Where the recovery will come from
This was in Wonkbook, but I want to emphasize it again:
Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under presidents Ronald Reagan and Bill Clinton.
There are a bunch of political points you can make on this. One that I've made before is that it's a pretty pro-business performance from an anti-business president. Doug Holtz-Eakin, continuing his transformation from respect economist to political operative, takes it in the other direction and wonders whether this gives the White House a sad. “Obama sounds a lot like he wants corporations to be less profitable," Holtz-Eakin told Politico.
But the economic point is that this is where recovery will come from. Businesses have money to spend. They just need a reason to spend it. And there is only one reason they will accept: If they spend that money -- if they invest in more workers and more plants and more advertisements -- they will make more money in return.
One way to do that is to increase demand in the economy. A payroll-tax holiday, for instance, would get workers to spend some money, and that would mean the people who produce the stuff they want to buy will have to make more of it. Another way to influence that equation is to increase inflation and decrease the return of safe investments like Treasuries so that it's less profitable to just leave that money sitting around. It would be nice to believe the next Congress is thinking seriously about this, but there's not much evidence of it yet.
| October 29, 2010; 9:35 AM ET
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