There is one word being mentioned by business leaders and economists more frequently when the conversation turns to why jobs are not returning more quickly to the U.S. economy: uncertainty.
“By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses,” said Verizon CEO Ivan Seidenberg at a speech in Washington in late June.
Federal Reserve Governor Kevin Warsh said in a recent speech in Atlanta: “Owing to a less-than-assured economic outlook and broad uncertainty about public policy, employers appear quite reluctant to add to payrolls.”
Roberton Williams, senior fellow at the Tax Policy Center, said in an interview, “The whole tax situation is very much in flux, very uncertain. It makes it hard to plan.”
“It’s clear that firms are not yet hiring. A lot of them are sitting on big bundles of cash,” Williams said, citing the examples of Google and Apple, which are both hoarding about $30 billion in cash instead of investing it or using it to expand.
Seidenberg’s comments last month were a significant political moment. The Verizon CEO has been one of President Obama’s strongest allies in the business community, and as president of the 170-member Business Roundtable, he had tried to cooperate with the Obama administration on its trademark agenda items – health care, financial reform and energy legislation.
But, Seidenberg said he was “troubled” by Obama’s agenda, so much so that he had “reached a point where the negative effects of these policies are simply too significant to ignore.”
Seidenberg was not the last major business leader and Obama ally to turn on the president in recent days. Jeffrey Immelt, CEO of GE, said in Italy late last week that Obama and the business community did not like one another and are not getting along with each other. Immelt said the U.S. is “a pathetic exporter,” according to the Financial Times.
“We have to become an industrial powerhouse again but you don’t do this when government and entrepreneurs are not in synch,” Immelt was quoted as saying.
The cascading comments have come as the economic recovery has slowed and fears of a double-dip recession have entered the mainstream lexicon.
The essence of the uncertainty argument is that businesses won’t expand or hire because Obama’s policies – particularly the health care bill and the financial regulation bill that is poised to pass – have created too many unknown unknowns, as conservative author Amity Shlaes put it.
“We don’t know what to expect from Washington. That’s essentially what Seidenberg is saying,” said Shlaes, author of the influential book “The Forgotten Man,” which argues that President Franklin Delano Roosevelt’s punitive and unpredictable policies toward business prolonged, rather than solved, the Great Depression.
“And we also don’t like that their law involves a lot of discretion. It doesn’t say, ‘And the rules of bankruptcy are’ … The financial law basically sends the message: we have decided that they will take care of things, and the law gives them the discretion to do that as they see fit,” Shlaes said. “It moves us farther from common law to French-style prosecutorial law – we haul you in if we feel like it.”
Conservatives like Shlaes see this open-ended centralization of power in the hands of federal government bureaucrats occurring in both the health and financial regulation bills.
In the case of the health bill, for example, Indiana Gov. Mitch Daniels, a Republican, said in a recent speech that the answer to every question that his state government asks about the new law’s impact is: “We won’t know until the regs come out.”
Daniels said there are over 200 instances where the law says the government “may” do something and about 100 portions of the law that says the Secretary of Health and Human Services “may determine” something.
“There are an awful lot of unknowns in there,” Daniels said of the health law.
As for the financial regulation bill, it was high on the list of “government initiatives that will cause slower rather than faster growth” in a 54-page letter sent by Seidenberg and the Business Roundtable to Obama’s budget director, Peter Orszag.
“Much of the language is vague and will need to be implemented through regulation; uncertainty surrounding the specifics of those regulations is inhibiting growth right now,” the letter said, estimating that the financial regulation bill will cost the U.S. economy about 100,000 jobs per year.
The White House insisted this week they are doing their best to improve the unemployment situation.
“We continue to work towards improving our economy, creating an environment for job creation,” said White House press secretary Robert Gibbs.
Gibbs cited a measure moving through Congress to spend $30 billion on support for small and medium size community banks to encourage them to lend money, ostensibly to small businesses. The bill has passed the House but not yet the Senate.
The $30 billion measure has been held up, however, as Republicans have forced Democrats to pay for virtually every cent of new spending they authorize in recent weeks, bringing the upper chamber to a virtual standstill due to Democrats’ refusal to budge on certain measures.
Combined with the recent sovereign debt crisis in Greece and other parts of Europe, as well as the slowing pace of job creation over the last two months, fresh fears about another down turn are combining with the regulatory and tax burdens businesses see coming down the pike.
“You don’t hire when you’re fearful,” former Federal Reserve Chairman Alan Greenspan said last week, on CNBC.