Economy of Dreams

If you cut it, they will come.

That seems to be the mantra of both parties in Washington these days. Like the mystical voice that whispered to Kevin Costner in the movie “Field of Dreams,” they seem to think that if they cut the budget deficit by trillions, the resulting savings will sprinkle confidence pixie dust on the economy. Corporations will start spending, and a thousand flowers will bloom.

It’s a nice story, but it runs into a few problems. Corporations are already spending. Business investment has already grown faster for longer than during at almost any other time. Businesses are spending money, they’re just not hiring lots of new workers. The capital/labor equation still favors labor. Also, there is no pixie dust. Business confidence rises and falls with the economy itself. And the unmistakable indication that the economy is doing better is the jobs picture.

But both sides of the political debate are mystified on how to create jobs. That’s because they often claim credit for something they had little to do with. Hiring someone is a serious decision. Managers know this. If they think an upturn is temporary, they’ll just muddle through shorthanded rather than risk volatility in their workforce.

To start the jobs ball rolling we need stability and financing. The lack of financing coming out of the financial crisis and the policy uncertainty associated with reform in health care, taxes, and regulation do more to keep businesses from forming than the Federal deficit.

In the long run we do need to address the deficit and pay our bills. But to get the deficit down we really need jobs. And to get them we need stable policies.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net
By | 2014-09-11T11:39:58+00:00 June 24th, 2011|Global Market Update|0 Comments

About the Author:

Leave A Comment