At any time, some economic conditions would be better than others, but the more certainty about conditions the better. Today, investors and employers are certain that uncertainties are multiplying.
They are uncertain about when interest rates will rise, and by how much.
They do not know how badly the economy will be burdened by the expiration, approximately 200 days from now, of the Bush tax cuts on high earners — aka investors and employers. They know the costs of Obamacare will be higher than was advertised, but not how much higher. They do not know the potential costs of cap-and-trade and other energy policies.
They do not know if “card check” — abolition of the right of secret ballot elections in unionization decisions — will pass, or how much the economy will be injured by making unions more muscular. They do not know how the functioning of the financial sector will be altered and impeded by the many new regulatory rules and agencies created by the financial reform legislation.
The economy has become dependent on government stimulation of demand, and no one knows what will happen as the stimulus spending wanes.
Investors and employers are watching all of Obama’s bold experimentation with the economy patiently, and keeping their money in their wallets. Who can afford to hire more workers when the costs of running a business or making a profit on an investment goes up and up and up? When Obama is kicked out of office in 2012, and the economy settles down, then employers and investors will breathe a sigh of relief and hiring can resume.
Barack Obama likes to tell people that we should thank him for his interventionist economic policies, and that without them, unemployment would be much worse in the US than it is now. For instance, he told Racine that without his economic stimulus, we’d be at 12, 13, even 15% — even though Racine itself is at 14.2% unemployment. D’oh! Otherwise, this looks like a classic Churchill conundrum. Had the UK elected Winston Churchill as Prime Minister in 1936 and he fought Hitler early, forcing him from power, would Churchill have gotten credit for saving Western civilization? Or would he have been seen as a war monger, without the context of tens of millions of dead people in World War II?
Actually, we can test the hypothesis in this case, at least to some extent. The financial collapse also battered our northern neighbor, Canada, although not quite to the same extent it did us. (Canada has more conservative banking and lending policies, which shielded them from the worst of the problems.) Instead of using a blizzard of government spending to correct a downturn in unemployment, Canada tightened its belt and rode it out.
So how do the two compare?
Here’s Canada’s employment chart from their Statistics Canada web site – it shows how many thousands of people are employed.
Source: Statistics Canada
Where’s the recession? There is no recession in Canada.
And they say:
Employment rose by 93,000 in June, pushing the unemployment rate down 0.2 percentage points to 7.9%. This is the first time the rate has been below the 8% mark since January 2009.
Employment has been on an upward trend since July 2009, increasing by 403,000 (+2.4%). These gains offset nearly all the employment losses observed during the labour market downturn which began in the fall of 2008. The June unemployment rate, however, remained well above the October 2008 rate of 6.2%, due to a large increase in the number of people in the labour force over this period.
Yeah – they actually delivered the sub-8% unemployment rate that Obama promised and failed to deliver. And Ed hazards a guess as to why that may be.
He writes:
For those who have trouble recognizing it, that’s what a recovery looks like. Canada’s job creation really has gone in the right direction, not simply plateaued at the nadir of the curve. Maybe Canada’s private sector has been hiring because it doesn’t have to worry about the price signals of the massive government interventions created by the Obama administration that the US private sector has to deal with.
We talked before about how businesses fear “bold experimentation” in economic policy from an interventionist government. That’s the kind of thing that causes depressions, by the way.
Canada’s unemployment rate started off HIGHER than ours, and it is not LOWER than ours. How can that be? Their economy is dependent on us! Well, they didn’t act to “stimulate” the economy with massive government spending, and they’ve been signing free trade deals with everybody and their mother in order to diversify their trading so that we don’t take them down with us. And it’s working. Prime Minister Stephen Harper is an F.A. Hayek conservative, not a J.M. Keynes liberal. He doesn’t believe in deficit spending.
Ah, the benefits of electing an economist to run your country, instead of a demagogue community organizer who sues banks and wants to “spread the wealth”.
But government spending can only be a bridge to private-sector investment. The key to a sustainable recovery and robust economic growth is to get companies investing in America. So why are they reluctant, despite having mounds of cash? I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.
Economic uncertainty was the primary cause of their caution. “We’ve just been through a tsunami and that produces caution,” one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, chief executive of General Electric, complained Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad laws and regulations being cooked up in Washington.
One CEO told me, “Almost every agency we deal with has announced some expansion of its authority, which naturally makes me concerned about what’s in store for us for the future.” Another pointed out that between the health-care bill, financial reform and possibly cap-and-trade, his company had lawyers working day and night to figure out the implications of all these new regulations. Lobbyists have been delighted by all this activity. “[Obama] exaggerates our power, but he increases demand for our services,” superlobbyist Tony Podesta told the New York Times.
Most of the business leaders I spoke to had voted for Barack Obama. They still admire him. Those who had met him thought he was unusually smart. But all think he is, at his core, anti-business. When I asked for specifics, they pointed to the fact that Obama has no business executives in his Cabinet, that he rarely consults with CEOs (except for photo ops), that he has almost no private-sector experience, that he’s made clear he thinks government and nonprofit work are superior to the private sector. It all added up to a profound sense of distrust.
I think this was one of the points that really stood out to me in Amity Shlaes’ book “The Forgotten Man”, a badly-written book on the Great Depression. She spoke at length about how the unpredictable interventionism of statists like Herbert Hoover and Franklin Delano Roosevelt caused businesses to get so flustered that they just stopped all entrepreneurial activity, including hiring, in order to wait the big-government socialists out. It ended up delaying the economic recovery.
And that’s what we see with Obama and his interventions into the free market today. Every dollar spend by the government costs jobs. Every regulation passed to control businesses costs jobs. Every line of anti-capitalist rhetoric costs jobs. Every Obama is doing to oppose businesses costs jobs. At some point, he’s going to realize that the election is over and he needs to stop scaring businesses in order to win the votes. Now is the time for tax cuts on businesses.
WINTERY KNIGHT 