Robert Reich on Recovery: It’s All on You, Consumers

No Wonder We See The Word ‘Unexpectedly’ in the Economic News So Often

It’s hard to believe that a world famous economist and former Cabinet member — who was voted one of the Ten Best Cabinet Members (of the century!) — can be this clueless about our economy.

Back Towards a U.S. Double Dip

[…] The problem is not on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates. The problem is on the demand side. American consumers, who constitute 70 per cent of the total economy, cannot and will not buy enough to get it moving. They justifiably worry that they will not be able to pay their bills, or afford to send their children to college, or to retire. Banks, with equal justification, are reluctant to lend to them. But as long as consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.

He forgets to mention that much of our wealth over the last 10-15 years was illusory, and is now gone. Poof. In other words, the consumer spending that is 70% of our economy was artificially propped up by inflated housing prices and cheap credit, both driven by questionable government policy.

And he makes the curious case that business — by declining to invest and create jobs despite “healthy” profits and mounds of cash — is acting like a lazy, parasitical teenager who sits on the couch all summer instead of finding a job. He forgets to mention another key point: business needs confidence in the future, but the constant threat of excessive government intervention, of exactly the type we see today during the Obama presidency, hinders economic growth by shaking that confidence in the future. No confidence = no investment = no jobs.

Why on Earth would a business — that did have confidence in their future investment climate — refuse to invest? Businesses exist to make profits. Pursuing investment and job creation grows the business and increases revenues and, usually, profits. But when conditions are not favorable for investing, such as today, when Obama constantly threatens to raise tax rates and demands new regulations and seems hell-bent on spending us into oblivion, it isn’t that hard to understand why a business that exists to make profits might sit on the sidelines for a while, and be content to ride out the storm.

When so may factors are out of your control, and the future cost of doing business is essentially unknowable, and you have a stock price to manage and strategic business decisions to make (that won’t pay off for 2 or more years down the road), I’m not sure what is so unusual about sitting back and looking at other things to do with your money. Including investing overseas. In places that aren’t fighting your every move. There are some such places, you know. The political Left, including Reich, seems to forget that rather important fact.

Robert Reich: One of the Ten Best Cabinet Members of the century!? Are we sure about that?

But Robert Reich — one of the Ten Best Cabinet Members of the century, perhaps you’ve heard — is convinced that there is no problem at all with the business climate. No, for him, it’s about consumer spending. And if you consumers would please just ignore your better judgment and go ahead and buy things you can’t afford, on credit that you can’t get because banks aren’t lending or your mortgage is underwater, then business will view this illusory wealth as a game-changer and will invest and create jobs, despite all the uncertainty about regulation and the value of the dollar and tax rates and all the rest.

Oh, and never mind that over the last fifteen years, consumers already were buying things they couldn’t afford, on credit backed by inflated housing prices. Hint: this was part of the problem, Mr. Reich. Most of that wealth was illusory, created out of thin air by government policy and backed by the full faith and credit of the United States government. The taxpayer, in other words. Who now faces even higher taxes in the future due to this death spiral! Yet Reich wants more.

And today, that type of wealth is not just illusory, it’s nearly non-existent. So to rely on that illusory, non-existent wealth to fuel a recovery seems inadvisable. Especially for one of the Ten Best Cabinet Members. Of the century.

Here’s an idea. Restore confidence in the future with these planks of an economic platform: cut taxes, call off the Congressional dogs on regulatory mania, and stop printing and spending money like a sailor on leave. By restoring confidence in the future, you create the conditions that encourage the investment and jobs that fuel the economy. The best way for government to “create jobs” is to get out of the way.