NDN Blog

Why Aren't Businesses Spending? (Hint: It's Not Because of a Radical Agenda in Washington)

By fusing the personal political and economic preferences of many business people with anecdotes and national level opposition to President Obama, conservative think tanks and pundits have spent the last months offering a damning narrative about the president’s agenda over the course of his term. It’s been powerful – the president had created uncertainty, they said. Health care reform and the prospect of higher taxes left businesses uncertain about what they were going to face in the years ahead. Even the stimulus, which poured $800 billion into the economy, including the broadest tax-cut in American history, was supposedly contributing to a perfect storm of radical liberal economic illiteracy that was ensuring that unemployment remained at 9.5 percent. 

The only problem with that narrative is that it’s completely untrue and devoid of actual economic evidence. Today in the Washington Post, Neil Irwin writes (emphasis added):

CHICAGO -- Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they've yet to amp up hiring or make major investments -- the missing ingredients for a strong economic recovery.

Many Democrats say the economy needs more stimulus. Business lobbyists and their Republican allies say it needs less regulation and lower taxes.

But here in the heartland of America, senior executives say neither side's assessment fits.

They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis.

What role is government policy playing in fostering corporate caution?

The executive class in the Chicago region is none too pleased with many of the policies of President Obama, their former hometown senator. They criticize his willingness to let Bush-era tax cuts expire at year's end for households that make over $250,000 and allow the capital gains tax rate to increase. They dislike aspects of his landmark health-care law, and some fear that the financial overhaul legislation enacted this summer will make it harder for them to get loans.

"Congress has been very tough on businesses," said Jason Speer, chief executive of Quality Float Works of Schaumburg, Ill., which makes the industrial equivalent of toilet ball floats, items that sell for up to $1,200 and are used to measure water levels in farm and industrial equipment. The company also makes the metal balls that go on the top of flagpoles.

Fundamentally, executives objected to Obama's policies on the grounds they would make the United States a less competitive place to operate in the long run.

But when Speer and other executives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of overtime. So he is weighing whether to hire two or three additional manufacturing workers.

None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring.

On one hand, it would be great if these conservatives were right – it would make our economic problems much easier to solve. The President just could have gone on vacation on day one, and the economy would have fixed itself – No stimulus package, no reforming 1/6 of the American economy, no reigning in the excesses of a financial system that was clearly out of whack. Maybe, if he’d just gone away, business people wouldn’t be passing on profitable investments sitting under their noses instead of hoarding all this cash. (If conservatives are truly right, then, when they take over, they’ll just shrink government, and everyone in America will be healthy, wealthy, and wise. Oh wait…)

Even a cursory examination of the economic data reveals that the conservative narrative has no basis in reality. It’s tempting to interview a conservative business person, let them tell an anecdote that is informed mostly by their personal political preferences, and write that they’re “on the front lines of the economy.” Happily, Neil Irwin didn’t do that – instead he put their views to the test. And, while the business people Irwin talked to didn’t see the case for more stimulus, many economists do. On the flip side, it’s hard to find mainstream economists out there backing up the conservative narrative.

Here’s the real point – we can all agree that the economy is in truly bad shape. Tremendous structural challenges remain, and businesses have no reason to assume that consumers will come flooding in their doors within the year. American consumers, first hit with a lost decade of wage stagnation and median household income decline followed by the destruction of personal wealth, primarily in housing, do not possess the ability to drive the American (much less the global) economy as they have in the past. 

What Irwin’s article says to me, more than anything else, is that the current state and future outlook for the economy are unacceptable, so a robust economic agenda isn't a hindrance on growth, but rather a necessity. Nice words about the business community from Congress and the President won’t actually improve the economy, but policies that allow everyday Americans back into the game and build a 21st century economy – so that businesses can see more capable consumers in the future – will. 

Ezra Klein Discusses Rob Shapiro's Latest on Who to Blame for Unemployment

Washington Post blogger Ezra Klein picked up Rob Shapiro's blog from Tuesday on who to blame for unemployment. He made a helpful graph and said this:

 

"Obama's America," tweets Republican political consultant Patrick Ruffini, linking to this map of economic devastation.

Fairly or not, Ruffini raises an interesting question: How much unemployment can we blame on the Obama administration? Economist Rob Shapiro dug into some Bureau of Labor Statistics data and came back with the best numbers I've seen on the subject. He separated job losses into two buckets: Those that happened before the stimulus, which was Obama's major effort to deal with joblessness, and those that happened after the stimulus. Here's what he found:

"From December 2007 to July 2009 – the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy – private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans’ watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 – 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs."

We can argue about how much of the job losses should really be pinned on Republicans or Republican policies, of course. Financial deregulation happened under Bill Clinton, for instance. And it's hard to hold George W. Bush solely responsible for a global financial crisis. But insofar as the job losses go, it's hard to credibly blame this White House for the vast, vast majority of them.

That said, though this wasn't Obama's economic crisis, it is his economic recovery. There's a fair question as to whether another set of policies could've led to faster job growth over the last year or so. And the recent shakiness in the recovery is cause for concern on that front. So it's worth looking at Shapiro's proposal to strengthen the recovery, too:

Those can be found in Rob's blog from Tuesday - here.

President Obama's Remarks in Austin on the Economy

We liked the President's rhetoric yesterday about America needing to do more to stay prosperous in a more competitive global economy.

I said we’d build an economy that can compete in the 21st century -- because the economy that we had even before the recession, even before the financial crisis, wasn’t working for too many Americans.  Too many Americans had seen their wages flat-line, their incomes flat-line.  We were falling behind and unable to compete internationally.  And I said we need an economy that puts Americans back to work, an economy that’s built around three simple words -- Made in America.  (Applause.)  Because we are not playing for second place.  We are the United States of America, and like the Texas Longhorns, you play for first -- we play for first.  (Applause.)  

Now, when it comes to the economy, I said that in today’s world we're being pushed as never before.  From Beijing to Bangalore, from Seoul to San Paolo, new industries and innovations are flourishing.  Our competition is growing fiercer. And while our ultimate success has and always will depend on the incredible industriousness of the American worker and the ingenuity of American businesses and the power of our free market system, we also know that as a nation, we've got to pull together and do some fundamental shifts in how we've been operating to make sure America remains number one.

So that’s why I’ve set some ambitious goals for this country. I’ve called for doubling our exports within the next five years, so that we're not just buying from other countries, I want us to sell to other countries.  (Applause.)  We've talked about doubling our nation’s capacity to generate renewable energy by 2012, because I'm actually convinced that if we control the clean energy future, then our economic future will be bright -- building solar panels and wind turbines and biodiesel and -- (applause.) 

And I want us to produce 8 million more college graduates by 2020, because -- (applause) -- because America has to have the highest share of graduates compared to every other nation.

Whole speech here.

Senate Passes Teacher Funding & Aid to States; House Coming Back for Special Session

It was a good moment for America's economy and children yesterday, when @SpeakerPelosi tweeted: "I will be calling the House back into session early next week to save teachers' jobs and help seniors & children #FMAP." Now that the Senate has passed the $26 billion package of teacher funding and state aid, the House is all set for a special session to ensure passage of the funding in time to keep teachers in the classroom. 

In a memo released a week ago Friday, NDN called for the passage of these provisions:

Aid States and Localities and Extend Crucial and Expected Benefits 

As Education Secretary Duncan has warned, America’s students and their parents across the country could find as many as 300,000 fewer teachers in our classrooms this fall. Similar, involuntary downsizing is affecting countless other local and state government funded jobs, including police and others responsible for our public safety. Congress must relieve those pressures by providing more assistance to states and localities. In addition, important benefits, similar to unemployment insurance, must be extended, so long as there is just one job opening for every five unemployed workers. The economic payoff of preserving those jobs and extending those benefits, in terms of both employment and overall demand, will be significant. Moreover, recent polling shows that the American people strongly support these steps.

Simon also sent a letter to the Hill specifically calling on the Senate to pass the education funding, and NDN applauds this progress to both aid the economy and ensure students receive the education they've been promised. 

CEA Chair Romer on Q2 GDP, Need to Do More

On Friday, Dr. Christina Romer, Chair of the Council of Economic Advisors, blogged on the second quarter GDP numbers:

Today’s report shows that real GDP, the total amount of goods and services produced in the country, grew at a 2.4% annual rate in the second quarter of this year, the fourth straight quarter of positive growth.  Growth in the first quarter was revised up to 3.7%, meaning that growth has averaged over 3% for the first half of 2010.  This solid rate of growth indicates that the process of steady recovery from the recession continues.  Nevertheless, faster growth is needed to bring about substantial reductions in unemployment.  Much work clearly remains to be done before the U.S. economy is fully recovered.  The comprehensive data revisions released with the report provide further evidence of just how severe the recession has been: the fall in GDP between 2007:Q4 and 2009:Q2 was 4.1%, making this the deepest recession since 1947.

...

Moderate, sustained GDP growth is a vast improvement over the terrible declines in GDP of late 2008 and early 2009, and reassuring given the turbulence in financial markets following debt problems in Europe.  However, growth is below the rapid rate of increase needed to bring the unemployment rate down quickly.  For this reason, it is essential that Congress take the additional targeted actions that the President has recommended to further stimulate growth and job creation, such as increased lending and additional tax cuts for small businesses, aid to state and local governments to prevent the layoffs of hundreds of thousands of teachers, firefighters, and police, and tax credits to promote energy efficiency and clean energy manufacturing.

Passing the modest provisions that Dr. Romer lays out at the end of her post is of the highest importance. A week ago Friday, NDN published a paper about this and other near-term downpayments on a longer-term agenda. Additionally, we strongly encourage members of the Senate to vote in favor of the state aid package coming up tonight.

Let the Bush Tax Cuts for the Wealthy Expire

The Bush Tax Cuts of 2001 and 2003 were the largest pieces of economic policy from the last decade, one in which median household incomes declined and wages stagnated. As such, and for a panoply of other reasons, the portions of the tax cuts for the highest tax brackets should be allowed to expire. Steven Pearlstein and Ruth Marcus in the Washington Post both take a look at these dynamics today.

Pearlstein writes that the anti-tax dragon needs to be slain (and does a bit of the slaying):

It is the refusal to put any tax increase on the table that has impeded much-needed reform of the tax code and rendered impotent a bipartisan commission charged with figuring out how to rein in the budget deficit.

And it is the tax bugaboo that stands in the way of an investment agenda to match the global challenges we face.

If Obama fails to alter the political dynamic and finally slay the anti-tax dragon, it's game over for his economic agenda.

And Marcus writes about the illiteracy displayed by conservatives on tax policy:

At a breakfast with reporters the other day, Minnesota Gov. Tim Pawlenty, one of the GOP's rising stars and a more-likely-than-not 2012 presidential candidate, was asked what his reaction would be if the president's debt commission were to recommend a mix of spending cuts and tax increases.

"Not good," Pawlenty said. "I don't think the argument can be credibly made that the United States of America is undertaxed compared to our competitors." Actually, the United States is on the low end in terms of the overall tax burden -- 28 percent of gross domestic product in 2007, according to the Organization for Economic Cooperation and Development, compared with an average of 36 percent in the 30 OECD countries. Only South Korea, Mexico and Turkey were lower.

Of course, Pawlenty is hardly alone in his tax delusions. Senate Minority Leader Mitch McConnell proclaimed the other day that the Bush tax cuts actually raised money. "There's no evidence whatsoever that the Bush tax cuts actually diminished revenue," the Kentucky Republican told Brian Beutler of the Web site TPMDC. "They increased revenue, because of the vibrancy of these tax cuts in the economy."

Here's some evidence. Tax revenue fell from 21 percent of GDP in fiscal 2000 to 17.5 percent in 2008. (I'm leaving out the recession-induced plunge, to under 15 percent this year and last.)

Here's more evidence - a CBPP analysis of causes of deficits in the coming years:

deficits

It's pretty clear that the American people's money can be better spent to spur economic growth than on tax cuts for the wealthy. More on this to come...

Today @ NDN - Ambassador Karen Kornbluh on Jobs for the Future

On July 27, NDN will host the United States' Ambassador to the Organization for Economic Cooperation and Development (OECD), Karen Kornbluh. Ambassador Kornbluh, who previously served as Senator Barack Obama's Policy Director and as Deputy Chief of Staff at the Treasury Department, will discuss recent research on youth unemployment and what the US is doing at the OECD to address the high levels of youth unemployment brought on by the Great Recession.

Karen KornbluhAcross the vast majority of advanced industrialized economies, youth unemployment is far higher than unemployment in the general population. The OECD reports that in 2009 youth employment dropped more than employment for low-skilled workers, and, according to a Pew study released in February, 37% of the American millennial generation, those 18-29 years old, are unemployed or out of the workforce, "the highest share among this age group in more than three decades."

Extended unemployment following college graduation can have long-lasting career and life implications. Additionally, there exists great uncertainty as to how the advanced industrialized economies will create the jobs of the 21st century that can deliver prosperity to this emerging generation.

Ambassador Kornbluh will be joined by Dr. Robert Shapiro, Chair of NDN's Globalization Initiative and former Under Secretary of Commerce for Economic Affairs.

Ambassador Karen Kornbluh on "Jobs for the Future"
Tuesday, July 27 @ 12pm
NDN - 729 15th St NW, First Floor
RSVP  |  A live webcast will begin at 12:15pm

I hope you will join us for this important discussion.

 

New NDN Memo: Towards A New Economic Strategy for America - Steps We Can Take in 2010

The economy today is finally no longer shedding jobs, but as millions of out-of-work Americans know, businesses are creating new jobs at only an anemic rate.  The recent failure by Congress to pass a "jobs bill" with modest and economically-necessary provisions illustrates that, despite all of the disturbing economic data to the contrary, there is not yet broad consensus and policy and political framework for doing more to stimulate job creation.

In a memo released today entitled, "Towards A New Economic Strategy for America - Steps We Can Take in 2010," we argue that the American economy, in addition to facing dramatic cyclical economic weakness in the Great Recession, is going through large structural changes that call into question the ability of traditional strategies to drive broad-based prosperity. The memo reviews the structural and cyclical forces holding down U.S. job creation and presents a political and policy framework for addressing them in the near term. We argue that America needs a long-term economic strategy, and, that as a down payment on such a strategy, Congress should pass the following five provisions as soon as possible:

  • Aid States and Localities and Extend Crucial and Expected Benefits
  • Cut Payroll Taxes to Stimulate Demand and Create Jobs
  • Provide the Existing Workforce with Free IT and Internet Based Skill Training Through our Community College System
  • Create a Housing Stability Loan Program
  • Create Local Jobs and Innovation Centers

The full memo is available here.

Pearlstein on Regulation, Innovation, and the Bogus Business Uncertainty Meme

If you read one thing today, read Steven Pearlstein's piece on the meme the business community has been pushing about the "uncertainty" caused by the Obama agenda. 

The big complaint from the business lobby these days concerns a "lack of clarity" about federal regulation that prevents companies from using all that cash piling up on balance sheets to hire workers and make major investments.

Then, without missing a beat, those very same business groups declare themselves unalterably opposed to any climate-change legislation that sets plant-specific targets for carbon reductions, puts a floor and a ceiling on the price of carbon, tells utilities exactly how much of their power should come from low-carbon sources or sets specific standards for the energy efficiency of cars and appliances.

Apparently the Chamber of Commerce types think Americans are so gullible that we won't notice their blatant and self-serving hypocrisy. In reality, it's only a certain kind of regulatory clarity they seek -- the clarity of knowing that old regulations won't be enforced and new ones will be dictated by industry lobbyists.

And here I was thinking how much progress had been made in getting past the stale political bromides.

The whole piece is here, and is worth a read. Paul Krugman has also looked at the economic data that might support the uncertainty argument (it doesn't). At the end of the day, this regime uncertainty meme is questionable, polemical anecdote attempting to influence economic policymaking, which it shouldn't.

July 27 @ NDN - Ambassador Karen Kornbluh on Jobs for the Future

On July 27, NDN will host the United States' Ambassador to the Organization for Economic Cooperation and Development (OECD), Karen Kornbluh. Ambassador Kornbluh, who previously served as Senator Barack Obama's Policy Director and as Deputy Chief of Staff at the Treasury Department, will discuss recent research on youth unemployment and what the US is doing at the OECD to address the high levels of youth unemployment brought on by the Great Recession.

Karen KornbluhAcross the vast majority of advanced industrialized economies, youth unemployment is far higher than unemployment in the general population. The OECD reports that in 2009 youth employment dropped more than employment for low-skilled workers, and, according to a Pew study released in February, 37% of the American millennial generation, those 18-29 years old, are unemployed or out of the workforce, "the highest share among this age group in more than three decades."

Extended unemployment following college graduation can have long-lasting career and life implications. Additionally, there exists great uncertainty as to how the advanced industrialized economies will create the jobs of the 21st century that can deliver prosperity to this emerging generation.

Ambassador Kornbluh will be joined by Dr. Robert Shapiro, Chair of NDN's Globalization Initiative and former Under Secretary of Commerce for Economic Affairs.

Ambassador Karen Kornbluh on "Jobs for the Future"
Tuesday, July 27 @ 12pm
NDN - 729 15th St NW, First Floor
RSVP  |  A live webcast will begin at 12:15pm

I hope you will join us for this important discussion.

 

Syndicate content