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Monday, July 26, 2010

Uncertainty about Regulation and Taxes is *Not* the Problem

It's pretty obvious why the business community is pushing the idea that uncertainty about future regulation and taxes is holding back business investment and slowing down the recovery, but the evidence doesn't support this claim:

Blame Games, by James Surowiecki: The U.S. economy is limping along. The job market is in rotten shape, and business investment is hitting historic lows. And, if you’re looking for a culprit for this dismal state of affairs, many businesspeople would be happy to point you to the White House. Companies aren’t hiring or investing, businessmen say, because ... of Barack Obama’s anti-corporate attitude and a blizzard of new regulations and proposed taxes...
There’s no doubt that Obama is unpopular in the business world. ... From an economic perspective, the important question is whether such perceptions are really what’s keeping the economy in neutral. Those who think that they are say that “uncertainty surrounding regulations and taxes,” ... is making business hold back. But uncertainty is a fact of business life, and the impact of new regulations on most companies has been overhyped: unless you’re a financial-services or health-care company, Obama’s initiatives aren’t remaking your business. In fact, Wall Street and health care are among the few industries currently adding jobs, which suggests that new regulatory burdens aren’t the cause of sluggishness. In surveys, meanwhile, fewer small businessmen cite regulation as their biggest problem today than did in the boom years of the nineteen-nineties. ...
If businesses truly were holding back on hiring new workers or building new plants in the face of real opportunities, we’d see them working their current employees and factories to the limit. But they aren’t: weekly hours worked have scarcely budged in two years, and factory usage is at just seventy per cent of capacity, which is historically quite low.

    Posted by on Monday, July 26, 2010 at 12:17 AM in Economics, Politics, Regulation | Permalink  Comments (31)


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