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Uncertainty does nothing for economy

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Saturday, Nov. 24, 2012, 8:57 p.m.
 

The Obama administration and Congress have created great uncertainty in the economy, taxation and regulation. The “fiscal cliff” is just one example of the great indecision flowing from Washington, which causes severe risk aversion by consumers, business executives and investors.

Hoarding record amounts of cash and resisting investment in durable goods, plants and jobs is fast becoming the norm. Therefore, much of the synthetic cash injected into the economy by the Federal Reserve is sitting idle in bank deposits. Worse, private investors are investing abroad to the benefit of competing economies and foreign workers.

Uncertainty usually causes inaction and tends to hinder human endeavor — and therefore, enterprise.

The economic uncertainty of free markets creates risks that have generally proved acceptable to entrepreneurs and business executives. But when governments introduce extensive, politically motivated economic and financial distortions, often accompanied by excessive regulatory uncertainty, enterprise is stifled and jobs are shed.

The Wall Street Journal reported that executives are delaying or slowing investment projects in the face of slowing demand and uncertainty. As this columnist has pointed out, and David Seaton, CEO of Fluor Corp, said: “The whole world is looking for stability and clarity from the United States.”

Meanwhile, investors look for freer markets offering more easily assessed risks. Decisions are made, capital flows and jobs are created elsewhere.

For decades, the United States government has overspent grotesquely. Congress has not produced a budget for the past five years. Painful decisions have been delayed constantly. President Obama commissioned the bipartisan Simpson-Bowles Report, but ignored its measured findings that were apparently acceptable to both parties.

Now Americans are at the precipice of a financial cliff. According to Gary Dorsch of Global Money Trends, the cliff offers $474 billion in tax increases against just $100 billion of spending cuts, most of which are unlikely to materialize. Middle income families face the prospect of $2,000 more in average annual taxes.

The $125 billion increase in payroll taxes will hurt employment further. The Congressional Budget Office estimates up to 3.4 million jobs would be lost. It appears almost impossible for anyone to escape the cost.

Reflecting on this depressing outlook, the Treasury reports that in September, total foreign private purchases of U.S. financial assets were down by 96 percent, including net selling of $17.3 billion in Treasuries.

President Obama called for a bipartisan solution. However, he opened negotiations by announcing inflexibility over the demand for increased taxation of those with annual income exceeding $250,000. This includes many small business owners who traditionally are key job creators.

Having won a second term, President Obama need never face voters again. He can afford to move away from economically damaging, socialist-based policies and offer more business-friendly certainty. Business executives would respond by creating the jobs that are vital to the recovery of the American and world economies.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at johnbrowne70@yahoo.com.

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