On ABC’s “The View” the other day, co-host Joy Behar beseeched President Obama to change “the narrative” of his administration. I have a better idea: how about changing the policies?
As the economic news turns worse, at what point will the brainiacs in the White House join the 67% of Americans that think the country is on the wrong track?
Consider the recent report on the second quarter. It was already well known that the recovery had cooled. The new revelation was that the saving rate has soared, consumer spending was weaker than expected, business investment was vibrant and that government outlays rose faster than projected. So….what is surprising here?
Give Americans a view of financial Armageddon ahead, laced with projections of a failing Social Security system, and they will stuff cash into their mattresses.
If, indeed, the only way to salvage our retirement system is to impose a means test and to up the age at which you can hang up your gloves, people will naturally take matters into their own hands. Bingo, the savings rate jumps to 6.2%, rather than the expected 4%, and compared to 5.5% in the first quarter.
I have argued in the past that soaring stimulus spending, leading to a reckless build-up of government debt, eventually becomes ineffective because it engenders anxiety.
As analysts – including the Congressional Budget Office – warn of impending debt crises, Americans naturally become worried. Consumer confidence drops, as it did suddenly in June, and spending slows. People increase savings, and ultimately counteract the stimulus effort by holding tight to their money. It happened in Japan, and it’s happening here.
Business spending is rising rapidly because profits are rebounding, corporate balance sheets are healthy, and putting money into technology, for instance, produces healthy expected returns.
So, why aren’t these same flush corporations hiring? Because the government has raised the price of labor through measures included in Obamacare, through a higher minimum wage (up 41% since 2007) and through other rules (on 401Ks, interns, and farm workers, for instance) recently imposed by the Labor Department.
Given a choice between a sure return on tech spending or a problematic and uncertain return on hiring, most rational business managers will choose the former.
Also, consider the psyche of the business manager today, who has seen Wall Street titans, insurance leaders, auto execs and oilmen flayed publicly by Congress, who has heard his compadres belittled and insulted by President Obama, and who finds himself ever more the villain in the media.
Just last week, Bob Herbert in a New York Times column entitled “A Sin and A Shame,” said that many Americans have lost their jobs because of the “outright greed by corporate managers” who employed a “cruel, irresponsible, shortsighted policy.” His story, based on an academic survey, suggests that managements spitefully laid off more workers than necessary in the final months of 2008, and when demand rebounded, failed to restore their workforce.
Mr. Herbert has possibly forgotten the panic that prevailed in the final months of 2008 after Lehman failed. Demand absolutely collapsed, to an extent not seen before in our lifetimes. The responsibility of any corporate manager is to keep his company healthy and solvent, and most did so by cutting costs.
Since the economy has stabilized, many corporations have been able to boost output without adding workers, which is normal in the early stages of a recovery.
That increase in productivity will not last; ultimately companies will add to their workforces. In the meantime, they do more with less, and profits increase. That surge in profits is heaven sent; it means higher corporate taxes, which will fund some of the measures now propping up the economy.
The rebound in corporate income that so offends Mr. Herbert is in proportion to the preceding drop – that too, is expected.
Mr. Herbert also might consider that the hundreds of new laws and regulations enacted in recent months might have set corporate leaders on their heels.
There has been a fair amount written about the great uncertainties created by the financial regulations bill and by Obamacare but I don’t think anyone has tried to sum up all the hundreds (is it now thousands?) of rules and regulations recently spun out of Washington.
Just now we have a proposed car safety bill and new rules on oil drilling. These are among dozens of new laws which send companies scurrying to their lawyers to see how they have to reorder their companies in order to comply. It is all very unsettling, and it has a real impact on the day-to-day operations of our businesses.
With the president and the likes of Bob Herbert painting corporate leaders as our villains du jour, and with the ground shaking under their feet, it is not so shocking that most have become increasingly critical of the administration. They are also gun shy.
When the president agonizes over how to get our economy humming again, he has nowhere to turn. More stimulus money won’t do it; only private enterprise can create jobs.
If I were President Obama, I would forget Russia for the moment, and focus on pushing the reset button with American business. There is no doubt that the returns will be higher.
Liz Peek is a financial, political and social columnist. She is a frequent contributor to the Fox Forum. For more, visit LizPeek.com.
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