A Second Stimulus

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/04/AR2010070403856.html?referrer=emailarticle

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"People may HEAR your words, but they FEEL your attitude." (John C. Maxwell)

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Fareed Zakaria (he of "Fareed Zakaria: GPS" on CNN, and "The Post-American World", a worldwide non-fiction best seller in 2008) has some thoughts on how to get the U.S. economy going again. He sees a "political issue" going on that a has some validity: the Federal Reserve recently reported that America's 500 largest non-financial companies have accumulated $1.8 trillion in cash on their balance sheets - that would be the highest amount in almost 50 years. And, as Zakaria points out, most of these corporations aren't spending this money on new plants, equipment or workers.

Why not?

The answer is that most of the CEOs of the companies holding on to their cash see economic uncertainty as the primary reason for their caution (understandable). But, in addition, "politics" comes up as a continuing concern surrounding regulations and taxes. Some of these CEOs have begun to speak out publicly: GE CEO Jeff Immelt has complained that the government is not in sync with entrepreneurs. It's interesting that someone running one of the largest and most complex conglomerates in the world speaks out about the plight of the "entrepreneur." But, Zakaria sees a consensus amongst the most influential CEOs (some of whom will not speak on the record) that President Obama is anti-business. These CEOs point out that he has no business executives in his Cabinet, that he rarely consults with CEOs (except for photo ops), that he has almost no private-sector experience, and that he's made clear he thinks government and nonprofit work are superior to the private sector. This adds up to, as Zakaria puts it, a "profound sense of distrust."

One of the CEOs pointed out that he has "teams of lawyers" working to figure out the implications of new legislation on health-care, financial reform, and cap-and-trade. And, of course, "lobbyists" are thrilled because it's more business for them. But, all this stalls the system of decision-making in many large companies. Zakaria implies that the Obama Administration is not unhappy about expanded government purview in many areas, but points out that some of that "expansion" has been necessary with all that's been done to save the U.S. economy.

Regardless of any "excuses", Zakaria points out, and we agree, that the Obama Administration needs to outline a growth and competitiveness agenda that is compelling to the business community. So far, there's nothing.

We want to add here that Zakaria mentions in passing the state and local government crisis going on in the U.S. He quotes Joel Klein, the New York City schools chancellor, who told him that when the government stimulus money runs out at the end of this year, he will be forced to lay off 5,000 teachers. So, a second government stimulus (which is politically impossible at this point) would have a use in situations like this throughout this country. Without a second stimulus, state and local governments will have to slash spending and raise taxes, "... which will produce a downward spiral of higher unemployment, slower growth, lower tax revenue and a larger deficit." Nothing to alleviate this looks to be on the horizon.

Relative to all of this, we note with interest that Fed Chairman Ben Bernanke said Monday that small businesses are having a tough time getting the loans they need to expand or stay afloat and keep the economic recovery going. Why? The answer is simple: banks aren't lending (enough) and yet small business is where most of job creation takes place. Bernanke has pledged to keep the main interest rate close to zero for an extended period partly because of this situation.

Until this is fixed, overall economic growth and unemployment will remain a problem.