President Obama has told American businesses to “get in the game” by investing their massive cash reserves to stimulate jobs, demand, and overall economic growth. Whether his call for aggressive private-sector investment succeeds will depend on why businesses have stayed on the sidelines to this point, declining to invest their mountains of cash. There are two theories.
The theory implicit in the president’s speech to the U.S. Chamber of Commerce is that the business community has simply not been paying close enough attention, that it has overlooked promising investment opportunities.
The other is that the business community has been paying very close attention—most particularly to the president himself—and what it sees is cause for concern. Under this theory, businesses may not see the president as having made a gentle suggestion to reconsider investment opportunities that are attractive on their own terms. Instead, businesses may fear that he’s made a demand that they deploy their capital or face consequences.
The president is right to compare big markets with big games, but the game to envision is not football but poker. Successful firms are sophisticated players. They don’t show up at the table without a large stake. The mountains of cash companies are hoarding provide plenty of bank for that purpose. But they also don’t ante up if they think that any moment in the middle of the hand the dealer is likely to announce that the wild cards are deuces, kings, and one-eye jacks . . . until he decides they’re not.
We think the administration might want to consider the second theory, that businesses know what they’re doing. Obama’s interactions with business are one reason that his recent remarks might be unhelpful. His administration has already overseen extraordinary changes in the degree and nature of the basic rules of the game, and this may be why cash is being hoarded.
Since Obama took office, the business community has seen a $787 billion stimulus package that was poorly designed and largely misspent, a massive increase in the federal deficit, and a total overhaul of the health care system, the last fact a big component of every employment relationship.
Businesses also watched the president deploy his bully pulpit to hurl epithets like “fat cats” when referring to finance professionals, among other populist business bashing. They saw him stand with his entire economic team on national television to call out one group of secured creditors in an effort to shame them into surrendering their property rights during the Chrysler bankruptcy. More recently, they watched as the Dodd-Frank Act brought more sweeping changes to the structure of American financial regulation than the combination of every other action since the New Deal.
This history helps explain why the business community was largely silent in response to another public Obama overture. This was his article in the Wall Street Journal touting a governmentwide review of federal regulations, which he pitched as a quest to eliminate rules that stymie economic growth. If the FDA deems saccharine safe enough for coffee, he said by way of example, then the EPA should not treat it as hazardous waste.
But some in the market detect an attempt by the White House to use artificial sweeteners to mask a bitter taste. They may refuse to believe Obama’s new business overtures, seeing them as too saccharine to whet the appetite of a serious market participant. Or they may perceive them as well-meaning, but fear that they signal too many more big changes to the rules of the game. In such a case, prudence requires patience before any serious investments can be designed, let alone implemented.
Ultimately, Obama’s repeated incantation in this year’s State of the Union address that “we do big things” may contribute to business continuing to make only penny antes.