JONATHAN COHN JULY 15, 2010
It’s conventional wisdom among business leaders: Our economy would be in much better shape right now if Obama hadn’t injected so much uncertainty into the market. Health-care reform, financial-regulation reform, the prospects of an energy bill, and even the unclear fate of the Bush tax cuts—all these things have led corporations to hoard record levels of cash instead of investing their money and creating jobs. If Obama weren’t so doggone anti-business, the economy would be humming right along.
This explanation sounds good; it just happens to be wrong. Paul Krugman has pointed out that businesses aren’t investing due to low consumer demand for products and excess capacity. And Barry Ritholz notes that corporate cash-stockpiling is merely a continuation of a well-documented, long-term trend, not a reflection on Obama’s policies.
And today, Dean Baker, co-director of the Center for Economic and Policy Research offered a particularly compelling piece of evidence to suggest uncertainty isn’t the problem:
The number of hours worked per worker has plunged in this downturn and risen only modestly from its lowpoint. The current average of 34.1 hours is almost 2 percent lower than the 34.7 avearge in December of 2007, the month the recession began.
If firms would otherwise hire workers but are being discouraged by uncertainty or regulations then the number of hours worked per worker should be increasing, not decreasing. Firms would be working their existing workforce longer rather than hiring new workers. Since firms are actually using their existing workforce less, this implies that the problem is a lack of demand pure and simple.
As Matt Miller noted in The Washington Post yesterday, Obama has generally avoided harsh interventions in the business world. The financial reforms passed today, while impressive, fall short of the Wall Street beatdown some had desired. And the stimulus has helped many companies, even some led by people now trashing Obama as anti-business.
There are many reasons the engines of economic recovery sit idle. Excess capacity, low consumer confidence, and the evaporation of trillions of dollars housing wealth all tell part of the story. But uncertainty? Come on.
The future is inherently uncertain, and all legislation has some unforeseen consequences. But with a crushing recession only a few quarters of growth behind us, attributing our continuing economic woes to uncertainty isn’t reasonable. It’s an attempt to push Obama into giving businesses preferential treatment.