Invictus at The Big Picture takes on the assertion that businesses aren’t spending because the Obama Administration is anti-business:
Since we know that Personal Consumption Expenditures comprise 70 percent of GDP, I’m not sure why “getting companies to start investing†would be considered the key. The demand problem we have on our hands is what is keeping companies’ spigots closed.
which I think goes to the root of our problem. The primary alternatives for a thriving economy are personal consumption, business spending, and exports. In the short term government spending might be added to that list but, since government spending must come from somewhere, e.g. present or future taxes or debasing the currency, in the long run that’s not a viable alternative.
In my view at 70% we are now overly reliant on personal consumption. By that I don’t mean that we should slash consumption. I just mean that businesses should be doing more R&D, preparing for tomorrow’s products, and attempting to cut costs by investing in technology (which allows other companies to spend more on R&D). We also need to export more. I’d be happy with small increases in R&D and exports.
Emphasizing a policy that aims at a return to the 70% is just delaying the inevitable re-balancing that must take place if we’re to have a thriving economy.
He then produces a chart (from NFIB of which I am a member) that shows that the single largest concern for small businesses at roughly 33% is low sales while 22% say that their biggest problem is taxes and another 12% say that their biggest problem is regulations. While the chart handily refutes the claim that high taxation is business’s biggest problem or th regulation is business’s biggest problem, it misses a couple of important things.
First, the number of those that say that either taxes or regulation, i.e. “the government” is their biggest problem is at least as large as those who say that low sales are their largest problem. And, importantly, two-thirds say that something other than low sales is their biggest problem. In my view that handily refutes the argument that increasing consumer demand should be the sole focus of policy.
Hmmm. Go back and look at your chart. Which trend lines mirror what really happens in the economy? I am on old comp at work so hard to find data to correlate, but from memory it looks as though only the green line mirrors economic performance. The other two lines dont seem to correlate to much other than, maybe, who is in office.
Steve
Current sales is the only issue among the three that you’d expect to track near term economic conditions closely. It doesn’t mean that the others aren’t important.
Current sales is a problem for businesses that are in trouble now. Taxes and regulation are more important for successful businesses.
Take my case, for example. I don’t have a problem with sales. Sure, I wouldn’t mind a little more but not enough to go out and prospect for it. I’ve got nearly as much business as I can reasonably handle. The biggest threats to the success of my business are first regulatory burden and second taxes, both of which have the potential to cut seriously into my earnings.
I suspect it’s the same in your case, Steve. Do you really have a problem with sales? I doubt it. If you’re like most docs I know, you’re overworked if anything. I suspect your greater problems are increasing administrative overhead, taxes, and regulation (not necessarily in that order but probably in that order).
BTW, about a third of the problems aren’t shown in that graph. I don’t have enough interest to chase up the raw data but I’d guess the other, lesser problems are availability of credit and the difficulty in finding good help.
Yes, by all means look at the trends. There was a “step” change at the start of the recession for sales. However regulations and taxes change trend. Also, both trends appear to change direction right around the end of 2008 begining of 2009.
I’m currently reading Robert Higgs Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity and he notes that GPI (gross private investment) fell both during the Depression era and in WWII. During the era it came mainly later in the 1930’s when Roosevelt ramped up both the rhetoric and legislation that put private property rights into doubt. One of the biggest was his rhetoric was to pack the court which lead to a reinterpretation of the Commerce Clause that pretty much gave the feds carte blanche when it comes to private property/economic activity.
I know I’ve mentioned before the sweeping nature of this law, but it really does give the feds the power to regulate backyard gardens. If you grow food in your own garden you are not buying from the store and that will impact commerce and thus backyard gardens, if Congress so chooses, can be regulated. Sure its your property, but what you do with it is completely and totally dependent on the whims of Congress and the President (can we also admit the lines between the legislative and executive branches have become quite blurred?).
Has Obama done the same thing? Perhaps not on as grand a scale, but he has gotten that abortion called Health Care Reform passed which injects the federal government even deeper not only into medical markets, but all markets via health policy via employers and such. Along with a growing list of tax increases on various parts of the economy as well.
My guess is that Dave is right, and he’ll get “more right” as time goes by unless Obama and the Dems get turned out in the mid-terms.
Steve-What I see (on better comp), is that worry about regs peaked in 94, and has fallen since, with a stepdown in 2000. This does not correlate with the performance of the economy. Yes, they are worried. But how does that turn into business performance? Their worries dropped in 1994, but that did not lead to long term continuous good performance. It misses the 2000 recession, which is picked up by the poor sales concern (the 91 recession too). It also lasts quite a while which I think reflects that the last recovery was largely focused in the financial sector.
I am not sure what to make of the tax line. It does not seem to correlate with any particular economic outcome. Note that Bush I raised taxes in 1990, but the line does not move much.
Unless you have a better explanation, the red and blue lines seem to mostly indicate that most small business owners are Republicans. What we need is an index tracking the number and severity of regulations. I am bothered that the claims about regs are essentially not falsifiable.
Dave- We actually did have a bit of a downturn and growth had been erratic for a while. It is better now. Personnel costs, health care costs and malpractice are what worry us on the economic end. Our long term worries, mine at least, are about how medicine will be reorganized or managed to cut costs.
Steve
I think asking business owners to identify their biggest problem doesn’t produce much of any use. I wonder how many would have answered that their biggest problem was, “I suck at running a business.” Or, “This whole business was a dumb idea.” But I’d bet those two answers are closest to the truth for most businessmen.
Ask writers what’s wrong with our business and you’ll get, “People don’t read enough,” and “The system is rigged.” They’ll never say the problem is, “I basically can’t write,” or, “I keep writing the same book as everyone else in my MFA cohort.”
The story I see going back is different. First there are no steps prior to 2008, at least nothing of the magnitude in 2008 for sales.
Second, you have to consider the politics of 1994-1998. Clinton had gotten spanked pretty hard by voters in the midterms and he dropped health care reform and moderated much of his policies. He became, IMO, decidedly more pro-business. Similarly once Republicans had control of Congress the fear of additional regulation and taxation also likely subsided. Not necessarily because Republicans are anti-regulation, but more of a gridlock thing. After all, look back at when Bush I was in office and concern for regulations was on the rise.
The sales time series by contrast does appear to be more closely linked to the business cycle, big shock. So, I’d argue that looking at the economy for explanations of regulatory and tax time series isn’t going to get you very far at all. It is perhaps a more complicated relationship working through political policies which include economic ones. After all, note that the regulatory line also leveled out in about 1989 and held fairly steady until….about 1992, right in time for the Presidential election and the huge first debate on health care reform.
Steve- Suppose most small businessmen are Republican, which is the case I believe. How would you separate out worries based upon political affiliation vs those based upon actual happenings in the economy? If businessman, and Dave, are correct in their worries, shouldn’t we see much better business performance during Republican administrations?
Steve
1. I found the Invictus piece to be contrived, contorted and light.
2. This unwillingness to acknowledge, and conjecture about the motives/views of small business community, reminds me of the great Groucho Marks: “who you gonna believe, me, or your lie’n eyes?” Analyze and conjecture your faces off, people.
3. I’ve always said, if you are concerned about the level of consumer purchases, the best thing you can do is tax their disposable income away. Book it, Danno.
Only if we assume the following:
1. Most business owners are Republicans or sympathetic to that party.
2. Most business owners put partisan politics ahead of money.
While I might be persuaded on number 1, you are going to need better evidence for number 2.
According to the Small Business and Entreneurship Council (sbecouncil.org), 38% of small business owners consider themselves Republicans, 31% consider themselves Democrats, 25% are independents, and the rest are other. That’s a difference from the general population but not an enormous one.
With the exception of political activists and other ideologues I don’t think that party affiliation is dispositive.
I am convinced that business people are worried about taxes and regs, but then what? Does that correlate with economic performance. When I look at the history of consumer confidence, it seems to track fairly well with how our economy performs. I see no correlation for this with the worries graphs on taxes and regs. I see good correlation between sales worries and economic performance. If they stop worrying, will the economy perform better?
http://en.wikipedia.org/wiki/File:ConsumerConfidenceIndexUSA.png
Steve
I’d suggest private investment. Private investment isn’t likely to result in increased economic activity immediately, but later on. Of course private investment also is a function of the business cycle as well, so disentangling the effects would not be relatively straight forward.
To be honest, Drew, what concerns me is that there’s some sort of power law involved in the cost of technological advancement. If that’s the case we could suddenly reach a point at which advance slows to a halt. I find that thought distressing.
Dave –
It would be arrogant of me to dismiss out of hand some sort of power law function. But I’ll return to that in a second.
You are much too well read for me to lecture you, so you surely understand our history, and that techonogical advancement has historically been better described as episodic, rather than exponentially more expensive. Steam engines, electrification, mass production, Bill Gates, the original Apple, and then the internet guys weren’t exactly flush with money when they came up with their breakthroughs.
But coming back to your point, it does bring up an interesting issue. Where will be the next great technological – and GDP/job producing – breakthroughs? I’m not thinking its industrial robotics/productivity, advanced materials, electronics or information. I’m thinking biotech. And on that front, you may have a real point. That’s not business-borne-out-of-a-garage stuff, that’s expensive. Really expensive.
And despite all the disparate views that coagulate here, that issue might be one for you to mine with this crazy commenting crowd.
(BTW – Our business is really simple. We take non-maximized businesses and maximize them. Because we know how. Its very productive. Socially positive. And lucrative. But we are not true venture, “breakthrough” people. More mechanics, really. So your query about where does the next breakthrough come from is thought provoking.)