When Will Business Leaders Feel Better?

Roger Altman, former Deputy Secretary of the Treasury and an Investment Banker, has a piece in the NYT today arguing the virtues of the President’s plan for regaing our economic footing. 

The interesting part to me is the casual mention of “business negativism” being at the heart of suppressed investment and job growth.  This is lifted right out of the Keynes playbook, where consumer spending is generally stable so it is considered constant, therefore the piece of the puzzle with the most volatility and, therefore, the most responsibility for growth or contraction is business activity (spending, investment, hiring, etc.).  The theory goes that when this part of the economy becomes ‘depressed’ because business leaders are cautious or fearful of the future, then they cut back their activities, which leads to a lower level of business spending but also cuts jobs, raises, etc. and therefore can impact the stable part of the economy, consumer spending.  This drop in spending impacts business revenues and profits, therefore they cut spending even more, thereby completing the vicious cycle.

So Altman’s point is that this current malaise we are in is being fed by the caution of businesses.  I don’t want to tie this to tightly to Altman, this is a general cry from those that see the world through Keynesian glasses.  How do we break it?  By replacing business spending with govt spending to a level that will bring back business activity to a level that will make business leaders confident enough to spend and hire. 

If that last part did not give you a warm fuzzy, don’t worry.  It doens’t do much for me either.  Possibly debasing our currency and leveraging the economic future of our country on the premise that I want to make a certain group “feel better” isn’t what I’d call a stellar plan.  But in a nutshell, that is what all the stimulus spending is about.   

Nevermind that corporate profits are shooting higher, as companies have laid off thousands and matched their production to current demand.  Nevermind that we gave all the bankers a pass.  Whitacre of GM looks pretty darn happy as well.  Come to think of it, the only business leaders I can find that don’t seem happy are either homebuilders (except they got to carry back tax losses for 5 years, so there is SOME joy there) and small business owners, who are truly on the front lines.

No, I don’t think this is about how business leaders feel.  I think it’s much more a time of paying for past excess.  But no one wants to pay.  Instead, the bill keeps getting handed down the table.  Unfortunately we all know who is sitting at the end of the table – the taxpayer.

Read the original story at H. S. Dent