The Certainty That It's Not Uncertainty

Kevin Drum sticks a much-needed fork in the "Obama and the Democrats created regulatory uncertainty and crippled the economy" myth.

Why does the economy continue to suck? The LA Times is hosting a symposium on the topic today, and USC business professor Ayse Imrohoroglu says the answer is uncertainty:

Businesses don't know what will happen to interest rates. They have trouble calculating what new workers will cost in light of potential new healthcare mandates and costs. They don't know what will happen to tax rates, which could rise dramatically. They are uncertain about increasing financial regulation and the possibility of a carbon tax. And as if that isn't enough, the soaring deficits and national debt raise very real questions about the federal government's long-term ability to meet its debt obligations.

That's the setup:  Now Drum's takedown:

• Interest rates will remain very low for a very long time. The Fed has made this as clear as any central bank possibly could.
• PPACA has no impact on small businesses and only a minuscule impact on large businesses. Medium-sized businesses face a modest penalty if their workers use federal subsidies to enroll in private insurance programs via the exchange. In other words, the overall financial impact on the business community is pretty small. What's more, there's really no uncertainty here. The broad impact of PPACA's rules is already clear and they don't take effect until 2014 anyway. This is not having an impact on business investment decisions in 2010.
• There's no excuse for Congress leaving tax policy up in the air for as long as it has. But even with that said, the Bush tax cuts affected personal tax rates, not business rates. And despite demagoguing to the contrary, even if the Bush tax cuts expire completely the effect on small businesses would be close to zero.
• Financial reform was a fairly modest affair, and in any case its effect is almost entirely restricted to the financial sector. Its effect on the rest of the business community is slight.
• There is no possibility in the near future of a carbon tax.
• There is no question about the federal government's long-term ability to meet its debt obligations, and even if there were this would have next to no effect on short-term investment decisions by American businesses.

And all six of those points are true.  The uncertainty meme, as Drum calls it, is complete and utter hogwash.  It always has been.  What the real problem is and has been for years now is demand.  Nobody wants to be the business to spend money to hire to create jobs to power consumption if there's no additional demand for the business's products, but if every business is holding back, the entire market suffers.

There's short-term risk to be the one business that hires.  Your competitors have lower costs.  That leaves the government as the buyer of last resort, but Republicans insist that this is a tax or regulatory problem.  The problem is with lost jobs and cut wages, people can't consume as many goods and services.

We have to spend money to jumpstart the economy.  If we do not, the economy stalls.  Period.  What we spent wasn't enough, and now the GOP is threatening to take all of it away.  This happened in 1937.  The result was the second half of the Great Depression.  Only massive forced government spending, in this case creating the materiel needed in WW II, resolved the problem.

We need an infrastructure project like that again.