Obama’s CEO Meeting: the Uncertainty Principle lives!

December 15, 2010

So the POTUS met with a bunch of CEOs:

President Barack Obama, trying to improve strained relations with the corporate world, prodded America’s top business executives on Wednesday to spend more money to boost U.S. hiring and the economy.¬†”We focused on jobs and investment and they feel optimistic that, by working together, we can get some of the cash off the sidelines,” Obama told reporters after spending more than four hours with 20 company leaders to discuss job creation.

Obama wanted to pick the brains of America’s business executives, and he estimated they were sitting on around $2 trillion that could be deployed to employ more U.S. workers.¬†The meeting with corporate bosses, including Jeffrey Immelt, chief executive of General Electric Co, and John Chambers, chief executive of Cisco Systems Inc, took place as the U.S. Senate passed tax cuts sought by companies.

A few thoughts:

1) Is is demand or uncertainty? Well, we just ran a 2-year experiment where we flooded the economy with economic and monetary stimulus while at the same time wrecking business incentives via tax and regulatory threats. The results have not been pretty.

2) Obama’s meeting with CEOs is itself evidence that the White House also believes that it has negatively affected business attitudes which has increased their caution. This also why they have been trying, unsuccessfully, to find a CEO to replace Larry Summers.

3) Here is a fun fact: In 2007, a year the economy grew 1.9 percent, there were 250 IPOs raising some $60bln. Although the economy is growing faster than that this year — and despite a big IPO backlog — IPOs activity is only half what it was in 2007. That goes right to the issue of animal spirits.

4)¬†There‚Äôs a rich vein of academic research supporting the premise that policy uncertainty¬†can paralyze the private sector. America‚Äôs Great Depression may have been extended thanks to ‚Äúregime¬†uncertainty,‚ÄĚ or the New Deal‚Äôs avalanche of regulation and taxes. Federal Reserve Chairman Bernanke offered a similar explanation for poor U.S. economic performance in the 1970s. In his MIT thesis, Bernanke partly blamed the decade‚Äôs weak business investment on ‚Äúuncertainty‚ÄĚ about long-term domestic policy, concluding that ‚Äúcaution is the order of the day for investors.‚ÄĚ

One comment

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Another fine column, James.

It’s not clear, at least to me, whether Mr. Obama has truly absorbed the lessons of the recent mid-terms OR if he’s just play-acting. Time will tell, I suppose, but I find it hard to believe that Bill Clinton hasn’t had a chat with Mr. Obama – especially after this tax cut business – about political reality and the need to go with the flow.

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