Why did the Depression of the 1930s grind on for so long? In late 2009, Amity Shlaes, the author of The Forgotten Man, the best-selling 2007 look at the Depression, reminded readers in her Bloomberg column one of the key reasons:
High taxes, or the prospect of tax increases, do damage as well. In 1937, a tire company executive explained the effect of Roosevelt’s confiscatory rates upon the investor: “He will not risk financing new ventures if the government take is greater than that of the average gambling house.”
Infantilizing the private sector also makes it shut down. In the 1930s, Roosevelt, like Obama, alternated between coddling banks and companies and giving them the equivalent of a good spanking. Both can be counterproductive. The editors of Time magazine formally recognized that by printing a regular rubric over its weekly reports: “Last week the U.S. Government did the following for and to U.S. Business…”
The insistence on executive discretion is a real killer as well. Adolf Berle, Roosevelt’s assistant secretary of state, sounded for all the world like Hank Paulson or Timothy Geithner when he argued in the late 1930s for a “modern financial tool kit.” Tool kit means “let me fiddle around” and not “let us agree together on rules and abide by them, together.”
A year later, Intel’s CEO Paul Otellini, was quoted by CNN as saying much the same thing:
Intel is on pace for what Otellini predicts could be the company’s best year ever but said other businesses are not so lucky. “A lot of companies are sitting on the sidelines right now,” he said, due mainly to a lack of clarity about taxes and regulation.
“Take the uncertainly out. Businesses can’t invest until they have fewer variables and right now there are just too many variables,” he said.
As I wrote at the time, hey, when Time magazine compared Obama to FDR, they weren’t kidding, were they?
And curiously, another columnist at Bloomberg has apparently never read Shlaes’ column there, let alone her book. Stephen L. Carter, a professor of law at Yale University has a new article there, linked to by the Insta-professor. It’s built around his chatting onboard during a flight, presumably from somewhere on the west coast to Minneapolis, with a midsized company’s CEO who’s explaining to Carter why his business isn’t hiring:
My seat-mate seems to think that I’m missing the point. He’s not anti-government. He’s not anti-regulation. He just needs to know as he makes his plans that the rules aren’t going to change radically. Big businesses don’t face the same problem, he says. They have lots of customers to spread costs over. They have “installed base.”
For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop.
We will be landing shortly in Minneapolis. I ask him what, precisely, he thinks is the proper role of government as it relates to business.
“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss.”
We are at the gate. We exchange business cards.
On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.
Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.
Carter describes himself as “As an academic with an interest in policy,” who tends to “see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same.” In that respect, his article’s title, “Economic Stagnation Explained, at 30,000 Feet,” might have unintentionally hit a little too close to home.
But if Carter sees business as an abstraction, imagine how truly abstracted they are in the mind of a former academic who can actually make policy.