Randall Forsyth: Uncertainty Stifles Business Spending

Posted by Kendall Harmon

....these macroeconomic arguments between policy-makers and intellectuals are blind to obstacles to growth faced on a micro level by real, live entrepreneurs and managers. Confronted with incredible uncertainty about the future business climate brought about by massive regulatory and tax changes, they are sitting on cash instead of investing in capital equipment and, especially, hiring new workers.

White House Chief of Staff Rahm Emanuel famously said never let a crisis go to waste. But the policy changes on health-care and financial services that have emerged from the current crisis, plus the largest tax increase in history that will hit Jan. 1 without Congressional action, are restraining companies, especially mid-to-small-sized ones.

Atlas didn't shrug; he's sitting on his hands—and his wallet.

That is the message heard repeatedly from entrepreneurs, their private-equity investors and their wealth managers. And it is becoming increasingly apparent, not so much in the parade of stronger-than-expected second-quarter earnings numbers from Standard & Poor's 500 companies, but in regional Federal Reserve Bank reports.

Read it all.

Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeCredit MarketsLabor/Labor Unions/Labor MarketThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

Posted July 29, 2010 at 7:00 am [Printer Friendly] [Print w/ comments]

1. Capt. Father Warren wrote:

I was traveling with the CEO of a company yesterday.  The company has only hired to replace key people who have left the company.  The company is accumulating cash and making investments in minor process changes where they can reliabley calculate the rate of return on those investments.  Nothing bold is being done because he has no idea what will happen 6 to 12 months down the road.  His feeling seemed to be that any major investments made now could be invalidated by new regulations and then they might not have the resources to recover from that.  As most industrialists know, discounted rate of return calculations typically work on a ten year horizon and everyone knows that in the out years things might change but that is okay because those effects are less due to the the discounted nature of the calculations.  But when you can’t even fathom the next 6 months, that throws serious cold water on the whole enterprise.

July 29, 8:45 am | [comment link]
2. John Wilkins wrote:

Thus Keynes is redeemed.  He argued that during a downturn, the wild spirits of the entrepreneur will be tamed.  This is precisely why government must spend.  Businesses won’t.  And you can’t force businesses to spend unless someone is buying their products.

July 29, 6:12 pm | [comment link]
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