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Home Publications Blogs Beat the Press David Broder and Jim Cooper's Creative Economics

David Broder and Jim Cooper's Creative Economics

Thursday, 17 June 2010 04:58

David Broder used his Washington Post column to tell President Obama to stop worrying about the Gulf oil spill. (Hey, who cares about the potential destruction of a whole ecosystem for generations to come?)

He instead repeated an assertion from Representative Jim Cooper and the Wall Street Journal that companies are currently hoarding $1.84 trillion in cash:

"The newspaper noted that the cash reserves had jumped 26 percent in one year, the largest increase since at least 1952. Cooper's point is that by stockpiling that vast amount against the possibility of a double-dip recession or another wave of bankruptcies, nervous executives are starving business of investments for expansion and freezing unemployment at a painfully high level.

'They were badly burned in the Great Recession,' Cooper said, 'and now they are nervous about government policy.' Uncertainties in Washington about energy policy, taxes, financial regulation -- to say nothing about bad-news bulletins from Afghanistan and other overseas datelines -- cloud the economic picture more than oil plumes pollute the gulf."

While there is little economic evidence that would support Representative Cooper's assertion as to why companies are hoarding cash, there is a more obvious explanation. Firms are seeing very weak demand growth in an economy that has near double digit unemployment. There is a large body of research that shows that demand growth is the primary determinant of investment. In the absence of strong demand growth, firms do not want to take big risks on expensive new investments.

The most obvious way to increase to demand growth would be through more stimulus from the government. Both Representative Cooper and Mr. Broder have actively opposed more stimulus. So, the best explanation for why companies are sitting on vast hoards of cash is that people like Representative Cooper and David Broder have blocked efforts at more effective government stimulus.

Comments (11)Add Comment
written by izzatzo, June 17, 2010 8:57
"Whose Your Nanny" Baker just doesn't appreciate that Broder and Cooper are obviously long time students of economist Frank Knightian Uncertainty, which makes a sharp distinction between risks and uncertainty. Risks are predictable on calculated odds, while uncertainty means risks can't be calculated in the first place.

That's why businesses are loaded with cash in a liquidity trap, because they're uncertain of what their nanny government will do for them next. It has nothing to do sharp reductions in demand, of which they're quite certain and for which risks are easily calculated.

This is why traffic stoplights are a sign of coming totalitarianism as recently brought up in a Teabagger convention. They create uncertainty. Just watch the traffic as it gets closer to one, speeding up wildly or sliding to a stop with locked brakes, just like businesses do over a boom and bust business cycle, all because of government interference that paralyzes the smooth flow of autonomous individuals interacting with each other in free markets. Apparently the socialists believe that only one car at a time can occupy the intersection with the usual zero sum mindset based on scarcity and trade offs.

Stupid liberals.
written by skeptonomist, June 17, 2010 10:34
CEOs of big companies must actually have been reassured by the credit crisis, bailout and recession, because they can be even more certain that government and taxpayers have their backs and their pay is not in danger. Profits of insurance companies and health-care industries are likely to be increased because of the health-care bill. What realistic action by the government could imperial business profits and executive pay in the future? Broder has apparently become a full-fledged proponent of supply-side economics (if he wasn't one already and if he understands what it is), but he and Cooper do not realize that the alleged $1.8T is a demonstration of the failure of supply-side principles; if businessmen really believed in it they would invest that money with the certainty that demand would follow.
The One Sided Supply/Demand Curve
written by Donald Pack, June 17, 2010 11:27
It's always entertaining to watch conservatives and their minions talk away the demand curve. Oh, it's changing tax policy that is leading to uncertainty. It's this potential Obama policy or that Obama policy that is killing business.

Wonder of wonders, an ailing economy dominated by consumer spending, and almost double digit unemployment, would have nothing to do with a lack of demand? Wow!

Consumer satisfaction is a function of musts and wants. Our basket of goods and services are seeing few musts (shelter, food & water) and many wants (new cars, new homes, boats, vactions etc.)that can't be attained b/c of a lack of disposable income. Retailers are out of balance with their offering. So even Walmart is seeing sinking same store sales. Sales tax revenue is down double digits from their highs of a few years ago.

If average income in the US is around $50,000 and mortgages qualify at 3X earnings that means the average home price will bottom out around $150,000. That same repricing will ripple thru the entire economy.

Businesses are trying to figure out a basket of goods and services that work in the new economy and very few have figured it out. So they hoard cash for a rainy day and/or an opportunity presents itself.

It's the demand curve stupid and nothing conservatives carping about it will change that. A 10% decline in consumer spending represents a 7% decline in GDP (.10 X .70). Consumers are tapped out and our economy is in flux achieving balance b/c of that.
Quote from Broder's article
written by diesel, June 17, 2010 12:55
"Obama may be excused for impotence in the gulf. But no president can escape responsibility for the budget and the economy."

Was Obama impotent in the gulf? What an odd choice of words. Must be a coincidence. But high minded of Broder anyway, not to hold Obama personally accountable for causing and then failing to fix the leak.

But Broder's not letting him off so easy on the budget and the economy. To assuage public anger and appease the Gods we need someone to blame and to do that we first have to hold someone "responsible". What we need is a sacrifice. Preferably a human one. Hmmm, that unscrupulous character Bush has fled so who could we find to fit the bill?

Notice that although Broder casts Obama in the leading role, he expresses himself in the third person and makes it sound as though he is merely explaining the workings of the world.
written by Queen of Sheba, June 17, 2010 5:43
Just to prove that the country's brain trust, known as Congress, swallows the swill that Broder and Cooper are dishing out, yesterday they once again failed to extend unemployment benefits and increase Medicaid payments to the states.

They did, however, vote against repealing tax breaks for the oil industry. Good God! We're governed by Lilliputians.
written by diesel, June 17, 2010 8:29
I just reread Broder's article and am really pissed off. Broder said "But by dramatizing his belief that the struggle in the gulf has become his main preoccupation, Obama has essentially ignored challenges that may be much more vital to the country--and to him." Then follows the startling revelation that U.S. corporations are hoarding cash.

Broder, you are a small-minded twerp. Living creatures are dying. No. We are killing them. The oil spill--mankind's activity--is killing thousands of living beings and all you can think about is the advisability of some financial relationship. You are an effing asshole. It's attitudes like yours that got us into this jam in the first place. Placing money considerations above respect for life--whether it be those persons whose livelihood is immediately affected by the disaster or the plants and marine wildlife--is precisely what led to the shortcuts and safety violations that brought this about. Have you driven the gulf shores? or walked, bicycled, boated or swum along and in them. If you had, and if you had even a shred of decency, aesthetic sensibility and intelligence then you could not possibly claim that Obama's or anyone's concerns are misplaced and that he or they should really be thinking about what preoccupies you, to wit, "hoarding cash".

A week ago I said in jest that the spill could be 100,000 barrels a day. Now it appears as though I may not have been so far off. The gulf is a giant estuary--that means that it's the nursery for virtually all aquatic life in the larger area. Despoil that and you've broken a vital link in the chain. That's why weeks ago, I posted that Obama had agreed to enforce Bush's 75 million damages cap as protection against BP's being bankrupted by lawsuits. Someone "corrected" me by pointing out that BP's profits were 12 or 14 billion annually and that bankruptcy was impossible. We shall see. To the shrimpers, fishermen, marine biologists, environmentalists, restaurateurs and motel owners, bankrupting BP probably sounds like justice.

And then?
written by JHM, June 18, 2010 8:12
"[T]he best explanation for why companies are sitting on vast hoards of cash is that people like Representative Cooper and David Broder have blocked efforts at more effective government stimulus."


Could we hear the other shoe drop, please?

What is it about "more effective government stimulus" that seems so icky to Messrs. Broder and Cooper? Don't they *want* Growth?

If not, why not? What do they want instead?

If so, how have they been bamboozled by the likes of Neocomrade P. G. Peterson, Freelord Concord, and Neocomrade Editor F. S. Hiatt of Fox-on-15th?

Happy days.

empathy vs indignation
written by frankenduf, June 18, 2010 10:20
easy diesel, easy- one could rather easily argue that human suffering is essentially more important than animal suffering- however, i think a better take on your point is to draw the underlying link between the two: unfettered corporatism has gutted the financial market and the gulf coast, and it is therefore paramount to rein in corporate power for the betterment of the rest of us- whether you plant your flag of sorrow with the workers or the fishies, just make sure afterwards you pick up a pitchfork and help charge the gilded gates- oh, and bankrupting BP???- lol- no chance- the relief fund is a drop in their oil bucket- the only possible way BP goes bankrupt is if enough stockholders and politician enablers pick up pitchforks as above- remember, this aint no enron or AIG dealing in phantom assets- these guys manage the number one functional asset we all live and breathe by- erl
written by diesel, June 18, 2010 12:53
First they criticize Obama for not doing enough in the Gulf. Then, as soon as he makes an (admittedly symbolic) tour they begin carping that he's ignoring the economy. I admit that I made a mistake in falling into Broder's trap of making this an either/or issue. But there's no point in my rehashing the subject of hoarded cash or lack of business investment and its ramifications for the economy--others plowed that ground. What galls me is Broder's callous indirect use of the blight in the gulf as a political club--precisely what the Republicans had warned Obama against only a day before.
Impeccable Logic
written by Joe Firestone, June 18, 2010 11:36
Of course, you're right. The reason we're not out of the recession yet is that the political opposition of the deficit terrorists, has stopped the Government from prioritizing recession and unemployment as our primary concerns.
written by Larry Nusbaum, June 19, 2010 10:00
"Obama may be excused for impotence in the gulf. But no president can escape responsibility for the budget and the economy."

$20 billion worth of "impotence" I might add...:)

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.