Hysteria, Hysteresis
by digby
I just heard Huckleberry Graham use the word “certainty” at least 43 times in one segment. Evidently every businessman in the country is completely paralyzed by the possibility that the government might institute a regulation in the future and they could possibly lose money. And here I thought true capitalists were swashbuckling captains of industry seeking risks and rewards for the sheer thrill of it. It turns out they’re a bunch of hysterical old ladies who see threats around every corner and can’t leave their rooms. Good to know.
Meanwhile, in the most depressing blog post of the week, here’s Krugman:
You can see that there was a mini-version of the current decline in manufacturing capacity after the 2001 recession: capacity basically stopped growing in the face of a protracted weak economy. But this time around, with manufacturers operating way below capacity with little prospect of needing more capacity any time soon, they’re both scrapping equipment and failing to expand. The result is that when we finally do have a real recovery, we’ll run up against capacity constraints much sooner than we would have if there had been no Lesser Depression.
Arguably the same thing is happening in other sectors of the economy,
as the long-term unemployed begin to become unemployable, as the long shortfall in residential construction leads to rising rents (and a small uptick in core inflation) even though demand remains deeply depressed.Hysteresis can mean that the costs of failing to pursue expansionary policies are much greater than even the direct effects on employment. And it can also mean, especially in the face of very low interest rates, that austerity policies are actually self-destructive even in purely fiscal terms: by reducing the economy’s future potential, they reduce future revenues, and can make the debt position worse in the long run.
The folly of the current policies is immeasurable.
Update: Yup. Suddenly capitalism requires an ability to tell the future or these people are unable to function:
“ERIC SCHMIDT, Google executive chairman, to Christiane Amanpour, on ABC’s “This Week”: “The real problem is not the business community. The real problem is: The Democrats and the Republicans fight for one point or another in a political sphere, while the rest of us are waiting for the government to do something concrete and predictable. What business needs is predictable, long-term plans. We need to know: Where is government spending going to be, what are the government programs going to be? And off we go.
Right. Why build a business if you don’t know what government spending is going to be in 15 years? Best sit on your cash as clutch your pearls.
Or not:
“ERIC SCHMIDT, Google executive chairman, to Christiane Amanpour, on ABC’s “This Week”: “Business can create enormous numbers of new jobs in America. All we need to see is more demand. What’s happening right now is: Businesses are very well-run, they have a lot of cash. They’re waiting for more demand. At the moment, business efficiency allows them to grow at 1 or 2 percent, which is what we’re seeing today. They don’t have to hire more people. And until we solve the problem, people are going to sit idle. And it’s a real tragedy.””
Soooo… businesses are sitting on piles of cash because they can’t tell the future and just need some “certainty” about government spending or because nobody’s buying their products? Eric Schmidt seems a tad confused, don’t you think?
You tell me which one of those things makes the most sense from a capitalist perspective.
And then ask yourself why the ridiculous tripe about “uncertainty” continues to spew from the mouths of all these fabulously wealthy CEOs (and their lickspittles like Huckleberry Graham.)
h/t to jh
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