Archive | February 8, 2013

Phony Economic “Uncertainty”

I’ll take an aside from Kenya to write on an excellent article I found on Bloomberg on the subject of economic “uncertainty.” During the run up to the 2012 election and the subsequent debates on the now almost forgotten “fiscal cliff,” Republicans and their faithful believers spread wacky ideas that American business was crippled by not knowing what their tax rate would be in 2013.

Caroline Baum on Bloomberg claims, rightly, that this was a manufactured panic, though I would argue that our academically challenged politicians seriously believed what they were peddling.

Republicans in Congress claimed that businesses were sitting on cash, unwilling to invest until they knew what their tax rate would be next year (as if tax rates are ever set in stone). What’s more, raising taxes on “job creators” would bring the U.S. economy to its knees.

The premise behind this is fantastical. If businesses are sure that they’ll make a profit, they’ll invest the money today. I think it’s ridiculous to assume that single digit tax increases will somehow get in the way of moving ahead with business.

She points out, though, that the whole thing was fantasy:

– The private sector added 675,000 jobs, making it the second-best quarter since the recession ended in June 2009.
– Business spending on equipment and software rose 12.4 percent annualized, the biggest increase since the third
quarter of 2011.
– Business sales rose an annualized 4.2 percent (assuming no change for December), the strongest quarter of 2012.

The most perplexing part of the whole “kowtow to the American economic elite or else you’ll be unemployed” idea is the notion that somehow CEO’s hand out jobs like candy. “Job creators” don’t create jobs unless there is demand for products, either domestically or abroad (don’t forget that the US is an export giant). Republicans, so opposed to handouts, imply that somehow it is the responsibility of business to provide jobs without the expectation of return.

This is, of course, the government’s responsibility! It is exactly why we continue to invest in infrastructure improvement, have unemployment insurance, provide food stamps and bolster national defense. These expenditures are made knowing that returns are unlikely, but the infusing of cash into the economy keeps important sectors afloat and reduces overall volatility.

It’s ironic, given the anti-Keynesian bent of the Republican Party that prevents them from admitting it, that the US’s economic contraction in the last quarter of 2012 was due to defense cuts and had nothing to do with any type of fantastical “uncertainty.”

OK, back to bednets and Kenya.

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