"Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they've yet to amp up hiring or make major investments."
So writes The Washington Post about the recession's stubborn refusal to go away. The statisticians at the National Bureau of Economic Research declared the Great Recession over -- but tell that to people who can't find jobs. Today, businesses replace equipment and inventory, but they are reluctant to hire new workers. Investment that does occur aims at replacing the use of labor by adopting advanced technology. In a growing economy, that's a sign of progress. Freed-up workers are then available for new projects. But lately, those new projects aren't being launched.
The two wings of the establishment offer their usual remedies. Government-oriented types want more tax-financed "stimulus" spending, claiming last year's nearly trillion-dollar dose wasn't enough. That's dubious. As economist Mark Skousen writes, "(P)roduction and investment lead the economy into and out of a recession; retail demand is the most stable component of economic activity."
Business-oriented types want tax cuts. I'm sympathetic, but cuts should be accompanied by spending cuts, or the deficit will grow even uglier. There's no free lunch. Deficit spending must be covered by government borrowing, which takes capital that could be used for investment out of the private sector.
Why isn't the economy recovering? After previous recessions, unemployment didn't get stuck at close to 10 percent. If left alone, the economy can and does heal itself, as the mistakes of the previous inflationary boom are corrected.
The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama's vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.
In at least three big areas -- health insurance, financial regulation and taxes -- no one can know what will happen.
New intrusive rules for health insurance are yet to be written, and those rules will affect hiring, since most health insurance is provided by employers.
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