogs.nytimes.com/2011/06/21/the-foo-theory-of-investment/
Business leaders would prefer lower taxes and reduced safety, health, financial and environmental regulation, and the hypothesis of a confidence factor is just a lobbying tactic. There is no data to support it. Long term bond rates, which are the usual index of confidence in the future do not show any artificial increase above short term rates.
The chief bond guru, Bill Gross of PIMCO, actually says in the short term, more stimulus is needed to get the economy moving, because the problem is lack of demand. A better performing economy is going to help the deficit. Focusing on deficits at this time is not helpful, but is needed for the future.
http://tpmdc.talkingpointsmemo.com/2011/06/pimco-founder-to-deficit-obsessed-congress-get-back-to-reality.php?ref=fpblg
Here is a one word answer to your question: Obama.
There is no such thing as a government program for economic recovery. We need government to get out of the way.
“Government is not the solution to our problems. Government is the problem.”
-Ronald Reagan in his first inaugural address
Ditto Bruce
Candace says:
June 22, 2011 at 3:15 pm
““Government is not the solution to our problems. Government is the problem.”
-Ronald Reagan in his first inaugural address”
This is the gospel according to Saint Ronald. The problem is that religious ideology is not reality.
It’s not just corporations. Hedge funds and other investors are scared. They don’t want to invest and then have the government change the rules or pump additional cash into the market. It distorts the system too much for people to make accurate decisions about where to put their money.
Virginia says:
June 23, 2011 at 12:07 am
“It’s not just corporations. Hedge funds and other investors are scared. They don’t want to invest and then have the government change the rules or pump additional cash into the market. It distorts the system too much for people to make accurate decisions about where to put their money.”
Why should we care what Hedge Funds think right now? It is mainly corporations and private businesses that provide real jobs for the unemployed, in addition to government.
Corporations have a lot of excess cash which they are not putting to work. They don’t need the investments from hedge funds.
State and local government is laying off people because tax receipts aren’t there contributing to the downward spiral.
According to the CEO of PIMCO, one of the world’s leading bond funds, business isn’t investing because of lack of demand. Ben Bernanke the Fed chairman agreed, but claimed more intervention by the Fed wasn’t going to be effective in spurring investment. They are not going to increase interest rates with the economy this low.
The problem is that there is no emerging economic engine to spur growth. Housing is dead, and tech manufacturing has gone offshore. Our infrastructure in the US is antiquated and crumbling, but there is no political will to provide a means of financing any improvements. Our education system is one of the poorest in the OECD countries, yet teachers are being laid off.
Few economists believe that lowering taxes will do the trick. It certainly didn’t do it during the Bush 2 years.
There is no uncertainty. People believe the economy is going to be bad in the future because of solid economic factors, mainly lack of demand, and the lack of an economic engine to increase economic activity.