The uncertainty excuse needs to come to an end

Barbara: You said it about as well as anyone could put it. You hit the nail on the head.

Thanks.

What I really love about this whole thing is the response of the “small government conservatives” who keep hammering on about how the government isn’t doing enough to fix the economy. They constantly want it both ways.

Barbara, good post. There remains one uncertainty, an unnecessary, politically motivated, counter-productive uncertainty: Taxes.

Wouldn’t it be nice if the government said, “Here are the rules. We absolutely, positively guarantee they will not change for at least years.”

Of course, no one, including the government, would believe it.

Rodger Malcolm Mitchell

Wow, there are some clueless people who have commented here.

Kiviat is right that “private enterprise is what will ultimately save the economy and create jobs.” Unfortunately, she does not know a thing about running a business, making payroll, or the workings of a market economy.

You basically have to talk to most business people and they will tell you that Obama is in a state of madness. He has the mindset of a progressive from academia.

I wish Obama had an understanding of the Austrian School of economics. In this manner he could demonstrate why we had a panic in the first place and how we can REALLY work to prevent a future one.

I wish he will read Mises, Hayek, and Rothbard…okay, I’m dreaming about this.

If academia is the problem, then how could Mises, Hayek and Rothbard—all academics—be the answer?

Don’t you love people who name drop, but offer no facts, and love to call everyone clueless.

O.K, I’ll do it too. Read Randall Wray, Warren Mosler, Bill Mitchell, neo-chartalism.

But I won’t call anyone clueless, though in truth, most business people are clueless about economics. How do I know? In the past 54 years I’ve bought, built and sold 5 corporations employing thousands of people.

Rodger Malcolm Mitchell

Thanks, agbook – I was starting to despair that none of these posts pointed out the obvious logical flaws in this column.

1. Yes, healthcare reform passed. But as Pelosi said, they had to pass it to find out what’s in it. The bill is 2,000+ pages long and completely impenetrable. It now looks like it will be cheaper for companies to drop health benefits and pay the fine. Congress claims this is not so. The CBO says the cost of insurance will go us as a result of the bill, but the White House and Congress claim otherwise. So you’re a business owner debating whether you can afford to hire more people, but don’t know what it will cost to do so. Result? Delay.

2. Now it looks like we will have a similarly opaque 2,300 financial reform package with new duties and rulemaking authority spread across 24 agencies. These responsibilities are not delineated and will only be fleshed out as the agencies begin implementing them. A WSJ article this morning mentioned that one of the major law firms issued a summary of the bill – that ran 150 pages. With a 20-page flowchart of the network of responsibilities. Now you’re a bank. Try to plan your business around THAT. What do you do? Avoid rish and work on building your capital base.

3. GE makes all kinds of components that go into every kind of power generation, including alternative sources. Of course it’s investing. Does the author honestly believe this is philanthropic? Come on – it wants to be the largest beneficiary of the federal subsidies being thrown at the industry, period.

4. The article completely ignores the uncertainty around taxes, and the damping effect higher taxes have on the incentive to invest. At some point it is no longer worth the risk to be a small or middle-market business owner. Most of these people are talented and can go get a nice, stable salary job somewhere. Either that or just maintain the status quo, take some good money out of the business year after year, and invest nothing in the company.

This is a stunningly ignorant column for a business journalist.

Barbara, how is it that you have the “audacity” to write about something of which you know nothing?

Does humility enter in? Or is it that your editor likes such pulp? Or is it that you will write anything for which you will get paid, and so try to further your career?

Do you imagine that Obama’s huge initiatives, passed and proposed, and unceasing anti-business rhetoric have no effect on business planning. Do you have any way to predict the cost of employing someone in the near future? If so, many would like to hear it.

Do you not realize that GE is playing an inside game hoping to feed at the trough through influence of politicians?

Sorry, Barbara, but not a convincing argument.

1. On the average cash-to-asset ratio increasing, what’s your point? Ideal ratios vary from industry to industry and adapt to economic conditions. 24% doesn’t seem that cash-heavy for some industries; if anything, it shows they’re on decent financial footing. Would you rather they be leveraged to the hilt and unable to weather a downturn?
2. The fact of the matter is uncertainty was a factor, and still is. The banks took unreasonable risks and we–and them–all paid for it. Now you want other corporations to jump in to “save the economy”? I thought the Obama Administration had already done that with the stimulus.
3. Washington is talking about an overhaul of the tax code. That’s uncertainty. When there’s so much excess capacity, which company is going to invest when they don’t know what the rate of return on their investment will be. Why invest now when there’s a good chance of a regime change in Congress in November?
4. And please don’t bring up GE: Immelt has been one of Obama’s lap dogs for some time. Find some corporation that’s investing without the carrot of federal subsidies to make their investment pay off. That is just laughable.

I’m not sure what’s audacious about suggesting that the sector of the economy which creates jobs take responsibility for whether or not jobs are being created. We’ve been through a horrible recession and many business owners (especially small business owners) are hurting and still incredibly skittish. I appreciate that. But I also appreciate human nature, and how it’s easier to lay the cause of such skittishness at the feet of some big outside force (like government) than it is to come face to face with one’s own timidity to resume risk-taking. (I also appreciate how this is a great time for lobbying organizations like the U.S. Chamber of Commerce to push through all sorts of long-standing agenda items under the claim that without such changes companies won’t hire.)
–
In answer to your second-to-last question, no, I can’t predict the cost of employing someone in the near future. That’s part of the reason I don’t run a business. My brother, on the other hand, who is a successful business owner, *can* talk about how various new laws are going to change the way he runs his company. He doesn’t always like what’s coming down the pike, but he nonetheless seems to be able to build a business model around it.

Businesses are holding more cash because of credit uncertainty. When the credit meltdown hit two years ago, and the investment banks appeared ready to collapse, businesses were afraid they wouldn’t be able to make payroll or buy materials. So now they are conservative, since most businesses extrapolate from recent trends rather than analyze public policy.

I imagine you’re right that businesses often make decisions based on recent history, but go to this Ritholtz post and check out the chart: http://www.ritholtz.com/blog/2010/07/corporate-cash-has-been-piling-up-since-1982/. The level of cash has been pretty steadily building up since the mid-80s. I don’t know what’s going on, but there definitely is a secular trend above and beyond reaction to recent history (which you can also nicely see in that chart).

So, people running businesses in this country aren’t hiring as much as they used to. Some journalists ask them why and one of their responses is uncertainty. Barbara Kiviat calls this an “excuse”.

My takeaway from this column is that the profession of journalism does not pay enough to attract intelligent people. On the other hand, business does.

Thanks, Barbara, excellent post. If private companies want a recovery to increase biz / improve the bottom line they need to hire already, enough said. Stay on this topic, please.

BTW, Barbara, if you feel like addressing any more tax-hating Tea Partiers (such as above), ask them how some states like Nevada and Florida can have both no income taxes AND high unemployment. Taxes alone aren’t the entire problem.

In case you missed it, Paul Krugman was blogging on this same issue last week

http://krugman.blogs.nytimes.com/2010/07/07/why-isnt-investment-higher/

with a nice graph of “business investment” vs the “output gap” showing that business investment slows down when their is excess capacity (like now). Probably because .. um… they don’t need need any more capacity

Barbara, have you ever run a business? If the answer is NO I would NOT be shocked! How nice of you to be “sympathetic to business”. You are in the business of selling words. Nice work if you can get it! If this article is any indication of your business acumen I suggest you hold on to that JOB for as long as you can!

Do you truly believe passing healthcare has made things less uncertain? Some 100 or so days after it’s passing the business community is still trying to figure out their financial exposure!

There is talk of some form of Cap and Trade passing in the Senate this month. Do you think that engenders any confidence with respect to future energy costs?

Has Congress passed a budget this year? NO! What is the current state of this country’s fiscal policy? WE DON’T HAVE ONE!

Will the Bush tax cuts be extended or will they be permitted to expire? WE DON’T KNOW, BUT… given the track record of this administration the answer to that question is likely to result in what will be, in effect, the single largest tax increase in U. S. history in the midst of NOT a recession; let’s call it what it is, a DEPRESSION!.

American business isn’t in the business of flushing money down the toilet. Until we have satisfactory answers to these questions there is no justifiable reason to deploy cash on a roll of the dice. Responsible businesses don’t gamble with their capital. They invest in sound business plans. There is NOTHING sound about investing in this environment.

Barbara, it appears to me you represent the quintessential example of those in this country that just DON’T GET IT! I’ll take that one step further and say your political slip is showing. You may as well have a donkey stamped on your forehead, if not a hammer and sickle!

“GE is investing in energy? Wait, don’t executives there know that Washington is gearing up for a big energy bill? I’m guessing they do. And yet, somehow, they are plowing ahead.”
-Babs, airhead journalist

Well golly, perhaps it’s because Immelt is in bed with the Obammunists. GE sold it’s soul to partner with Big Brother in order to sell Obama’s bogus “green” jobs AGW scam and share in billions of profits at the expense of the American people.

Honest businessman are terrified of what little King Obama and his crony capitalists like GE are going to do next. America is now a banana republic police state like Venezuela.

Grow a brain, Babs.

Barbara,

I said “progressive from academia” not “Austrian from academia” in my first post. I do not discount all of academia, just most of progressive thought.

Progressives gave us the Federal Reserve, which is the primary culprit in this crisis. The Federal Reserve has a monopoly on paper money backed by nothing (in contravention to Article I Section 10 of the U.S. Constitution) and essentially engages in price controls with short-term interest rates. In all of this the functioning of the market is impeded and inevitably leads to speculative bubbles.

I wish the Austrian POV was taught in schools. Alas, the public schools are a monopoly and were also partly a creation of progressive thought. Most colleges and universities are steeped in progressive thought. Moreover, all I ever learned in business school was Keynesianism.

Progressives dislike competition in the marketplace and academia. Do you disagree?

I just answered you.

They are the victims of the Federal Reserve and the speculative bubble in real estate.

History has shown time and time again that central banking and the monopoly power over a medium of exchange and interest rates, leads to speculative bubbles. Examples of this in the American experiment are the 1920′s, 1970′s, and mid 2000′s.

This crisis was not the result of market failure. Dig deeper. It was caused by central banking.

This is why I suggesting reading into the Austrians such as Mises, Hayek, and Rothbard. We may not all agree with all of their conclusions, but I think they offer compelling insights into the dangers of central banking.

And yes, I am a Tea Party supporter.

The time periods cited also make the comparison completely specious. 1980 to 2004? The end of a horrific economic period with the midst of a massive expansion? That’s like when people compare the historical height of the stock market to the absolute low, saying “look – investors have lost X% of their wealth!” Sure, if you invested every penny you had at the peak and sold every investment at the nadir.

freedomfan, you shouldn’t diminish a good argument with name-calling. The fact is, Immelt doesn’t have to be “in bed” with the Obama administration. GE is dominant in most power generation segments and since many of these technologies are not financially feasible without government subsidies, it stands to gain from such support. By supporting alternative sources he is acting in the best interests of GE shareholders. But cozying up to Washington as a business strategy is a dangerous game, as the healthcare industry is finding out.

Unfortunately decons political advice is about as good as her business advice. Both lack any substance.
.
Thank you for supporter the TEA party movement!

Hey, Rusty! I’ve been waiting for you to come here. Please share your infinite financial wisdom with us like you do at swampland. Tell us how to create jobs now.
.
Barbara, if you’re still reading ask Kate why I call him that, hint: sockpuppets. And as usual, Rusty / newfreedomblog gets genders wrong as well as races – he once called Clarence Thomas’ wife a black woman. He also claimed to run a business with a 30+ biz plan unchanged from Jimmy Carter’s presidency.
http://swampland.blogs.time.com/2009/11/23/yes-it-is/comment-page-1/#comment-112720
(yep, that reply was under his original name, rustyreturns)

@bryanfed: Did you look at the chart? The rise has been steady and gradual for decades. You could pick practically any year and you’d see the same sort of growth.

Yes with some minor changes due to tax code revisions and new government regulations, my business plan is unchaged and still works quite well thank you since 1976.
.
Enjoy!
.
And, that should read “supporting”, not “supporter”.
.
I did err on thinking Clarence Thomas’ wife was black, decon is at least correct on her claim. The rest, is pure decon fiction as usual and should be consumed with a grain of salt.

I read Hayek in college. Schumpeter, too. I also took Intro Psych: http://www.psywww.com/intropsych/ch15_social/fundamental_attribution_error.html

First of all, tight credit is still a problem, even companies with lots of cash have difficulty borrowing money, so, yes, there is that tendency to hoard cash.

The company I work for in a market that has shrunk about 50% since 2008. We have only shrunk about 20 percent, because we are increasing market share, and we are thinking the market is starting to move back up. Market uncertainty is what causes manufacturers to hesitate to invest. I honestly do not see anything the Obama administration is doing that will hurt our market.

Tax policy can have some effect, but in the opposite direction Barbra’s critics are saying. They will want tax incentives to boost spending on things like office building, when those incentives will distort the markets, more than genuinely move them forward on a solid foundation. Eventually you have to rely on rents to pay for the building, not tax breaks.

Barbara,

I you think I suffer from attribution error, that is fine. But don’t you think that the Austrian Business Cycle Theory fits our present economic state well? May I ask for some of your thoughts that you derived from Hayek on the ABCT?

Uh oh! The Curious Capitalist has gone down this path before: http://delong.typepad.com/sdj/2009/01/justin-fox-needs-help.html

Barbara,

I was thinking about your idea on attribution error. I think your entire post on the “uncertainty excuse” is actually apt for you.

You are blaming the situation and CEO’s, rather than acknowledging that Obama’s ham-fisted economic interventionism is actually be making business decisions about hiring more difficult.

Facinating. YOU are an example of attribution error.

BIG BUSINESS

So GE invested, what is a few bucks to a small business? Big deal!

How’s the economy? Look at the news business. If betting the company is NBD — why are there so many unemployed journalists? Res ipas.

No one with a brain would invest a penny until OWE-bama stops raising taxes and the debt. No one.

Read the first sentence of your reply again and think about it a bit.

In general, a business will create a job if it thinks it will make more money than otherwise by doing so. Uncertainty means that they have trouble making that judgment, and will be less willing to hire someone, not being able to determine the cost of doing so.

Obama’s dramatic changes cause great uncertainty on two fronts: (1) no one really knows how 1000 or 2000 page regulations, written by many players with all sorts of pet agendas, will play out over time in the real world. (2) Obama’s actions in pushing such things, along with his anti-business rhetoric, cause business to wonder “what’s next?”

This creates great uncertainty regards business climate and costs, as well as significant skepticism regards economic recovery. Under such circumstances business will be far less willing to hire than they would otherwise.

You are blaming business for being afraid to hire, and of blaming government as a way to mask their own fear. Seriously?

And regardless – things are dynamic, if Obama pursues anti-job activities … then there will be fewer jobs, regardless of psychology or politics.