Krugman on Business Climate

Paul Krugman's lastest op-ed piece in the New York Times challenges the view that business is not spending because they see the Obama Administration as antibusiness. He claims there is no truth to the claims that business is not spending because of concerns over taxes, regulation, and budget deficits. As evidence, Krugman cites data like capacity utilization and surveys of business leaders that show that more of them cite the poor economy than political climate as the major problem. Hence, says Krugman, the government should ignore the alleged reports of business unease and pump up the economy. An improved economy will get business spending again.

There is a problem with Krugman's analysis though. He assumes an either/or situation when it can be a both/and situation. Yes, the economy is doing poorly and if we had a stronger and faster recovery, business would spend more and hire more workers. But, one of the reasons for the poor economy may be nervousness on the part of business, especially if it manifests itself in putting off hiring new workers due to uncertainty.

Uncertainty is a key concern that Krugman ignored in his piece. I agree with him that business people will always complain about taxes and regulation, just as most citizens complain about taxes as April 15th approaches each year. But business investment spending concerns the future, and when the future is more uncertain than normal, business leaders are more likely to be cautious. Given that some of the administration's policies affect the cost of hiring workers, the caution affects hiring decisions. A concern that the administration is antibusiness just feeds into the fear.

Finally, it appears to me that the Administration sees its problem with business as false perceptions. This may be due, in part, to a president and many leaders, who have no experience in or with business.

Is Obama Anti-Business or Anti-Markets, Part II

Now that I am back from Germany and done with the spring semester, I plan to post more regularly. In an earlier post, I discussed whether Obama is actually anti-business or anti-markets. The question is relevant because the two are not the same thing. Obama has said he is not anti-business, and offers support things like the bailout of General Motors. But, that act makes him anti-market. An op-ed piece in today's Wall Street Journal written by the governor of Indiana offers another explanation as to why that is the case. He reminds readers that the bailout of GM and Chrysler resulted in unique bankruptcy proceedings--proceedings that caused secured debtors to lose much more than would have been the case under normal bankruptcy procedures. This violation of the "rule of law" is anti market even if it helped two large firms. Once again, when government picks favorites in business they are not being pro-markets. They are also not being pro-business since some businesses are helped and others harmed by the favoritism.