In a story from POLITICO July 8, 2010 the White House is attempting to repair its image as anti-business. The article includes some distorted reasoning and false readings of current truths. Some of my observations in response to that article are below. You can read the article by going here: http://www.politico.com/news/stories/0710/39495.html#ixzz0tBX7NbJs
Obama’s aides believe confidence in the general direction of White House policy has an effect on the willingness of corporations to hire, invest and push the economy toward a more solid recovery.
Well I am glad to see they have the right presumption about ‘how’ businesses respond to government policy, but wait; they totally get the ‘why’ wrong.
The stakes are high. Nearly every economic report suggests that corporate America, flush with cash and generating strong profits, is waiting to unleash a wave of hiring if only they have confidence there will be no double-dip recession and that consumers will have money to spend.
I love these little half-truth statements. It isn’t the fault of the journalist; however I would have like to have seen Ben White explain what I am about to:
Reports do suggest that corporate America, and even Main Street businesses, are sitting on resources and generating strong profits. They are generating high profits because 29,876,000 people are out of work! That’s my math according to population, and May unemployment figures for 2010. (U.S. News and World Report, and MiseryIndex.us) When you aren’t employing people, you are saving money. I have spoken to businessmen I know personally and they tell me that they know of other businessmen who are simply doing without things that they used to. Businesses of all sizes are simply doing without, trimming back on every expense to stay in the black. Many truly are, as the article states above, “waiting to unleash a wave of hiring.”
However, White House thinking as summarized by reporter Ben White begins to fall apart logically and in the face of reality with this turning point in the phrase: “if only they have confidence there will be no double-dip recession”
Now I take issue with this reasoning because it is weak from several angles. First of all, while it may be a concern, yes, it is not the major concern. Stability is the major concern, and a double dip recession is only one of many concerns for businesses when it comes to instability in the market. It is but an effect to a cause. There is a more important reason why businesses have not started hiring once it appeared the recession was easing and Wall Street made comebacks. If you listen to the financial news you may have heard talk in the last six months about a “jobless recovery” and how rare it is to see an economic recovery without the creation of jobs following a market rebound. The reason why we have not seen this happen is because investors, managers, CEO’s and entrepreneurs are waiting to see what the White House does next to increase taxes and regulatory constraints on businesses. The cause of a double-dip recession will be businesses acting out (or rather not acting) on their fears about what government may or may not do. More on that in a moment…
Secondly, this line of reasoning from the White House assumes that confidence alone will prevent a double-dip recession, and therefore the White House’s strategy is going to be a media war to improve their image. In playground terms the White House wants to be popular and have a lot of friends. Instead of doing something to gain people’s trust and “friendship” they are going to talk a big game and promote themselves all over the school yard. What our government needs to be doing is creating jobs. Period. More on that in a moment…
In some moods, aides are disdainful of what they perceive as the whininess of many business leaders, who they feel are reacting to sensible and comparatively modest ideas as though they were an intolerable burden, and as though the massive financial meltdown would not prompt a reappraisal of the business-knows-best mindset that prevailed during the Bush years.
What happened to the sensible and modest idea of the Glass-Steagall Act of 1933? It was repealed by the Gramm–Leach–Bliley Act of 1999 by the 106th Congress, and signed into law by President William Jefferson Clinton. It effectively reversed the common sense regulatory policies in existence for almost 67 years that disallowed commercial banks, investment banks, securities firms, and insurance companies from merging and forming “too big to fail” financial firms. Stop pointing your finger at Bush, and realize that the Democratic, as well as Republican leadership is responsible for this mess. Government created this problem when it removed common sense regulation.
It is unfair to say that businesses always know best, because it was the financial industry that wanted Glass-Steagall overturned so that a few at the top could make ungodly sums of money while most everyone else continued to see a rise in the cost of living, without much increase in their salaries. With two recessions in the last ten years, many Americans have only been able to stay afloat by living off of home equity – a dangerous practice that quickly came to an end when the collateralized debt obligations (CDOs) that the now “too big to fail” financial firms were selling left and right without any kind of oversight from common sense legislation like Glass-Steagall. Do we need regulations on the financial services industry? Yes. Does the government need to leave businesses alone so that they can create jobs? Yes. Can we have both? Not without killing job creation at a time when we need it most.
White House deputy press secretary Bill Burton defended Obama’s record, “…if you look at where we were and where we are now, the president has made progress on the economy. He has brought us to a place where the economy is growing, where jobs are being created, as opposed to losing 700,000 a month like we were when we came into office.
While that may be true to an extent, many people have simply given up looking for work, and are now starting to look again as they hear the economy is improving. Remember, the unemployment figure is based on those looking for work, not on the number of people actually out of work. Add to that those unemployed people in industries harder to track like migrant workers, etc. and there are still many millions of people out of work. We also need to start creating more permanent jobs. Census jobs, and shovel ready jobs funded by stimulus money are temporary. So while the government may be creating a few hundred thousand jobs here and there, those same jobs are being lost a month or two later. Nancy Pelosi bragged last week that unemployment insurance is one of the biggest job creators in the country right now. This is the kind of policy sense that the White House and leaders in Congress are promoting – to tax and spend our way out of the recession. And no one; not the American people, or even the European Union thinks that is a good idea.
So, getting back to what I said above about “more on that in a moment”: As for government creating jobs, the prevailing thought is that when government gets busy trying to stimulate the economy by throwing money at shovel-ready programs then the economy will rebound. Not so. The primary and constant factor throughout history for job creation and the growth of the middle class has always been stability. Seems like such a simple concept, but it is a hard reality to maintain. Legislation, regulation, and the enforcement, and non-enforcement of laws all play a crucial role in creating that stability.
The law is like the soil in which businesses put down roots and thrive or starve depending on soil conditions. If the soil is fertile and will give life to the plants or if it is like sand and is going to suck the life out of the plant makes a great deal of difference to the health of our economic ecosystem. Businesses can’t put down roots and thrive in an economy that is mismanaged by the government because the ever changing laws act like ever moving soil. It would be like having a professional gardener suddenly decide to uproot every plant in the greenhouse in the middle of winter. Neither will plants establish roots in soil that is always moving. Trees tend to do very poorly in a landslide. A good gardener will tend to the plants, and nourish them differently as the seasons change. Now is not the time for pruning, but for weeding.
FDR’s policies during the Great Depression did nothing to pull the economy out of the dumps. His policies changed so frequently to adapt with the changing winds that businesses feared to invest in an economy in which the rules might be different the next day. Business, not government is the rightful and traditional agent to react when the economic winds change. It is the ultimate survival of the fittest. For when you fail to adapt or foresee the coming changes you will fail in business – perfect incentive to perform well. If government is in charge of the economy, it will do all in its power to remain in existence at the expense of the economy. Just look at Mao Tse-tung’s China, Castro’s Cuba, and a host of other dictatorial regimes in the 20th century. Government’s primary concern is for its self perpetuation, not economic growth. To grow an economy you need people who are interested in profits, who will hire more people to increase those profits and “spread the wealth around” as President Obama told Joe the Plumber he would do as president. When the government is hands-on with bailouts, and passing ever-changing legislation which adds burden for businesses, then by definition it is disrupting stability.
Healthcare reform is adding significant burdens on everyone from employers to average citizens, and will likely require repeated tax increases over the next several decades to keep the program solvent. The banking reform act will require financial institutions to tighten their purse strings at just the wrong time when businesses of every kind need capital available on loan or in the form of credit to maintain growth. The next major push, and likely before November, is going to be Cap and Trade taxes that will hit businesses extremely hard. It is almost as if someone is trying to push the reset button on the nation’s economy. The government should be in the business of macro management, not micromanagement. It should be inspiring creativity and creating the market conditions of stability… not trying to manage their day to day activities.
