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Business confidence

There's something of a running argument over the question of why businesses aren't investing. The issue is not that it's hard to think of a reason. The issue is that it's much too easy.

They're probably not investing because there's not much aggregate demand, some say. Who's going to invest when there's almost 10 percent unemployment and no clear picture of how quickly the economy will recover?

They're probably not investing because recent volatility in the financial markets has left them terrified that something they're not seeing now will plunge us back into recession or freeze the credit markets, others argue. Who's going to invest when there's a chance that Europe is going to collapse, or China's real estate bubble will burst, or something else is going to happen and send a skittish market skittering away?

Then there's the position that's become increasingly popular among conservatives: Businesses are probably not investing because new government regulations have injected uncertainty into the marketplace, just as Amity Shlaes says happened during the Great Depression.

This isn't an either/or question, of course. To some degree, it's all three. The question is how much of all three. You can measure aggregate demand, and you can point to sluggish credit markets, but you can't gather much but anecdotal evidence for the point on regulations.

I'd think of it this way: Imagine two economies. In one economy, unemployment is 10 percent. Credit markets are freaked out. But neither health-care reform nor financial reform passed. So the regulatory uncertainty is absent. How different do you believe businesses behave in that economy?

Now imagine another economy. Unemployment is 4 percent, credit markets are calm, But both financial regulation and health-care reform passed. Do you believe businesses would be sitting on their money in that economy?

By Ezra Klein  |  July 22, 2010; 12:05 PM ET
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Health care (transformation) is one of the best issues this current administration has done thus far. With this change individuals will have the opportunity to seek professional and quality health care services. Who would want to return to the days of the horse and buggy, b/w tv sets, manual typewriters, pac man, you get the point? That's about how old the health care system was in the USA. Each day the news is filled with social tragedies in which lives are taken at the hands of known acquaintences and/or family members. Our society is stricken with the institutions of white collar crime permeating throughout this great nation and greed which tends to strike at the very fabric of our country. If you are looking for affordable health insurance check out . I hope everyone will soon recognize and use the resources made by this transformation to seek professional medical attention as the need arises rather than turning to illegal and criminal activities to resolve their issues.

Posted by: briansusan | July 22, 2010 12:13 PM | Report abuse

This is the thing I do not understand with this Administration. It is relatively straight forward and doable for Administration that its Health Sec., Treasury Sec. and Commerce Sec. talk with Businesses and understand what clarifications they need about new bills passed. Passing those bills is the issue of policy and politics and Businesses cannot gripe about that. That is the rule of the land and the political process for that reaches to a natural conclusion.

For Adm. to make these honest efforts to make list of 'clarification of rules' and to pursue this diligently over a period will be equivalent of taking the air out of the opposition sail.

Until they do that, people are bound to suspect Administration has lot to hide and intend to manipulate interpretation of new laws for some hidden agenda.

This is something 'administratively' easy to face head on.

Posted by: umesh409 | July 22, 2010 12:14 PM | Report abuse

This narrative of business siting on cash because of regulatory uncertainty is a farce. I think they just say that because they have much more influence in whether there are new regulations than in improving aggregate.

From Calculated Risk:

Fed Chairman Ben Bernanke was asked today why he thought companies with significant cash weren't investing. His answer was that most companies currently have excess capacity

Posted by: Mazzi455 | July 22, 2010 12:20 PM | Report abuse

How about they are not investing because they don't see the US as a place to make money going forward? An aging workforce with crummy skills won't be able to be the consumers they once were -- and what they can consume will be made elsewhere. The states are crashingly dysfunctional as is the federal state. What's to plunk money into except the Wall Street casino? Seems pretty obvious to me.

Posted by: janinsanfran | July 22, 2010 12:23 PM | Report abuse

You know, I knew there'd be a drop off in comments from yesterday, but I'm still pretty shocked at how quiet it is.

Posted by: MosBen | July 22, 2010 12:43 PM | Report abuse

"For Adm. to make these honest efforts to make list of 'clarification of rules' and to pursue this diligently over a period will be equivalent of taking the air out of the opposition sail. "

The thing is, this is impossible until those rules actually exist. With both healthcare & finreg, the statute has been passed but it's huge and complicated and it will take at least a few years for regulatory agencies to decide what the language means, write regulations, set up programs, and undertake enforcement actions. Then it'll take a few more years for the various impacted healthcare and financial organizations to sue and see how judges interpret the law & regs. It'll probably take a few MORE years after that for investors to really feel comfortable with the new landscape.

I mean, my fear is that the conservative movement has hit on something half-right, but as usual is twisting into a partisan narrative. We spent most of the last decade letting huge problems pile up, but this often took the form of the regulatory state keeping its foot on the accelerator when it should have been braking. By 2008, we desperately needed healthcare and financial reform. It SHOULD have been done while we were growing and could have absorbed the slowdown, but it simply wasn't.

So I think both were absolutely worth doing. But yeah, both will almost certainly slow down growth in those industries (in fact, you could argue that slowing down growth -- at least rapid, uncontrolled growth -- is the POINT of both laws). The fact that it's the conservative movement's fault for FORCING the government to wait until the middle of a deep recession to simply regulate responsibly won't stop them from running on that fact.

Posted by: NS12345 | July 22, 2010 12:48 PM | Report abuse

Now imagine another economy. Unemployment is 4 percent, credit markets are calm, But both financial regulation and health-care reform passed.


Ezra was that supposed to be a bad joke? Unemployment at 4%? Unemployment will NEVER be 4% EVER AGAIN. Its the new normal. My question (and I'll ask this at research desk when it comes up although I'm thinking its not LIBERAL enough to get answered) is how is the unemployment percentage affected if legalization is passed tomorrow?

Are those that are illegal (how many millions now?) counted at all at the 9.5% If not how much would it go up to?

4% unemployment is sadly the funniest thing you've said around here in a long time.

Posted by: visionbrkr | July 22, 2010 1:09 PM | Report abuse

Or you can poll businesses and see what their real concerns are. The Federation of Independent Businesses (NFIB) has done exactly this for many years (results graphed in link):


Concerns about taxes have not moved much as the "single most important problem," but concerns about sales have sky-rocketed!

Posted by: chrisgaun | July 22, 2010 1:13 PM | Report abuse

Part of the uncertainty, if you believe the whiners on CNBC, is fear of their taxes going up, both top marginal tax rates and the sweet (15%) deal for dividend income. So part of the complaining by business has to be seen as a campaign to forestall the repeal of the Bush tax rates and to "work the refs" for more favorable regulations.

But the biggest element is the drop in demand. With high unemployment, loss of work hours and benefits and households paying down debt, there just isn't the demand for stuff except at the very top. And with lowered end demand, businesses can't just sell top each otehr forever, or to Asia and Latin America.

That said, we can't realistically go back to the consumer demand levels of 2006-8, because that was a bubble. We need to reverse the redistributionist tax policies and business models that caused the top 1% to experience triple digit income growth while everyone else stood still, so that the same amount of money will fuel more productive demand. Otherwise we will have sub-par growth, and we will need to boost revenues and cut spending even more to get the deficit under control long term.

Posted by: Mimikatz | July 22, 2010 1:14 PM | Report abuse

Business investment in equipment IS growing rapidly, though it still has a way to go before getting back to pre-crisis levels:

But business investment in buildings is still declining. One suspects that there is a large overhang of recently constructed commercial real estate from the boom right before the crisis.

Overall, though, the idea that all businesses aren't investing is not quite right.

Posted by: economista | July 22, 2010 1:19 PM | Report abuse

An economy with 4% unemployment can afford a little stupidity and fiscal insanity. One at 10% and rising, can't.

Posted by: bgmma50 | July 22, 2010 1:30 PM | Report abuse

The post seems to misunderstand the concept of "regulatory uncertainty". For regulatory uncertainty purposes, legislation that hasn't been passed is far more problematic than legislation that has passed. For example, the financial and health care industries are in much better shape than the energy industry, as far as regulatory certainty goes.

Doesn't appear that regulatory certainty issues are listed as options for that chart, though the "LACK OF DEMAND YOU MORONS" point comes through fairly clearly.

Posted by: eggnogfool | July 22, 2010 1:42 PM | Report abuse

Ezra, my tiddy up that resume dude...

Posted by: luca_20009 | July 22, 2010 1:51 PM | Report abuse

"An economy with 4% unemployment can afford a little stupidity and fiscal insanity. One at 10% and rising, can't."

That's pretty much the antithesis of policy competence.

Posted by: eggnogfool | July 22, 2010 1:51 PM | Report abuse

Of the three issues Ezra mentions: 1 Aggregate Demand, 2. Global Economic uncertainty, and 3. U.S. Regulatory uncertainty; I have no doubt the problem with our economy is a lot of 2 and a little of 3.

By now, in a more normal economic downturn, where the aggregate demand issue is the major problem, we would have a more V shaped recovery taking place. This L shaped economy is sticking around because of the tremendous global uncertainly and the amount of regulatory change in our US economy.

Posted by: lancediverson | July 22, 2010 1:57 PM | Report abuse

"Ezra, my tiddy up that resume dude..."

People who have made careers out of talking about politics like to talk about politics? Stop the presses, we need to change the headline story!

Posted by: eggnogfool | July 22, 2010 2:04 PM | Report abuse

At what point ever is there not regulatory uncertainty? It's been clear for maybe 6 years that the Bush tax cuts could not be extended and something would have to change. Health care has been perilous for a long time. Is a Roth IRA a good idea? Not if we get a FAIR tax or some sort of value added tax. The politically contended segments of the economy are constantly being contended and there will always be uncertainly on the outcome. The point if of course there is much much less uncertainty that almost anything else involving a business. Hiring someone for a job is pretty risky.

Posted by: windshouter | July 22, 2010 2:04 PM | Report abuse

@luca_20009 : I held my nose and went to the caller site. I didn't see one single item presented that wasn't an accurate description of Palin, her role in the McCain campaign, and her positions.

Exactly what are your undies in a bunch about? That some reporters took completely accurate observations about Palin and wrote stories about her? And there was no coordination of the message, Lord Ezra didn't dole out the different facts to different reporters and suggest that they come out in a certain order to maximize the impact.

And why not release the entire thread instead of the short snippets. Doesn't carlson have enough 1s and 0s? Post the days emails as a separate entry so that people can accruately judge carlson's interpretations of the emails?

Why, why, why doesn't he release the whole conversation and not just the parts that try to justify his conclusions (they don't, BTW.)

And speaking of coordination, was it coincidence that Palin was interviewed about this the day before this thread was published? Really? Talk about media collusion....

Posted by: srw3 | July 22, 2010 2:19 PM | Report abuse

@ld:By now, in a more normal economic downturn, where the aggregate demand issue is the major problem, we would have a more V shaped recovery taking place.

Right, like the last 2 "recoveries" during the bush era, where few jobs were created and the recovery was mostly centered in the financial services industry, leaving the rest of the economy in the dust. That's the new normal I guess...

Posted by: srw3 | July 22, 2010 2:24 PM | Report abuse


I can't believe you would suggest that right wingers might try to defame people by dishonestly taking comments out of context. I for one am confident that every snippet released by any right wing individual or organization is perfectly reflective of the full text and/or opinions of the person to whom it is attributed.

PS: that said, Ezra or any of the lefties can feel free to release the full database whenever.

Posted by: eggnogfool | July 22, 2010 2:30 PM | Report abuse


obviously carlson's trying to beef up viewership to his site.

And I think the issue is around the fact that some of them (certainly not all) were trying to SHAPE the news instead of just report it. You know what many liberals (CORRECTLY) accuse some Fox programs of doing?

Not only are they trying to shape it they're drilling down into details to say, for example "OK, if we do this then it will make her look good so we don't want to do that"

The power that the media has (which honestly they've probably always had) to influence this is honestly kind of scary and that's the case of the liberal and conservative media.

We are at a point now where almost no media coverage is believable and we all have to (and should) take whatever we hear from whatever source we hear it from with a grain of salt and that's honestly sad.

Posted by: visionbrkr | July 22, 2010 2:35 PM | Report abuse

@ENF:Ezra or any of the lefties can feel free to release the full database whenever.

I guess you missed the part where Ezra invited people join in the belief that this would be off the record. He is sticking to his word on this. Carlson has no such impediments to him releasing what he has of the archive, but that would ruin his made up interpretations of what was actually written.

Posted by: srw3 | July 22, 2010 2:38 PM | Report abuse


But is there any evidence that they were trying to shape the news (as opposed to just reporting)?

Such evidence would take the form of (A) relationships between the private listserv discussion and published articles by listserv members and (B) homogeneity of the public points (from (A)) made by listserv members relative to each other and heterogeneity relative to non-list members.

I have seen 0 evidence fitting into either category.

Posted by: eggnogfool | July 22, 2010 2:48 PM | Report abuse


well you've convinced me.

Fox News IS fair and balanced.

Posted by: visionbrkr | July 22, 2010 3:00 PM | Report abuse

Isn't part of the problem with the US economy that most of the job growth we had over the past 10-20 years was in service oriented fields (banking, finance, insurance, advertising, etc.) as opposed to manufacturing so when the recession hit, it was easy to cut those jobs and there hasn't been a great need for most of them to return? Do we really need more derivative traders or insurance salesman?

If Dylan Matthews does his thing again, I'd like to see where most of the job loss occurred in comparion to where we saw job growth in prior years. Maybe we were experiencing a type of "jobs bubble" over the past 20 years and when the housing bubble burst it took the jobs bubble down with it.

Posted by: saratogian | July 22, 2010 3:14 PM | Report abuse

Kind of the opposite. We've lost 20% of the manufacturing/construction jobs that we had in 2006ish, vs. maybe 3% of service-providing jobs.

Manufacturing/construction only made up around 15% of our jobs pre-recession, but they accounted for most of the job losses we've had.

Posted by: eggnogfool | July 22, 2010 3:36 PM | Report abuse

As I keep pointing out, these same companies were also sitting on record amounts of cash in the years before the crash. That gives us some clue. They weren't afraid of new taxes or regulations during the Bush years. But even then, even in a strong economy, the amount of cash they had relative to the amount of market that they could produce for and sell to was out of balance. They were so good at paying little, outsourcing, etc. that they didn't leave enough market to make use of their capital.

Posted by: TomCantlon | July 22, 2010 3:46 PM | Report abuse

Thanks for the info eggnogfool. I should have read Dylan's column today before posting.

Posted by: saratogian | July 22, 2010 4:00 PM | Report abuse

visionbrkr, but haven't there been tons of occassions where various outlets, whether Maddow, Olberman, The Daily Show, Media Matters, or whoever, show a relationship between the development of a story on the opinion side of Fox News and the reporting of that story on the news side?

And really, the Fox News comparison isn't really apples to apples. What we're talking about in JournoList is whether the opinions that these people hold personally and in private get reflected in some inaccuracy or unfairness in their professional reporting. At least, that's what we should be talking about. I think the *real* discussion we're having is that some people said some mean things about other people in private and isn't that horrible.

With Fox News we're talking about the professional opinion pieces bleeding into the coverage of the supposedly neutral news side.

Posted by: MosBen | July 22, 2010 4:31 PM | Report abuse


i was being sarcastic about Fox news. sorry i didn't add the "snark" that I normally see from srw3 ;-)

To me the best is the Daily Show. While Jon Stewart seems fairly progressive in nature he never fails to rag on liberals when they deserve it.

And some shows on MSNBC aren't over the top but lately the Ed Show and Chris Matthews just make no sense at all. Same goes for Olbermann (IMO). Maddow at least has a point to what she does.

Posted by: visionbrkr | July 22, 2010 9:23 PM | Report abuse

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