Regime Uncertainty

I do not submit this as proof that President Obama’s policies are wrong but, rather, as evidence that business leaders at the very least believe that the uncertainty created by the “political climate” in which I would include both the White House and Congress is motivating them to undertake fewer new ventures than they otherwise might. From an interview with Las Vegas CEO Steve Wynn, who purportedly voted for Obama in 2008 (that his wife was an Obama supporter is a matter of record):

Well, here’s our problem. There are a host of opportunities for expansion in Las Vegas, a host of opportunities to create tens of thousands of jobs in Las Vegas. I know that I could do 10,000 more myself and according to the Chamber of Commerce and the Visitors Convention Bureau, if we hired 10,000 employees, it would create another 20,000 additional jobs for a grand total of 30,000. I believe in Las Vegas. I think its best days are ahead of it. But I’m afraid to do anything in the current political environment in the United States. You watch television and see what’s going on, on this debt ceiling issue. And what I consider to be a total lack of leadership from the President and nothing’s going to get fixed until the President himself steps up and wrangles both parties in Congress. But everybody is so political, so focused on holding their job for the next year that the discussion in Washington is nauseating. And I’m saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next 3 hours giving you examples of all of us in this market place that are frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right. A President that seems — that keeps using that word redistribution. Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration. And it makes you slow down and not invest your money. Everybody complains about how much money is on the side in America. You bet. And until we change the tempo and the conversation from Washington, it’s not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don’t want to say that. They’ll say, “Oh God, don’t be attacking Obama.” Well, this is Obama’s deal, and it’s Obama that’s responsible for this fear in America. The guy keeps making speeches about redistribution, and maybe we ought to do something to businesses that don’t invest or holding too much money. We haven’t heard that kind of talk except from pure socialists. Everybody’s afraid of the government, and there’s no need to soft peddling it, it’s the truth. It is the truth. And that’s true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid. I support Democrats and Republicans. And I’m telling you that the business community in this company is frightened to death of the weird political philosophy of the President of the United States. And until he’s gone, everybody’s going to be sitting on their thumbs.

At the margins uncertainty is reducing economic growth.

46 comments… add one
  • john personna Link

    I think this misses the psychology. There is a difference between:

    1) What are your problems?

    2) What are you willing to talk about?

    3) Who do you want to blame?

  • john personna Link

    (Steve Wynn is just a classic case of someone going off on 2 and 3)

  • john personna Link

    Actually, just to drive this a bit further, if one of your core beliefs is that free markets bring prosperity, then you may have a real problem talking about contractions.

    A rational supporter is going to say that markets do bring prosperity, but there are periodic downturns which cannot be avoided. You can still make the case that long term a free market is a net win.

    But some (shallow) people can’t do that. They’d rather believe recessions don’t happen, or if they do that they are sometimes always caused by the (hated) government.

  • Maxwell James Link

    Anyone who thinks “redistribution” is the problem with Obama is a certifiable moron.

  • sam Link

    @Wynn

    Well, here’s our problem. There are a host of opportunities for expansion in Las Vegas, a host of opportunities to create tens of thousands of jobs in Las Vegas.

    From The Las Vegas Sun (11/30/2010): Las Vegas economy among worst in the world, report says:

    City at No. 146 among 150 metro areas in study

    During the years when the global economy and real estate markets were overheating, Las Vegas surged as one of the hottest economies among the world’s largest metropolitan cities, on the strength of the construction and gaming industries.

    That was then, and this is now: a bruising tumble toward the bottom.

    Las Vegas’ economic performance is fifth-worst among 150 metropolitan areas around the world, and the prospects for a rapid recovery are dim with its dependence on domestic tourism and construction, according to the author of a report released this week.

    Before the recession, in measurements analyzing 1993 through 2007, Las Vegas ranked No. 14 in the world among 150 metropolitan areas studied by the Brookings Institution and London School of Economics.

    Las Vegas fell to 128th in the rankings during the recession in 2008 and 2009, and since the recovery has begun, its ranking has fallen to 146th. That’s better than only Dublin, Ireland (150); Dubai (149); Barcelona, Spain (148); and Thessaloniki, Greece (147).

    @Wynn

    I know that I could do 10,000 more myself and according to the Chamber of Commerce and the Visitors Convention Bureau, if we hired 10,000 employees, it would create another 20,000 additional jobs for a grand total of 30,000.

    He sounds delusional to me.

  • john personna Link

    As I say Sam, it’s the difference between what his problems are and what he can say publicly, who he wants to blame.

    It’s much easier to say “Obama” than “Las Vegas has excess capacity.”

  • sam Link

    Yeah, that sounds about right, John, keep the shareholders at bay by shifting the blame elsewere. Further, here’s what I don’t understand about his “uncertainty” argument. Wynn says,

    I know that I could do 10,000 more myself and according to the Chamber of Commerce and the Visitors Convention Bureau, if we hired 10,000 employees, it would create another 20,000 additional jobs for a grand total of 30,000.

    He says he could hire 10,000 more folks profitably. It has to be at a profit, right? Why else say would he say he could do it? So, hiring 10,000 people would advance his bottom line. Is he arguing that the horrible Obama administration will promulgate regs that will completely and utterly destroy the profit he would realize from the 10,000 hires? He can’t know that. Now, let’s grant that some regs could diminish the profits, but utterly destroy them? That sounds counterintuitive. Well, as it stands now, he’s making zero profits on the 10,000 because he won’t hire them. Now zero profits is less than diminished but nonzero profits, but because of “uncertainty”, he’s willing to forgo (possibly) diminished profits in favor of zero profits.

    Does that make any sense?

  • I have no idea whether he’s right or wrong but am inclined to take him at his word. After all, he knows more about tourism and gambling in Las Vegas than I do. One small data item: Las Vegas visitorship for 2010 exceed 2009’s lows and 2011 is on track to equal or exceed 2007.

  • sam Link

    But doesn’t that make his argument from uncertainty re the hires all the more suspect?

  • Exactly the opposite. If opportunities are increasing, all other things being equal, you would expect him to invest more. Consequently, if he’s not investing more it suggests that all other things are not equal. His claim (whether it’s true or not) is that what’s not equal is “the political climate”.

  • sam Link

    We’ll have to disagree on this point. I think the argument is bogus.

  • john personna Link

    Think about it in terms of capacity, Dave. Is Vegas built for 2007 capacity, or did it overshoot? That’s the key question for investment.

    We now Vegas had a building boom in the 2000’s. Did they correctly size, or did they extrapolate prior growth?

    Here’s some data.

    Occupancy rates are at an all-time low.

  • john personna Link

    So blame Obama because you don’t want to build more empty rooms.

  • I think you’re misunderstanding what I’m saying. Whether the argument is bogus or not is irrelevant. All that is relevant is whether he believes it. I have no reason to doubt that he believes it.

    The question is not whether the policies of the Obama Administration are good or even whether they have pragmatically created uncertainty. The issue is whether they have convinced prospective investors that there is too much uncertainty and Wynn’s rant is a data element in support of the notion that at least one prospective investor is so convinced.

  • john personna Link

    I think it’s clear that “uncertainty” is a fig leaf, or maybe a canard.

    It is purely designed to hide the underlying demand deficit.

    It is way too forgiving to say that since it might be fractionally correct, it is justified as an argument.

    No, because it hides more than it reveals.

  • Or it could be a rationale for his expanding into Macau with its workforce “eager to please.”

  • john personna:

    Are you really arguing that you know more about hotels in Las Vegas than Steve Wynn does? It’s possible but color me dubious.

    The evidence you supplied is a mixed bag. Occupany rates are down but room nights occupied is at the highest level since 2007. Room rates are rising again. Again I don’t know the truth of it all but I still see no reason not to take Wynn at his word.

  • john personna Link

    Dave, how can you so easily wave away that occupancy data?

    It is huge. Going all the way back to 1997, occupancy had never fallen to 80% … until this year.

    And don’t shift to “room nights occupied” without thinking what it means. It means that capacity was added, investment was made, but that the punters did not come.

    It was misplaced investment in a demand slump.

    And yet you want to take Wynn at his word. Well, I’m sure that’s what he wanted out of his corporate conference call.

  • If you read the whole interview, he’s also ticked at Homeland Security’s sluggishness with the visa process.

    He wants high-dollar business.

  • Maxwell James Link

    For the record Dave, I do get what you’re saying, and probably even agree with it. I merely think this man also happens to be a moron.

    Actually, I’ll be a bit less flip: he is not merely a symptom of our troubles, but is part and parcel of them. He lacks civic knowledge but acts as if he doesn’t, thereby increasing the uncertainty for everyone else.

  • One thing is certain. He’ll take 5-10% out of the slots.

  • We should all have poor Mr. Wynn’s business problems

    Wynn Resorts (WYNN) Q2 2011 Earnings Call July 18, 2011

    Stephen Wynn

    Well, usually, we always say the same thing, the numbers speak for themselves. We had a great first quarter, the best in our history. And we went through it — we were just around $400 million in the first quarter. We are $447 million this time, and that quarter was about 59% better than a year ago. And in fact, for the 6 months, we’re 62% better than a year ago. We are all, in this organization, heartened by the results.

    On January 3, — excuse me, on July 3, I got a phone call. I was in a different city from my colleague, Marc Schorr, and he told me that on the third day of July, we equaled in Las Vegas, our cash flow, our profits of the entire year of 2010. That was a very supercharged thing to hear, but we did $271 million last year and we hit $271 million on the third of July. So for the balance of the year, everything from here on in, in Las Vegas is improvement. And we benefited from a very favorable whole percentage.

  • Drew Link

    This, of course, is the essential point I’ve been banging the drum about for two years………and having people bang me in the head for two years in return.

    But as Dave points out, who are we going to believe, a bunch of internet commenters with backgrounds variously in computer software, authors and so on………or real live businessmen – with their hands on the purse ? Now we can of course take the ostrich position and say the businessmen – the guys who the left love to tell us rapaciously pursue profit at every turn, the greedy bastards – are a) crazy or b) stubbornly denying obvious profit opportunities for god knows what reason. I’m one of those businessmen. And I talk to a large volume of them as well. This fear of where we are headed under the current political environment is real.

    More colorfully, to paraphrase Groucho Marks – ostriches: who am I to believe, you or my lying ears?

  • michael reynolds Link

    Wynn’s out of his mind. Vegas is flat on its ass.

    This is actually very typical of the nonsense I’ve written about before in this space: whiny, self-pitying businessmen blaming everyone but themselves. Uncertainty indeed! Wynn overbuilt. Everybody knew he was overbuilding, but he’s an egomaniac who thinks he can change the weather by holding his breath. He screws up, blames government.

  • michael reynolds Link

    Vegas numbers are like Hollywood numbers. Nothing is ever what it seems to be. There are movies that have earned a billion dollars that still aren’t “profitable.” Certainly not profitable enough to pay out to the suckers who took a piece of profits.

    Trusting Wynn on anything is like trusting Trump.

  • PD Shaw Link

    Past performance does not guarantee future results.

  • sam Link

    @Drew

    “But as Dave points out, who are we going to believe, a bunch of internet commenters with backgrounds variously in computer software, authors and so on………or real live businessmen – with their hands on the purse ?”

    Wynn’s argument has nothing to do with his business acumen. His argument from uncertainty is a dumb fucking argument — whether he believes it or not. As you yourself, no doubt unconsciously, affirm:

    Now we can of course take the ostrich position and say the businessmen – the guys who the left love to tell us rapaciously pursue profit at every turn, the greedy bastards – are a) crazy or b) stubbornly denying obvious profit opportunities for god knows what reason.

    Let me repeat Wynn: “I know that I could do 10,000 more myself” — would he say that if the hiring would cost him money? So, yeah, he’s either crazy or stubbornly denying, etc. How would you explain his claim? If uncertainty is deballing him, why would he say he could add 10,000 new people to his payroll?

  • PD Shaw Link

    sam, I don’t understand why you think he’s delusional. Just about any business owner thinks he has the skills and knowledge to make money _if_ the environment is right. That takes a good deal of ego and willingness to take risks. They may end up eating their shirts on the enterprise, but I would never think they were delusional.

    My main bone of contention on the 10,000 is that if he was as succesful as he claims he would be, he would probably undercut a competitor and his plus 10,000, might just end up being a net 1,000 jobs for L.V.

  • michael reynolds Link

    The notion that businessmen are somehow purely rational and that therefore their statements can be trusted is laughable. They are human beings. Human beings inflate their egos and rationalize their failures and look for scapegoats, and they do those things whether they are small fish or big shots. Wynn apparently needs to explain why he’s not Zeus and cannot command the elements to obey him.

    What do you expect him to do? Say, “You know, a lot of my success was just luck, I rode it while things were easy, I started to think I was a genius, then when the economy went south I was caught with my pants down.”

  • Drew Link

    I know, sam. I know. We are all crazy, or morons out here. Only yee of no business experience know the truth. I know.

    Carry on.

  • sam Link

    I don’t all of you are crazy or morons. What I do think is true of most of you, though, is that you suffer from a Borodino complex, thinking you’re in command when actually you’re just along for the ride.

  • john personna Link

    The weird thing is that Drew and I agree that the back-story is a few decades of increasing debt: personal, business, and governmental.

    We agree that chickens have come home to roost as total debt reaches levels which are difficult to support.

    That is the big underlying story.

    I just think I’m more rational than Drew because I can draw some politics to match that. I don’t need to close away that big debt story in a closet, and say it’s all “Obama unceratinty.”

    And lolz, I don’t have to make a claim to special knowledge to bind my crappy argument all together.

  • john personna Link

    (Come on Drew, it is transparent. You know consumer deleveraging is going on, and consumption is still down, but you want to talk about regulatory uncertainty. Don’t you have the introspective skills to understand your own motivations?)

  • john personna Link

    Also, it really galls me that someone who argues from special business knowledge makes an argument that really begins “Forget everything you know about business. Forget spreadsheets. Forget return on investment. Forget numbers. It’s the scary President, who might do some unknown thing that we’re all afraid of.”

    He’s saying “we are the rational businessmen, we deserve our irrational fears!”

  • Drew Link

    You guys just can’t take yes for an answer. You’re right, we’re all irrational idiots. Nut cases. Its a wonder I can put my pants on in the morning…….and this constant drooling thing is getting annoying.

    “(Come on Drew, it is transparent. You know consumer deleveraging is going on, and consumption is still down, but you want to talk about regulatory uncertainty. Don’t you have the introspective skills to understand your own motivations?)”

    Speaking of transparency and introspection. Deleveraging – yes. Wealth effect – yes. I’ve never denied those. But your own motivations make you incapable of moving on from those issues. There is more to the story. Why is GDP moving forward, but hiring is relatively lagging? Because employment and tax costs are most assuredly going to go up for business, but nobody knows how much with this guy. And its easier to avoid hiring now than fire later. WTFU Mr. never owned or ran a business.

    I take that all back. I’ve got this pool of drool by my keyboard to deal with. And I’ve got to call all my business associates and set them straight about the wonders of professors, software guys and community organizers as business leaders. I’m sure they will see the light, break out of their stupor, and start hiring by Friday. Gotta go…….times-a-wastin’…..its for the good of the economy.

  • john personna Link

    Because employment and tax costs are most assuredly going to go up for business, but nobody knows how much with this guy.

    It’s interesting that the legislative environment has changed so much since they healthcare debate, but the fear level is the same.

    It’s something different now, isn’t it?

    The only rational fear I see is how the debt can be managed, and interestingly all of us here agree that it should involve some tax increase.

    … but it’s still scary Obama, right?

  • Drew Link

    Like I said. You’re right, I’m wrong. I capitulate. And all these other idiot business owners out here are just flat damned crazy.

    I’m tellin’ ya. To break out of this recession, we’re gonna need a lot more psychiatrists!

    Of course, if you read Dave’s latest posts, its all health care costs. Christ! Now what?

  • john personna Link

    I’ve never understood the “I cover myself in poop” defense. Sorry.

  • I talked to my brother today and asked him about this. To refresh everyone’s memory, he owns the family construction business (started by my father in the early 1950’s) which now specializes in interior office remodeling. His clients are office building owners and managers. Essentially, someone rents office space and my brother is hired to configure and build the space for the new tenant.

    For him it’s not about future uncertainty, but about all the overhead costs of employment. Over the years he’s moved from a business model that did almost everything in-house to now using subcontractors for almost everything. Consequently, he’s down to five employees, plus himself. He doesn’t plan on hiring because employees are expensive and more employees will not bring him additional revenue. He actually said that there is no longer an economy-of-scale from employing more workers and that actually the opposite is true. He’s been in this business for about 30 years now and he said it didn’t used to be like this and the overhead costs for employees basically drives him to reduce the number he keeps to the absolute minimum. He says he misses the old days but he’s got to deal with reality and that reality is what drives him to employ a small crew.

    He said his biggest overhead cost is insurance – liability, workman’s comp, fed and state unemployment and, of course, health care. At times he’s had to cancel the health insurance even for himself, but the other insurance costs have about doubled over the last decade, so it’s not just health care. Insurance costs a couple of years ago were about $20k per employee, but he’s managed to reduced that somewhat to around $15k through various belt-tightening means. When FICA and everything else is added in he says that he pays around an additional 50% (a ballpark figure) on top of the employee’s wages – so if he’s paying someone $50k a year in wages, it’s actually costing him around $75k to employ that person.

    Unlike Mr. Wynn, my brother is working so much (always on call, 14-16 hour days, 7 days a week) trying to keep his business afloat in this economic climate that he doesn’t have time to listen to what’s going on in Washington, much less study the potential future effects of various policy options nor can he turn around and pontificate for the media. For him it’s not about an uncertain future (though the future of his business is definitely uncertain), but an uncertain present. My brother is a very hard worker and an good businessman – he couldn’t survive in construction for 3+ decades otherwise and it’s likely he’ll survive this since many of his competitors have already gone under.

    So I don’t know what the answer is, but I guess the reasons that people aren’t hiring are more complex than people like Mr. Wynn believe and they are probably dependent on a host of factors and are highly circumstantial and situational.

    I was in Las Vegas last year and it was pretty apparent the city is hurting. It was also apparent the city was massively over-built. For someone like Wynn, a return the the status-quo ante would be a pretty good deal – maybe his real complaint about President Obama is that he isn’t going to bring about another bubble.

  • john personna Link

    Should I assume the worst, that your brother outsources, and someone down the chain hires illegal aliens?

    If not, and down the chain someone is still paying $50K-$70K for laborers, it’s easy to see how hard it is to keep going. You need a lot of fat jobs to support the base wage, let alone the overhead.

  • John,

    I don’t know – I didn’t ask him that, though he did mention that subs are experiencing similar pressures with regard to employment.

    The main reason for using subs, though is because you don’t need every trade on every job, or every trade in a fixed quantity at all times. It’s simply not affordable to keep, for instance, plumbers on the staff full-time because most of the time they’d be relatively idle. In a typical job you want a lot of plumbers to come in, knock out the rough plumbing in a day and come back a week later for the finish work (installing fixtures, etc.). However, unless you are big and have a lot of jobs then your plumbers aren’t going to have anything to do much of the time. Hence most people, even big firms, usually use subs.

    Also, my brother isn’t paying for laborers (actually, I think one is a laborer) – he employs skilled carpenters who do most of the finish work as well as help my brother put out all the little fires that inevitably crop up on the job site. Also there’s a secretary.

    At least in his niche business he doesn’t have to compete with the low-bid semi-skilled guy working out of a pickup who will only be around a couple of months.

  • john personna Link

    I didn’t want to undermine the skills involved. The drywall and texture guy I had in recently was fast and did really, really, good work. You could probably learn the basic job in a few weeks, but you don’t learn to “blend” like that without a lot of experience.

    It would be good if the specialization and subcontracting allowed guys like that to do what they do best, and make good money at it.

  • Drew Link

    Heh. Shower. Lots of brown water down the drain I guess.

    As for the position taken……Zzzzzzzzzzz.

  • Drywall is sub’d. And yeah, speed and quality matters a lot. Of course occasionally you get, in one instance, a plumber who pushes in a dishwasher after hooking it up and scratches a very expensive, installed-the-day-before-floor which results in a very pissed off client.

    Architect plans don’t always translate well into the real world and inevitably issues come up that need addressing. A lot of clients want custom work done. A lot of stuff that looks easy really isn’t, etc. One thing that’s hard to find are skilled carpenters who can problem solve.

  • john personna Link

    “A lot of clients want custom work done.”

    I was fishing with a contractor who said “give me a household job with a trophy wife, every time.”

  • Silvano Link

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