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Washington Post Maintains Campaign on the Deficit

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Thursday, 03 January 2013 05:15

The Washington Post is continuing its drumbeat for deficit reduction devoting an entire article to the views of the business lobby without ever presenting the possibility that their claims may not be accurate. In fact the piece explicitly endorsed the business perspective wrongly warning readers in the first sentence that the deficit deal "won’t unlock investment."

This assertion can easily be shown to be wrong since fans of Commerce Department data know that investment is not "locked." In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity. 

equip-software-inv-11-2012

Source: Bureau of Economic Analysis.

The relatively strong pace of investment suggests that there is nothing to be "unlocked" by the sort of budget agreement the Post would like to see. It is of course advantageous to proponents of such a deal to have the public believe that there would be a flood of investment if Congress pushed the spending cuts they wanted.

Comments (5)Add Comment
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written by Chris Engel, January 03, 2013 4:52
They won't accept that growth and unemployment problems are driven by demand-side issues and not supply-side constraints.

The bankers and the business lobby are more interested in price stability and the value of their investments. In their eyes, any inflation, any increase in demand that would normalize rates, seems to jeopardize the value of their portfolios, even more so than a stagnant economy.

The owners want to perpetuate the state of affairs that award them ownership.
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written by whoisjoe, January 03, 2013 7:30
The Washington Post is continuing its drumbeat for deficit reduction...


You have more than once referred to the WaPo's agenda as a campaign to reduce the deficit, yet you often state that the policies advocated by this agenda will do no such thing.

Shouldn't the above quote read as follows?

The Washington Post is continuing its drumbeat for income redistribution...
Denominator?
written by LSTB, January 03, 2013 8:10
fans of Commerce Department data know that investment is not "locked." In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity.


Shouldn't equipment and software be divided by potential GDP? I'm looking at NIPA Tables 5.5.5 & 5.5.6 on the BEA's Web site and equipment/software looks well below its 2003-07 trend both in nominal and real terms.

This isn't to say I agree with the WaPo's businesspeople who have their own agenda and aren't fans of national income accounting, but an item's share of a depressed GDP should be higher than its pre-depression trend to show that it's back to normal.
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written by skeptonomist, January 03, 2013 9:43
Looking at raw numbers (not divided by GDP) at FRED - it is evident that Private Nonresidential Fixed Investment (PNFI), equipment and software (NRIPDC96) and several other like categories have recovered pretty well, about as fast as in previous recessions, but have not come back to trend level yet. Total private investment (GPDI) is nowhere near trend level. As Dean has repeatedly said, the problem is mainly in housing investment (PRFI) which has scarcely recovered at all.

The historical pattern of investment is a sharp drop in recessions, then a slower climb back up to and above the long-term trend. It never stabilizes at some ideal level.
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written by watermelonpunch, January 03, 2013 11:59
What kind of investment are they even asserting is "locked"?

And why do people keep claiming that businesses make decisions based on how much the government is spending and on what?
I thought businesses make decisions based on who's buying their products & services.
What are these businesses that don't base their business models on people buying their products & services? And instead base their business model on what the government is spending on and how much?

Is there a connection here that I just don't see??
If there is, I'd like to know about it.

To me, as a common person... This sort of assertion that until entitlement spending is cut there won't be people (read: rich people), investing in the economy... just kinda sounds like a threat not based on anything but political power desires.

So when they say this:
"business leaders warned that the agreement will hurt sales and hiring, won’t unlock investment" ... "complained that the bill did little to reduce the pace of government spending"


What I hear is this:
Business leaders threaten that if government doesn't kowtow to their whims & desires, and stop helping senior citizens & the poor, they're going to stop giving working people jobs in order to punish politicians & the general public for not bowing to their wishes, even if it means the destruction of not only the economy but their own businesses... because all they care about is having power to do what they want, and anything else is worthless to them.


Is this off-base? Emotional response? Paranoid? A misunderstanding?

I just don't get the connection between whether businesses invest in making stuff & providing services, and whether there's a cut to say, Social Security benefits.
Indeed, I should think it would be the opposite if the business in question makes stuff for and provides services to, people receiving Social Security.

Unless the company is in the position of selling goods & services directly to the government... In that case maybe they'd be worried about the government's ability to pay bills. But then, there's a paradox with that idea isn't there? It would mean that business would want spending cuts in OTHER places, so that the government spending to THEM doesn't stop (or increases). In which case, they're not really looking to decrease government spending - just to decrease government spending in certain areas (to people & entities other than themselves).

Am I way off base here?
Is there something I'm just not getting?

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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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