Washington's fashionable new argument is that President Obama and the Democrats have stalled the recovery by introducing so much uncertainty. As the argument goes, business leaders aren't investing and creating new jobs because they fear some combination of future government deficits, regulations, and taxes will harm them directly or indirectly.
The obvious counter-explanation is that CEOs are holding back largely because demand remains so sluggish. My colleague Jonathan Chait beat me to the punch and cited Paul Krugman's argument for this theory. But it's also worth checking out Steve Pearlstein's latest column, which offers another reason to question what the CEOs are saying:
While it is possible that this reluctance to hire and invest is the result of anxiety over taxes and regulation, experience suggests other explanations are more likely.
We know that this kind of groupthink and herd behavior are all too common, with irrational exuberance now giving way to a period of equally irrational and widespread pessimism and caution.
We know that financial markets have become particularly risk-averse, ready to punish any company that makes investments in long-term growth that might negatively impact short-term profits.
We know that, during the bubble years, companies misallocated capital buying up their own stock, making overpriced acquisitions, overpaying executives and bidding up financial assets. That money could have been used to develop new products and new markets. Instead, too many firms went into this downturn with a meager pipeline of ideas.
We also know of companies such as Google and Apple that didn't get the memo about the looming threats from Washington and have continued to invest and innovate. They're also making gobs of money.
I haven't spoken to many CEOs lately and I'm not an economist, so I can't add much new information or--for that matter--say definitively who is right. But I do know that business leaders tend to dislike regulations and taxes, purely on principle. And, like anybody else--including me!--they are capable of letting that predisposition color their analysis. They may say government over-reach is the reason they're not investing. They may even believe it. But that doesn't mean it's actually the case.