The U.S. economy is limping along. The job market is in rotten shape, and business investment is hitting historic lows. And, if you’re looking for a culprit for this dismal state of affairs, many businesspeople would be happy to point you to the White House. Companies aren’t hiring or investing, businessmen say, because the combination of Barack Obama’s anti-corporate attitude and a blizzard of new regulations and proposed taxes has created what Ivan Seidenberg, the C.E.O. of Verizon, calls “an increasingly hostile environment for investment and job creation.” In a recent Newsweek column, Fareed Zakaria pointed to the fact that Fortune 500 companies are sitting on a cash hoard of $1.8 trillion, and suggested that a “profound sense of distrust” might be why they weren’t spending it.
There’s no doubt that Obama is unpopular in the business world. On Wall Street, he’s persona non grata, thanks to his push for financial reform and his rhetorical sallies against fat-cat bankers. Private-equity managers hate him for trying to take away their lucrative carried-interest tax break. The Chamber of Commerce has attacked him for having “vilified industries” and enacted “job-destroying regulations,” while the publisher and real-estate investor Mort Zuckerman declared that Obama heads “the most hostile administration to business . . . in decades.” Some of this is just political posturing—when haven’t businesses wanted less regulation?—but it also reflects a real conviction among American businesspeople that Obama has made profit seem like a dirty word.
Set aside the question of whether there’s anything to these charges. From an economic perspective, the important question is whether such perceptions are really what’s keeping the economy in neutral. Those who think that they are say that “uncertainty surrounding regulations and taxes,” as Zakaria puts it, is making business hold back. But uncertainty is a fact of business life, and the impact of new regulations on most companies has been overhyped: unless you’re a financial-services or health-care company, Obama’s initiatives aren’t remaking your business. In fact, Wall Street and health care are among the few industries currently adding jobs, which suggests that new regulatory burdens aren’t the cause of sluggishness. In surveys, meanwhile, fewer small businessmen cite regulation as their biggest problem today than did in the boom years of the nineteen-nineties.
There’s also a pervasive feeling that Obama’s tone—as evidenced by tough rhetoric against Wall Street and BP—is dampening the spirits of business leaders, making them unwilling to take risks. The implicit idea here is that when businesspeople feel poorly treated they’ll just take their ball and go home, even if that means giving up chances for profit. This isn’t a completely crazy idea: as Keynes argued, “animal spirits” play an important role in driving business decisions, and there are historical examples of so-called “capital strikes”—where investors pulled capital out of an economy in reaction to anti-business policies. But there’s no evidence that anything like this is happening in the U.S. right now. Corporate profits are healthy. Investment may be low, but, given how slowly the economy is growing, it’s about where you’d expect. If businesses truly were holding back on hiring new workers or building new plants in the face of real opportunities, we’d see them working their current employees and factories to the limit. But they aren’t: weekly hours worked have scarcely budged in two years, and factory usage is at just seventy per cent of capacity, which is historically quite low.
If businesses aren’t hiring or investing, in other words, it’s because they don’t need to: they have enough workers and factories to meet the demand for their products. And there are few signs that this is going to change any time soon: consumer demand remains weak, economic indicators—inflation rates, consumer confidence, the stock market, bond rates—aren’t forecasting a quick return to boom times, and, just last week, the Fed chairman, Ben Bernanke, told Congress that the state of the U.S. economy was “unusually uncertain.” So it’s no wonder that companies are feeling cautious. The uncertainty that’s keeping businesses from spending or hiring isn’t uncertainty about what Barack Obama is doing or saying. It’s uncertainty about whether the economic recovery is going to stick.
As for that $1.8-trillion pile of cash that companies are sitting on, it isn’t a new phenomenon but part of a long-term trend. Companies have been saving more and spending less: according to a study by the economists Thomas Bates, Kathleen Kahle, and René Stulz, cash holdings doubled relative to assets between 1980 and 2006. Global competition has made business riskier, and companies remember all too well the pain of the recent credit crunch, when even the safest companies found it hard to borrow money. At a juncture like this, who wouldn’t want a cash cushion?
The impulse to blame Obama for all this corporate timidity is understandable: aside from the fact that plenty of businesspeople don’t like his policies, it would make things so much easier if a President could jump-start the economy just by making the suits feel better. But the attacks reflect the same blind faith in Obama’s powers that the hero worship of his election campaign did. As the political scientist George Edwards showed in his masterly study “On Deaf Ears,” people vastly overrate the influence of the bully pulpit: in most cases, the capacity of a President to change voters’ opinions is slim, and there’s no reason to think that he has any more influence over corporate executives. A different President isn’t going to get businesses off the mark. Only a different economy will. ♦
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