If there is some magic statement the White House could make that would make America's non-financial companies respond, "Why didn't you say so before! Now we're all set to fill up our new factories with fresh hires," I would, sincerely, like to hear it.
So I wrote about five minutes ago. And the Internet responded -- albeit, in the form of a story written a few days ago in WSJ. The longer we go without a ten-year budget deficit reduction plan, the longer businesses and consumers will hold back on spending. Wait, what?
"Market participants are used to thinking that political gridlock is good, that it prevents politicians from interfering with the marketplace," said Richard Berner, co-head of global economics and chief U.S. economist at Morgan Stanley during a hearing before the Senate Budget Committee.
But "gridlock today is more likely to be bad for markets" because the county's long-term economic challenges demand politicians to act, he said.
In particular, the economists said that lawmakers need to formulate a plan for tackling ballooning federal budget deficits, including the looming impact of Medicare and Social Security. Without a clear plan, businesses and consumers will hold back on spending, fearing massive tax hikes, they said.
The long-term deficit is a critical issue. A critical issue that might be solved with tax hikes. How does announcing a plan to raise taxes assuage the fear of more taxes today? It might let companies plan for higher rates. But that kind of certainty might persuade them not to hire, right? Maybe you can make the argument that an announced VAT will make spending today more attractive, because spending tomorrow will be punished with a 5% tax, but it's a creative argument.
The economists also say that helping Medicare might get businesses spending. But didn't we just hear that the health care bill extends the solvency of Medicare? I don't see many people arguing that the trustee's report on federal health care spending should be embraced as a reason to open factories and hire workers today.
I'm still having trouble figuring out how the Obama administration can provide certainty to the business community.
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