In Fear Of Fear

These rich people are frightened but they can't quite tell you why

As jobless claims continue to spiral, and desperate Americans start ransacking their retirement accounts for sustenance, the US economy looks like it’s developed much the same allergy to productive labor that’s long afflicted the Kardashian clan. And now comes Washington Post business writer Neil Irwin to observe that employers aren’t adding jobs-even with corporate profits increasing-for a simple reason: They aren’t convinced that a broader recovery is going to take. As Irwin explains, it comes down largely to sluggish demand: CEOs believe “U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis.”

This, indeed, is the sort of deadlock that makes for dreadful recessions-demand stays sluggish, while gun-shy firms can’t talk themselves into the same damn-the-torpedoes boosterism that helped sustain prior booms. It’s also, not coincidentally, where the Keynesian measure of increased government spending can help lubricate demand in a chilling job market. For all the exuberant voices on the right declaring the 2009 Obama stimulus a failure, the present doldrums make a stronger case for crafting a bigger stimulus and sustaining deficits while the slump persists.

But we don’t get that sort of structural breakdown of the issue from Irwin, or indeed from most of the business press. Instead we hear a lot about apprehensive bosses, who can’t quite say what they’re apprehensive about. Yes, they believe that future sales will “come in fits and starts and their customers can’t predict what they will buy in the future.”

This means that while capital expenditures are performing briskly, rising at more than a 20 percent annual rate over the first half of 2010, bosses aren’t spending to expand capacity or add jobs, Irwin notes; instead, they’re “spending primarily to replace equipment they held on longer than usual last year to conserve cash.”

But what lies behind this skittishness? Reporting from the heartland boardrooms of Chicago, Irwin frets that the executive class is spooked by President Obama’s policy portfolio. “They criticize his willingness to let Bush-era tax cuts expire at year’s end for households that make over $250,000 and allow the capital gains tax rate to increase. They dislike aspects of his landmark health-care law, and some fear that the financial overhaul legislation enacted this summer will make it harder for them to get loans.”

These and other depredations, Irwin reports, have persuaded employers that Obama’s policies “would make the United States a less competitive place to operate in the long run.”

It’s never explained, of course, how this raging declensionism squares with the “volatile conditions” that have made it harder for bosses to commit to expanding their payrolls. If Obamanomics were so rabidly antigrowth, demand would be flat, not variable-and executives wouldn’t have new capital to expend in the first place. But this stolid schizophrenia is a common tic of today’s business writing, which holds that executives are monolithically fearless and innovative entrepreneurs until a whispered rollback of a tax cut turns them into quivering neurasthenics.

Indeed, the curious thing, as Irwin notes, is that when he pressed his CEO informants to outline the specific baleful fallout that the Obamaist commissariat has wreaked on their businesses, “they drew only vague connections.” Indeed, “none of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring.”

And with good reason, it turns out-as an accompanying graphic shows, corporate profits have rallied handsomely of late, with the second quarter 2010 total of $1.57 trillion above pre-bust 2007 levels. In other words, all this policy doomsaying from the boardroom comes from somewhere beyond the balance sheet-it is, indeed, of a piece with the voodoonomics incantations of the post-Reagan Tea Party right. Government intervention in the economy can’t aid in job creation or stimulate demand simply because, well, it’s government intervention in the economy. When you see it coming, all you can do is hoard your capital, grab your children and run!

All one has to do to see the emptiness of this superstition is to look a bit north and east of Irwin’s anxious Chicago executive class and consider the auto industry. There, you’ll recall, we had a robust bit of Keynesian activity to keep GM and Chrysler afloat-and naturally, a wailing chorus from the supply-side faithful warning that the apocalypse was nigh. At least, you know, for bondholders.

Well, a year on, GM has reported two profits over two straight quarters, the latest showing a stout $1.3 billion off of more than $33 billion in revenues. The company is now preparing to launch an IPO-the first step to getting out of government receivership. The smaller Chrysler Corp., meanwhile, reported $183 million in operating profits in the second quarter of 2010, and is performing well ahead of its 2010 profit outlook.

And funnily enough, the leaders of the heavily unionized auto sector are managing to do what their anxious counterparts in Santelli-land still lack the stomach for: They’re adding jobs. While Michigan’s economy, which was in recession well ahead of the 2008 collapse, is still in desperate straits, the state led the United States in job growth last month, according to the most recent figures from the U.S. Department of Labor. More than 20,000 of the 27,800 new jobs in Michigan were in manufacturing, and the vast majority of those, of course, are in the auto industry.

Such suggestive, uneven regional trends in job growth and manufacturing again only strengthen the case for addressing the question of our sluggish overall recovery at a deeper structural level, beyond reporting that employers, like the rest of us, are easily spooked these days. Consider, for instance, the testimony of a recent New York Times op-ed contributor, who decried the influence of a “cadre of ideological tax-cutters,” “the vast, unproductive expansion of our financial sector,” and “the hollowing out of the larger American economy”; as we’ve “lived beyond our means for decades by borrowing heavily from abroad,” we’ve also “steadily sent jobs and production offshore.” The predictable results of all these trends, we learn, is that “we will not have a conventional recovery now, but rather a long hangover of debt liquidation and downsizing.”

That wasn’t Paul Krugman-we know that from a parting warning about “recycled Keynesianism” and a call for renewed fiscal discipline. But it was former OMB Director David Stockman. You might remember him from the Reagan Revolution.

You can help stimulate Chris Lehmann’s economy by pre-ordering Rich People Things: the book