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Business confidence

I've been trying to report out this question of business confidence and what, if anything, is depressing it beyond what the economic fundamentals would predict. It's difficult. For one thing, there's very little hard data on why, exactly, businesses aren't investing. The simple answer is that they don't think the investments will generate a sufficient rate of return, but that doesn't tell you nearly enough. So you get into the "why" of it.

But the why of it is, well, complicated. Answers differ from one businessman to the next, and from one survey of businesses to the next. A lot of the answers are in tension with one another: They want to see the deficit brought down, and they also want the tax cuts extended. They need unemployment to come down, but they want to see Washington back off. They want health care to cost less, but they don't want government to touch it.

Meanwhile, conversations with Washington Post columnists about what Washington can be doing have a political tinge to them. And this gets into another distorting factor: Businessmen are very, very Republican. Matt Yglesias posted a series of charts from Andrew Gelman that tell the tale:


As you can see, business owners are the most Republican occupational group, while managers are hot on their heels. Workers trend more Democratic.

I don't want to explain that away too much. A lot of these folks are Republicans because they hate taxes and regulations, and they hate taxes and regulations because they believe them to be bad for their businesses. As you might expect, their Washington trade groups are even more conservative, and are single-minded in their determination to weaken regulations and cut taxes.

What gets difficult in all this is separating things that are actually hurting businesses from things that Republican-leaning business owners, for reasons of ideology or personal self-interest, simply don't like. And because there's virtually no data on this question, there's really no way to tell the two apart.

By Ezra Klein  |  August 3, 2010; 5:41 PM ET
Categories:  Economy  
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Did businesspersons who are Republicans begin as Workers who were Social-Democrats?

While not surprising, it is both interesting and concerning that Business Owners, Administrators, Managers, and Professionals have an outlook differs from those lacking similar expertise. It seems rational to want those with business skill to be at the helm of any large enterprise: perhaps their ideological likes and dislikes are based on experience not yet acquired by even those Democrats who proclaim themselves to be policy experts.

A while back, there was an essay by Intel founder Andy Grove that had some insights. The essay also advocated the sort of manufacturing rebirth now being considered by SDP leadership. Interesting combination.

Posted by: rmgregory | August 3, 2010 6:17 PM | Report abuse

And non-skilled are the least Republican group. Isn't the basic point that whether the "progressive agenda" is actually hurting business or whether business owners simply don't like the actions being taken, the results are the same? That's the interesting thing about truth, perception is truth in the eye of the beholder. In order to encourage business investment you have to encourage the people making the investments. The "progressive agenda" simply does not address this reality. SO we will achieve the great goal of making everyone equal at a much lower standard of living. Actually, that will not happen because the reality is that people always vote their wallet, which the Democratic majority will find out over the next two elections. No one voted for health care reform. They voted for an improved economy and against possibly the least charismatic candidate to run in recent memory, John McCain.

Posted by: Samuel11 | August 3, 2010 6:21 PM | Report abuse

"A lot of these folks are Republicans because they hate taxes and regulations, and they hate taxes and regulations because they believe them to be bad for their businesses"

I seriously question which came first: the Republicanism or the business ownership.

Posted by: slag | August 3, 2010 6:34 PM | Report abuse

Ezra, your distinction appears irrelevant.

Maybe Democratic policies wouldn't "hurt" business. But the business owners think they will. If the economy needs the business owners to start investing (and not hording money in fear of "something"), then the owners need to feel comfortable with doing so.

In short, in order for the economy to recover, Republic business owners need to start spending their business'es money. Put another way, the government needs to make Republican business owners feel confident (however illogical the criteria for confidence might be). That isn't happening.

You can regulate the dickens out of businesses. But you can't MAKE them invest money.

Posted by: WEW72 | August 3, 2010 6:37 PM | Report abuse

"Isn't the basic point that whether the "progressive agenda" is actually hurting business or whether business owners simply don't like the actions being taken, the results are the same? In order to encourage business investment you have to encourage the people making the investments."

Let's hear it for plutocracy!

Posted by: slag | August 3, 2010 6:38 PM | Report abuse

Business owners will invest when they see a surge in demand.

You won't invest when orders are not increasing, and you won't hesitate to invest when they are - political ideology has nothing to do with this simple fact of business life.

Posted by: Patrick_M | August 3, 2010 6:49 PM | Report abuse

The idea that businessmen are more competent than others ought to be sent to its proper burial. Basically we had 8 years of the politicians that businessmen like. It led to an astounding disaster.

Now the businessmen, fighting it all the way, are acting angry that the Democrats couldn't fully dig us out, in a year and a half. Yet even McCain's own economist showed that the stimulus (which was one-third tax cuts) prevented even worse from happening, and it should have been bigger -- something the businessmen fought.

Yet if the op-ed pages of the Wall Street Journal or the Investors Business Daily are any indication, businessmen are back to their usual campaign mode of selling fear, uncertainty, resentment, and accusations of political incompetence, in order to get the same sort of clowns elected again.

There is really no mystery in this. They'll be able to make a few more pennies, and the devil take the hindmost. The wonder is that anyone else buys it. Or perhaps most of the commentators we are reading are actually Republican campaign shills hired by the blog-comment management departments of the big political public realtions firms.

Are businessmen somehow more competent in thinking? This is very doubtful. As Adam Smith pointed out, "The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labor." (Wealth of Nations, chapter 2)

Posted by: Lee_A_Arnold | August 3, 2010 6:53 PM | Report abuse

Time to start charging businesses to park their capital in government securities to encourage them to invest and not just sit on wads of cash...

Posted by: srw3 | August 3, 2010 6:55 PM | Report abuse

It's a wonder that many of the replies here suggest that businesses aren't re-investing capital. Check the GDP component breakdowns for at least the past two quarters.

Posted by: tuber | August 3, 2010 6:57 PM | Report abuse

The most interesting and arresting finding here is the almost reverse trends among professionals, who are trending heavily Dem, and skilled workers, who are trending GOP at about the same rate.

I attribute these two trends to (1) the Republican war on science and its anti-intellectualism in general, which has turned off a great many professionals, and (2) the decline of unions and shift/loss of skilled work. These are probably more electricians and less auto workers, and the auto workers are more likely to be at non-union plants in the more conservative South.

Anyway, these trends are as interesting as the tendency of businesspeople to be GOPers. And wasn't it you Ezra who had the post about how small businesses are discriminated against by big banks, who won't lend to them, and that, along with lack of demand, is a major reason they aren't investing/expanding/hiring.

Posted by: Mimikatz | August 3, 2010 7:14 PM | Report abuse

And Republicans tell me the market is perfect, and that if there is room to grow in the economy, and one business is holding off because they are scared about future interest rates or fear of getting taken over by ole Hussein, then another business is going to swoop in and steal market share.

Posted by: flounder2 | August 3, 2010 7:28 PM | Report abuse

Ah, those inscrutable businessmen! And poor Klein, unable to find the crack into which to shove his shiv of propaganda.

I wonder if it ever occurs to any of Klein's ilk that businessmen, et al, "hate taxes and regulations" solely because "taxes and regulations" are so incessantly imposed on businessmen.

I daresay that dim propagandists like Klein would "hate taxes and regulations" if Congress began imposing "taxes and regulations" on dim propagandists like Klein with anything approaching the regularity and ferocity of the last eighty years.

Posted by: msoja | August 3, 2010 7:37 PM | Report abuse

Slag: You're right. We should simply ignore reality, climb a mountain and shake our fist at the sky. I'm wide open to how you propose to make people invest for growth when they don't feel good about the actions of the government. Don't pontificate about a plutocracy, offer an alternative. If you are a proponent of the government nationalizing investment let's see how it goes with GM, Chrysler, AIG and GMAC.

Posted by: Samuel11 | August 3, 2010 9:40 PM | Report abuse

"For one thing, there's very little hard data on why, exactly, businesses aren't investing."

Didn't the recent GDP report show that business investment was up across the board? See link below.

I believe that some conservative commentators (at least those few who think things ahead) started making the business confidence claim because all their other metrics that purportedly proved that the markets were voting down Obamanomics eventually got blown out of the water: the Dow tanked...until it recovered after March '09; gold skyrocketed...until it flatlined; the dollar crashed...until it stabilized; 30 year bond yields jumped up...until they collapsed. My favorite of all was when 30 year bond yields were greater than corporate debt yields right after universal health care passed, which all conservatives assured us was the markets saying that ObamaCare would bust the debt; since then, 30 year bond yields are down almost 100 basis points.

Any way, so "business confidence" was finally used because it couldn't be measured. Whoops. With various types of business investment up about 20% this year, it seems that argument has cratered as well.

Posted by: JamesCody | August 3, 2010 9:42 PM | Report abuse

It's just really another level of hell isn't it? On the one hand, you really really really need those small businessmen to jack up the employment numbers so you can tell the 10% unemployed in this country that it's all good. But on the other hand, then you actually might have to listen to what those pesky small businessmen are telling you about how screwed up your agenda is.

Posted by: bgmma50 | August 3, 2010 10:08 PM | Report abuse

"What gets difficult in all this is separating things that are actually hurting businesses from things that Republican-leaning business owners, for reasons of ideology or personal self-interest, simply don't like."

These are slimy words. What's the difference between something that hurts me and something that's against my "personal" self-interest? I've never voted Republican, as I detest the hawkish, religionist and racist wings of the party, but I am seriously thinking about it as they appear to be seeing some political expediency in deficit control.

I've had no problem getting additional millions in credit from the banks- even able to shop for rates.

The unemployment problem is not about business investment, it's about the overpriced American worker. The relative run up in the dollar (as a result of the money supply contraction caused by the unrolling of the derivatives market and the reduction in home loans) has made this more pronounced- yet we've increased the nominal minimum wage 40% in 4 years. Yet, cutting wages to keep people from being laid off is happening. HP took a 5% paycut.

Posted by: staticvars | August 3, 2010 11:27 PM | Report abuse

@tuber: exactly. (Re)Investment is the heart, nature, virtue of business. I have worked for two companies from 2006-2010: a small semiconductor company and a network security enterprise. Both watch their market position on the Gartner "S" curve like a hawk. Both trade in markets that had become saturated by 2008. They were, in fact, moving into the declining edge of their markets' hype cycle when the bubble burst. To remain viable, both needed to innovate or pull off stunning M&As (quickly, cost-effectively) AND remain profitable. Both had difficulty predicting where the next bubble would come from ... so they became more cash retentive and implemented strategic (low-profile) layoffs to remain "profitable". And that's where they stand today. The companies make small, incremental adjustments in their product portfolios, maintain a lower or ever-lower-cost headcount, look sideways to capture (scavenger) key talent and/or technology that falls from some less-fortunate company's chopping block, and live with an increasing level of stockholder/investor phobia. Taken together, this behavior prevents them from making large investments of any kind. Investors prefer fiscally conservative, cash-rich companies ... who remain in a good position to "buy well-vetted, golden IP/talent" as it comes up for "sale". And my C-level execs ... have been mostly democrats.

Posted by: narenzo | August 4, 2010 2:46 AM | Report abuse

I am amazed that not one poster has mentioned the additional cost of new workers under the new health care bill. I am not a business expert, but it seems to me that if I were an employer, I would hold off hiring new workers as long as possible, given the increased costs for insurance. instead, I would contract out any additional work needed, have current employees work overtime, or buy robots to do assembly-line type work.

And as a small internet seller of antiques, I myself have been saving profits rather than re-investing, because I do not know if I will be forking over more in taxes next year or not. I imagine there are quite a few people like me.

We pesky Republicans just cannot be made to LIKE taxes, you see. I am sure Mr. Klein not only likes them. but sends extra to the government each year just to help out. What? He doesn't? Why not?
Would that be because he likes to keep as much money as he can legally?

Posted by: christacooper | August 4, 2010 6:21 AM | Report abuse

Maybe it's the 5000 pages of new big government regulations passed with Obamacare and Finreg in the past 6 months that have businesses too scared to invest. How about all the new business taxes? If you're a business owner and you have the most hostile to business ever administration in power why would you want to spend your money to grow your business?

Posted by: RobT1 | August 4, 2010 7:40 AM | Report abuse

Can Ezra read his own post a couple of hours earlier where they actually asked businessmen about this? And they said, wonder of wonders, that they're not that conffident because sales are flat. Gee, is that because demand is depressed? Because we're all struggling with the implosion of an $8 trillion dollar real estate asset bubble that served as our ATM for the last 10 years (especially with flat or declining incomes during that period)? Ezra's confusion on this issue is pretty pathetic for a so-called wonk.

Posted by: redscott | August 4, 2010 8:29 AM | Report abuse

Tuber and JamesCody are absolutely right: businesses are investing, and they're investing quite a lot (17% growth in equipment purchases over past quarter, IIRC). But they're not hiring. They are, however, posting job vacancies at a higher rate than previously (that's why we see the sharp vertical move in the Beveridge curve that has Krugman and DeLong so worried. But investment is happening, and since it would be investment (purchases of new capital goods) that would presumably be vulnerable to regulation-induced-depressed-animal-spirits, it seems very unlikely that either being run by a bunch of Republicans or being mad about new rules is having any impact on business decisions.

Posted by: rwclayton7 | August 4, 2010 10:24 AM | Report abuse

As usual, Steve Pearlstein has the best take on this:

"But so far the one thing businesses haven't done is hire back full-time employees, preferring instead to contract for temporary workers or increase the hours of the workers they already have.

There are lots of theories why this is happening. With consumers cutting back on debt-financed spending, cutting expenses has been the most obvious way for businesses to increase their profits. New technology and the decline of unions have surely enabled that trend, while big performance bonuses for top executives have encouraged it. And when one company does it, all the others feel compelled to follow suit. Add to that a noticeable lack of imagination and risk-taking among today's corporate executives, and you have a pretty good recipe for a jobless recovery.

The only surprise is that anyone is surprised by the lack of private-sector hiring. It is only in the world of Chamber of Commerce propaganda that businesses exist to create jobs. In the real world, businesses exist to create profits for shareholders, not jobs for workers. That's why they call it capitalism, not job-ism. There's no reason to beat up on business owners and executives simply because they're doing what the system encourages them to do."

Posted by: jnc4p | August 4, 2010 10:32 AM | Report abuse


However, here is an interesting graph of the ideologies of corporate board members:

The Chambers of Commerce is no doubt conservative, but it is interesting that many of the board members for these large companies are not (see: Wall-Mart).

Posted by: chrisgaun | August 4, 2010 12:10 PM | Report abuse

"Time to start charging businesses to park their capital in government securities to encourage them to invest and not just set on wads of cash" posted by srw3
This is the most hire brained socialist comment that could be made by someone that dose not know a damn thing about business. The money belongs to private shareholder many of whom are retired investors. Even institutional owners such as mutual funds and penions are made up of individual shareholders. Only socialist want to penalize individual shareholders.

Businesses have just came through one of the worst recessions ever and they are cautions particularly with all the anti-business rhetoric coming out of Washington D C. The Democrats strategy for passing health care was to bash insurance and pharmaceutical companies, their strategy to pass financial regulation was to bash wall street and big banks and their strategy for cap and trade is to bash big oil.

Posted by: hfarmer2 | August 4, 2010 1:35 PM | Report abuse

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