Governor Palin: Uncertainty Created by Obama’s Hostility to Business is Preventing Job Creation
During the great depression, many Americans lost their life savings due to the great stock market crash and the failure of many of the nation’s banks. This resulted in one of the depression’s most enduring legacies: the reluctance of many people who suffered this fate to invest their future earnings in the stock market, or, in many cases, even put them in the bank. We’ve all heard the stories about descendants of depression era survivors finding huge amounts of cash in the homes (hidden in the walls, buried in the yard, etc.) of relatives after their deaths. Of course people in later generations thought this was silly and couldn’t understand why someone would essentially hide their money under the mattress rather than invest it to make more. But to those who experienced total loss of their money, it made perfect sense. To put it simply, they were afraid of losing their money again and hiding it in their homes was the only way they saw to prevent this. Fear is a powerful motivator.
Today, albeit for different reasons, we see this phenomenon repeating itself. In a post last week I discussed, among other things, the recent tendency of businesses to hoard cash at record levels. In normal times, it’s not rational for businesses to sit on huge piles of cash any more than it’s rational for households to hide cash under mattresses. When a business hoards cash instead of investing it in business expansion, they are taking a big risk because if the economy does take off, they will get left behind as they won’t be in a position to meet the increased in demand for their product or service. Therefore, there are costs (what economists call opportunity costs) associated with hoarding cash that are not insignificant. If a business gets caught flat-footed in a rapidly growing economy, they risk being buried by competitors, foreign and domestic, who didn’t sit on the sidelines. And yet an increasing number of businesses are taking this risk.
The only reason for businesses to do this is if they fear the alternative: investing in the growth of their business. In other words, if their fear of losing their investment exceeds their fear of missing out on an opportunity to expand production and profits, it suddenly becomes rational to hoard cash rather than invest it.
There are two related reasons for this. The first is the growing perception among those who run businesses that the Obama Administration is simply hostile to business and free markets. They look at Obama’s nationalization of the student loan program, GM, Chrysler, banks, and myriad other examples of Obama’s open hostility to free-market capitalism. The perception among business owners, large and small, is that Obama thinks he has ultimate authority over how they run their firm and how much money, if any, they are permitted to earn. The other day billionaire publishing and real estate tycoon Mortimer Zuckerman, whose political contributions mainly flow to Democrats, took Obama to task for the dismal business outlook his policies and rhetoric have created. Speaking to the usual Obama acolytes on MSNBC’s Morning Joe, he referred to the Obama Administration as "the most hostile administration to business, and the role of business, that we’ve had in decades":
Zuckerman also indirectly touched on the second reason businesses are hoarding cash: uncertainty. The always clueless Mika Brzezinski, who calls Abraham Lincoln her favorite "founding father", tries to interrupt Zuckerman by claiming that Obama’s anti-business rants are "just rhetoric" and therefore, presumably, we should ignore it. Zuckerman, who knows a thing or two about business, gives her and the rest of the gang a rhetorical face palm:
Rhetoric is damned important when you want to make a long-term investment. You want to have a sense of confidence. This has been the most anti-business administration and the whole business community feels it.
Mika’s response is to make a face (from :38 to :43) not unlike that of a 6-year old girl who’s just been told she can’t have any ice cream unless she finishes her peas.
Returning to Zuckerman’s point, hostile rhetoric coming on top of hostile actions by an anti-business administration greatly increases the uncertainty facing businesses as they weigh the decision of whether or not to expand production and payroll. Combine Obama’s anti-market rhetoric with all of his proposed policies such as unprecedented deficits and debt, Obamacare mandates, Cap & Tax, a value-added tax, massive tax increases scheduled for January 1, 2011, and it’s clear that businesses face an increasingly uncertain and ominous future. In light of this, hoarding cash against a coming economic disaster is perfectly rational.
Left-wing pundit Fareed Zakariah, evidently, couldn’t figure out on his own why businesses are hoarding so much cash so, therefore, he interviewed some prominent business leaders for an article in the Washington Post (emphasis mine):
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 doubt more than a few, if any, business leaders really "admire" Obama but said so to avoid potential retribution from his administration. Either that or Zakariah just made that part up. With his complete lack of any actual business or executive experience, Obama’s not qualified to land a job in the mail room of most corporations. But I digress. The concerns raised by these business leaders (e.g. economic uncertainty, taxes and regulations, Obama’s lack of private sector experience, anti-business rhetoric and policies, etc., etc.) have all been raised before. Governor Palin has brought these issues up repeatedly, most recently in her interview with the Fox Business Network’s Eric Bolling:
At about the 3:45 mark in the above video, the following exchange took place between Governor Palin and Bolling:
SP: What this is all about is more uncertainty coming from the Feds. Business owners need certainty. Business is risky enough as it is. They don’t need, on top of the burden and crapshoot that they already have to play everyday in terms of deciding where to invest their monies, they don’t need additional uncertainty coming down from the Feds. And the Obama administration is all about uncertainty. Nobody knows if they are coming or going when it comes to business. They don’t understand the certainty, the budgeting forecast and foresight that a business needs in order to reinvest and to ultimately be able to hire more people and produce more goods for the rest of America to consume.
EB: Governor, you make a great point. Small businesses have held back hiring new employees because they weren’t sure where the economy is going, what their tax structure was going to look like, or health care and cap and trade. We’re going to talk about some of those things. But recently we’ve had some of the heads of business, even big business, and even some people who are on the Obama Economic Advisory Board, saying Mr. Obama is against big business and big business is against Mr. Obama. If small businesses don’t get it and big businesses don’t get it, when is the Obama Administration going to get it?
SP: It’s very, very tough to answer that one, Eric, because everything indicates that the Obama Administration doesn’t get it. They don’t understand the certainty needed for budgeting forecasts and foresight that a business needs in order to reinvest and to ultimately be able to hire more people and produce more goods for the rest of America to consume. President Obama never ran a business, I don’t suppose. I don’t think he’s ever had to make payroll. I don’t think he’s ever had to craft his own budget and make sure he’s living within his means in running a business. I think a little bit of personal experience would have helped him to appoint the right people to make the decisions that are needed and are more reflective of that entrepreneurial spirit that helped build this great country that we still live in and that we’re going to take back.
The entire interview was great as Bolling, unlike Bill O’Reilly, actually allows the people he interviews to answer his questions. But the exchange above was particularly noteworthy because it highlights the fact that Governor Palin knows that future uncertainty associated with bad economic policy and anti-business rhetoric will have a tangible and deleterious effect on business expansion today. Businesses always look to the future, and what they see does not give them cause for optimism.
Governor Palin, having been a business owner, understands that businesses must have sufficient confidence in future business conditions before they take risks with their limited capital. Absent that confidence, they will (and should) stay on the sidelines and wait for a more business-friendly environment. Until there is a drastic change in the fiscal and economic policies emanating from Washington, businesses will be reluctant to expand for the reasons Governor Palin indicated.