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Friday, July 09, 2010

Paul Krugman: Pity the Poor C.E.O.’s

Why are businesses so reluctant to invest? Is it because of an antibusiness climate? Yes, but the climate wasn't created by the Obama administration. The people who directly or indirectly blew up the financial system -- something that happened before Obama took office -- are the ones responsible for the discouraging climate that is making firms so unwilling to expand their operations. There is a political attempt to place the blame for the lack of investment on the administration, but there's nothing of substance to support -- and plenty to refute -- the claims being made by the lobbyists behind this effort:

Pity the Poor C.E.O.’s, by Paul Krugman, Commentary, NY Times: Job creation has been disappointing, but first-quarter corporate profits were up 44 percent from a year earlier. Consumers are nervous, but the Dow, which was below 8,000 on the day President Obama was inaugurated, is now over 10,000. In a rational universe, American business would be very happy with Mr. Obama.
But no. All the buzz lately is that the Obama administration is “antibusiness.” And there are widespread claims that fears about taxes, regulation and budget deficits are holding down business spending and blocking economic recovery.
How much truth is there to these claims? None. Business spending is indeed low, but no lower than one would have expected given widespread overcapacity and weak consumer spending. ... After all, why should businesses expand ... when they’re not selling enough to use the capacity they already have? And in case you haven’t noticed, we still have a deeply depressed economy.
Historically, there has been a close relationship between ... business investment and the “output gap”... — ... there’s nothing surprising about low investment now, given ... that the output gap is hugely negative. If anything, it’s surprising how well business investment has been holding up.
Alternatively, we can look directly at measures of unused business capacity. Capacity utilization ... is ... still far below historical norms. Vacancy rates at industrial and retail properties are at historic highs. Again, given that businesses have plenty of idle structures and machines, why should they be building or buying even more? ...
The ... Obama’s-socialist-policies-are-wrecking-the-economy chorus isn’t coming from businesses; it’s coming from business lobbyists... Read the report on the U.S. Chamber of Commerce in the latest Washington Monthly: peddling scare stories about ... Democrats ... is a large part of what organizations like the chamber do for a living.
Or read through the latest survey of small business trends by the National Federation for Independent Business, an advocacy group. The commentary at the front of the report is largely a diatribe against government — “Washington is applying leeches and performing blood-letting as a cure” — and you might naïvely imagine that this diatribe reflects what the surveyed businesses said. But while a few businesses declared that the political climate was deterring expansion, they were vastly outnumbered by those citing a poor economy.
The charts at the back of the report ... are even more revealing. It turns out that business is less concerned about taxes and regulation than during the 1990s, an era of booming investment. Concerns about poor sales, on the other hand, have surged. The weak economy, not fear about government actions, is what’s holding investment down.
So why are we hearing so much about the alleged harm being inflicted by an antibusiness climate? For the most part it’s the same old, same old: lobbyists trying to bully Washington into cutting taxes and dismantling regulations, while extracting bigger fees from their clients along the way.
Beyond that, business leaders are ... feeling unloved: the financial crisis, health insurance scandals, and the catastrophe in the Gulf of Mexico have taken a toll on their reputation. Somehow, however, rather than blaming their peers for bad behavior, C.E.O.’s blame Mr. Obama for “demonizing” business — by which they apparently mean speaking frankly about the culpability of the guilty parties.
Well, C.E.O.’s are people, too — but soothing their hurt feelings isn’t a priority right now, and it has nothing at all to do with promoting economic recovery. If we want stronger business spending, we need to give businesses a reason to spend. And to do that, the government needs to start doing more, not less, to promote overall economic recovery.

    Posted by on Friday, July 9, 2010 at 12:42 AM in Economics | Permalink  Comments (100)


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