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Home Publications Blogs Beat the Press If President Obama's Anti-Business Attitude Is Hurting Investment, Can Someone Explain How

If President Obama's Anti-Business Attitude Is Hurting Investment, Can Someone Explain How

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Friday, 09 July 2010 04:18

In his column this morning, Paul Krugman takes issue with the claim that the Obama administration's anti-business attitude is responsible for the economy's weak investment. Krugman makes the obvious point that, given the sharp falloff in output, investment is not especially weak.

However, it would be fair to turn the tables on the people making this argument, where is the evidence that Obama's regulations have hurt investment? Some firms are affected by new regulations more than others, if his regulations are hurting investment then we should see the weakest performance in the firms that are most affected.

For example, the health care bill (the most-often cited "job-killer") imposes new requirements on business. This is true and it gives us what in principle would be a testable hypothesis. Are the
businesses that are going to be subject to new requirements (mid size firms) performing worse relative to firms that already overwhelming met these requirements (large firms that overwhelming provided
coverage) or firms that are not going to be subject to requirements (fewer than 50 workers). None of the "Obama is killing investment crowd" have even tried to sketch this one out. A similar analysis could be constructed with regards to most other regulations.

It would be interesting to see if the evidence actually supported the anti-business hypothesis in the case of health care or any other regulation. My guess is that it doesn't, but until someone produces such evidence, the anti-business explanation for weak investment is basically just name calling.


Comments (8)Add Comment
There's the medical inflation that this "reform" does so little to constrain
written by Jorge, July 09, 2010 6:19
Our current current medical inflation rate might well scare off investment, especially if we assume that some firms coped with this in the past by offering employees the option of less than full coverage.

And then are firms with younger employees. Under the reform plan, they are obliged in effect to subsidize firms with older, often more wealthy employees. Here too costs go up. So while pre-reform it might have been a good deal for one restaurant owner to buy the restaurant down the block, whose owner has to retire, now it might seem wiser to just let the other restaurant close up shop. Don't want to go over that high-cost limit of 50.
OBAMA’S CEO PROBLEM, Fareed Zakaria, July 06, 2010
written by AndrewDover, July 09, 2010 7:01
Perhaps this article stirred Mr Krugman?

http://www.fareedzakaria.com/Articles/Entries/2010/7/6_Obamas_CEO_Problem.html


Mr Zakaria simply says:

"The key to a sustainable recovery and robust economic growth is to get companies to start investing in America. So why are they reluctant .. ?

Economic uncertainty was the primary cause of their caution. “We’ve just been through a tsunami, and that produces caution,” one said to me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes."
...
written by izzatzo, July 09, 2010 7:05
It doesn't make any difference which way the regulatory pendulum swings, less or more, claims of small vs large businesses affected differently as victims will rise to stop it.

Small drilling rig companies just claimed that lifting the $75M insurance liability cap would drive them out of business, because only the large ones could pay their own insurance. That's actually deregulation that removes taxpayer subsidies for insurance, but no one is calling Obama "pro-business" for that one.

These obvious contradictions have become common, where the private oil sector can claim that government intervention and subsidies are necessary to maintain competition and jobs by protecting small business, while the private health and insurance sector can claim it will kill competition and jobs by harming small business.

This is how powerful Big Corporate America has become, powerful enough through a public relations machine, to exploit the small players surrounding it by holding them out as abused poster children whenever the regulation or deregulation in question affects it negatively. Strategically, it's not that different from terrorists who hide behind civilians to avoid attack and capture, and mainstream media eats it up for the sympathy-victim role it plays to draw a large audience.

If the change in regulation either reduces a subsidy or increases competition for large corporations, it will be opposed, and typical support will include phony protection for small business claimed necessary to "compete" with large corporations, rather than serving in small, niche, complementary markets that are heavily dependent on large corporations and don't compete with anyone but themselves.
...
written by skeptonomist, July 09, 2010 9:19
Most of the economic arguments currently being advanced by conservatives have been tested against the real world many times over and are demonstrably false. The importance of demand is hardly something that should have to be argued about - even supply-siders recognize it. Conservatives keep claiming that higher tax rates on upper-brackets would be harmful, but all historical evidence demonstrates the opposite.

As Krugman points out, the claim that business lacks confidence in the Obama administration is completely contradicted by the stock market.

One thing missing from Krugman's column (so much nonsense to address, so little space) is the role of the media in giving prominence to conservative economic foolishness.
Humm
written by Ethan, July 09, 2010 5:54
1. How many multinationals employ fewer than 50 people?
2. How many mom and pop stores (even the franchised ones) employ more than 50 people?
3. Think about it a while. Who is raising the ruckus?
Smoke and Mirrors
written by Richard , July 09, 2010 9:34
Krugman is just writing another anti-administration article. If investment is weak, it is because investors are tired of having their money stolen by crafty hedge funds,investment banks, and day traders. The real job killer is the military expenditures in foreign lands. Money squandered on non constructive operations, money that could be used to finance innovation, new energy sources, and research that creates the new technologies of tomorrow, education, etc.
Smoke and Mirrors?
written by AndrewDover, July 10, 2010 7:45
Richard:
It helps if you read Krugman's article before you label it anti-administration. Or just read Mr Baker's comment which said:

"Paul Krugman takes issue with the claim that the Obama administration's anti-business attitude is responsible for the economy's weak investment."

That means Krugman is defending the administration.

But I still agree with you on the inherent waste in military expenditures which in the long term will have little effect.
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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.

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