Want to know why the economy is still dragging along with stagnant growth and 9.1 percent unemployment? Travel back in time over the past 18 months and listen to what some Federal Reserve Bank presidents predicted would result from the Obama Administration’s public policy path.
In short, they come to one salient point: Washington has created a great deal of uncertainty and hostility among private enterprise. It’s a message White House Chief of Staff Bill Daley heard last week when he met with manufacturing executives who complained of the Obama Administration’s roadblocks to their business growth. To one he replied, “Sometimes you can’t defend the indefensible.”
Had the White House opened its ears to any of the following choice observations from these Federal Reserve Bank presidents, the economy just might be on a different path:
1) It’s the regulations, debt, and uncertainty, Uncle Sam — Jeffrey Lacker, President Federal Reserve Bank of Richmond, Oct 2010:
In West Virginia, for example, the federal government’s wholesale withdrawal of previously issued coal mining permits has led many businesses to suspend investment plans, and there are no doubt numerous other regulatory actions around the country that have reduced production and employment.
Part of the negative sentiment likely reflects the explosion of federal debt and uncertainty about how a sustainable fiscal policy will be achieved. More broadly, people may be having difficulty absorbing and adjusting to three separate 2000-page pieces of federal legislation that have been passed in the last two years.
Add to that the continuing uncertainty about tax rates for 2011 (now less than three months away), business planners may be finding it more difficult than usual to project economic conditions or the financial implications of prospective hiring and investment commitments. While it is hard to estimate the magnitude of the effects of these fears, or to disentangle them from general expectations of weak demand growth, they are too broad and deep for me to dismiss as implausible the notion that they have significantly dampened consumer and business spending of late.
2.) Obamacare’s uncertainty has businesses in a holding pattern — Dennis Lockhart, President, Federal Reserve Bank of Atlanta, November 2010:
We’ve frequently heard strong comments to the effect of ‘my company won’t hire a single additional worker until we know what health insurance costs are going to be.
3.) Uncertainty over major policies has left businesses and banks in a risk-averse gridlock — Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, February 2010:
[T]here is a great deal of uncertainty related to major policy initiatives under consideration in Washington. Congress is considering proposals for enormous changes in health care and in the structure of financial regulation. These proposals have generated a great deal of uncertainty, for the capricious winds of politics seem to change them on a near-daily basis. As bankers, you know that too much uncertainty in a business plan makes for a risky loan. The same is true for the economy as a whole. I see this kind of political uncertainty as problematic for the prospects of rapid recovery.
4.) Washington has created a “fiscal sinkhole” that has tremendous implications for policy and the economy — Richard Fisher, President of the Federal Reserve Bank of Dallas, April 2011:
Under both Republican and Democratic leadership, past Congresses have created a fiscal sinkhole that is so deep and so wide, it threatens to swallow up our prosperity and render our economy an abattoir. They have forsaken the most sacred responsibility they have to successor generations of Americans: Instead of passing the torch to our children, they have passed them the bill.
Past Congresses have made promises they cannot keep. Now, the new Congress is embarking on a corrective course. This is just the beginning of what I expect to be a long, arduous exercise. Here I evoke St. Peter: Congress, “be serious and discipline yourselves.” You have no choice but to go through a painful and gut-wrenching rehabilitation and begin leading a sober life of living within your means. You must press on with getting your accounts in order, however politically unpleasant it may be to do so.
5) And more from Fisher in February 2011 — He says the President and Congress are all but unaware of what bolsters businesses:
Before the recent mid-term election, most all of my business contacts claimed that taxes, regulatory burdens and the lack of understanding in Washington of what incentivizes private-sector job creation were inhibiting the expansion of their payrolls. They felt stymied by a Congress and an executive branch that have appeared to them to be unaware of, if not outright opposed to, what fires the entrepreneurial spirit. Many felt that opportunities for earning a better and more secure return on investment are larger elsewhere than here at home.
