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Kill the Myth About Uncertainty Slowing Hiring and Investment

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Wednesday, 27 October 2010 12:48

Peter Orszag, President Obama's former budget director, complained about the current antagonism between business and government commenting that "even if [it is] not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior."

First, let's just get some things in perspective. The profit share of domestic income is at a record high. The banks that were central to the economic carnage we are now experiencing have seen their profits and bonuses return to their housing bubble peaks?

What do these little boys and girls have to complain about? Are the politicians saying nasty things about them?

I suspect most people would be pretty damn happy if they still had a job after messing up as bad as these people did. Instead, the Goldman, Citi, Morgan Stanley Wall Street gang are earning tens of millions a year -- thanks to the taxpayer bailouts. And, they are upset about their relationship with government?

Okay, but let's get to the substance. Is there any evidence whatsoever that this antagonism is "affecting hiring and other business behavior?"

If the antagonism was affecting hiring, then we would expect to see firms increase the length of the average workweek as they worked their existing workforce longer hours rather than take on new workers. There is zero evidence of this. The average workweek is up slightly from the low-point of the downturn, but it has been flat in recent months. It is still far shorter than it was before the downturn.

If businesses were deferring hiring then we would also expect to see them make more use of temps. Again, the data will not cooperate. Temp hiring is also up some from the low-point of the recession, but it still down more than 20 percent from pre-recession levels.

As far as the "other business behavior," investment, which is the one we most care about, has actually been pretty healthy in the last few quarters. Investment in equipment and software has grown at nearly a 20 percent annual rate over this period. Investment in structures has been plummeting, but this is to be expected given the huge overbuilding in most categories of non-residential structures.

So, businesses are unhappy but it doesn't seem to be affecting their economic behavior, even though it may affect their pattern of campaign contributions. The obvious answer is buy them all lollipops and move on to more serious issues.

 

Comments (11)Add Comment
...
written by izzatzo, October 27, 2010 4:09
I suspect most people would be pretty damn happy if they still had a job after messing up as bad as these people did. Instead, the Goldman, Citi, Morgan Stanley Wall Street gang are earning tens of millions a year -- thanks to the taxpayer bailouts. And, they are upset about their relationship with government?


Any economist can see that it's a structural unemployment problem of mismatched skills combined with antagonism over government uncertainty. There's not enough skilled felons in the labor pool to fill the demand.

Thousands of felons are already employed in the Rent Seeking Divisions of these invesment banks to protect them from competition and debt write-offs, after receiving a pardon from the government for stealing billions in bailouts.

They need more felons, but the only ones applying have no criminal record who are not hired because once on board, they undermine the control of moral hazard held over government with transparent socialist regulations. That's the source of uncertainty and antagonism with government that interferes with hiring.

There is hope however. With the high unemployment and home foreclosure rate, crime is on the rise and creating a growing labor pool of hardened, skilled felons to close the mismatch and uncertainty gap at the same time. If you can't beat 'em , join 'em.
Here's another obvious answer
written by Paul, October 27, 2010 4:57
Vote for the Democrats! If businessmen are truly uncertain about the political future and therefore won't hire workers, increasing the Dem majorities in Congress would eliminate the uncertainties. On the other hand, electing more Republicans will create more chaos - next up: House Repubs shut down the government again just like 1995 when they disagreed with Clinton whose approval ratings increased as a result.
Pharma
written by Jack, October 27, 2010 6:45
"In the 1990s, the pharmaceutical industry repeatedly was named the most profitable industry in the world. More than a decade later, the industry tops a more dubious list: the No. 1 source of fraud-related settlements with the Department of Justice, an advocacy group says."

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/25/AR2010102502546.html
Guy
written by Sterling, October 27, 2010 6:55
"Investment in equipment and software has grown at nearly a 20 percent annual rate over this period."

Seems rather a lot of investment for so little effect on employment. What are prices on secondary equipment market doing?
...
written by skeptonomist, October 28, 2010 9:05
If I were a banker I might be somewhat reluctant to loan because of uncertainty about what the Fed is going to do, not government per se; for example what it will do with the $1.1T+ worth of MBS's that it is currently holding and whether it will buy more (if I wanted to gamble, I might buy MBS's on the assumption that Bernanke's announcement of more quantitative easing means that the Fed will buy more). Or anyway I might be uncertain if it weren't clear that Bernanke will do whatever it takes to keep banks prosperous.
...
written by beware of dog, October 30, 2010 8:48
Fatal flaw in your solution. You assume that the candy companies are going to hire employees to take on the artificial and temporary surge in lollipop demand created by the over reaching government.
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written by boxer, November 03, 2010 6:54
Temps or scabs as they were once called are a larger portion of the workforce because they were not fired, full time employees were.

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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.

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