So where are we in this recovery? A listener to my radio show asked me that question.
Now, I could have had a career in being wrong. Nonetheless, here are a few thoughts:
1. We have stabilized. No more talk of half our banks crashing or other huge companies taking the gas. Patient had a heart attack, nearly croaked. Today he is taking two-mile walks.
2. Economy is about to grow. Probably not vigorously, nor explosively. To have dramatic growth we need a ton of investing. Thus far, not many signs of that major investment.
3. Obviously the recession destroyed millions of jobs. This is the “destruction” part of the phenomenon known as “creative destruction.” A healthy recovery would tilt toward “creative.” That is, lots of new ventures and lots of expansion of established business. Those new ventures would create new jobs to replace those destroyed. The expansions would do the same. We have not seen a lot of the creative forces yet. Unless we do, unemployment numbers will stay high.
4. We are not short of money to fund expansion, to fund new ventures. Americans are saving a lot these days. That money is piling up in banks and bonds and money markets. To be loaned to businesses. The banks can also tap into immense amounts of money from the Fed. To loan to businesses. Companies have also been building reserves.
5. Businesses are not asking for money from banks. Banks tell us the demand for loans is weak. This week President Obama exhorted banks to lend more. He should know this is grandstanding. Banks are not going to approach businesses and say “Why don’t you borrow lots of money from us. You can think of ways to use it.”
The process tends to run the opposite way. Businesses come up with projects first. They approach the banks to ask for loans to finance the projects. Right now, not many are coming up with the projects.
6. Banks have good reason to be cautious. They and the entire banking system came close to collapsing. Their primary goal is not to expand the economy. Nor is it to expand their business. It is to survive. They are building up reserves. To help them survive future shocks.
7. Small and mid-sized businesses have good reason to be cautious. Nearly 50 percent of the jobs that were destroyed were from their ranks. That is reason enough for them to be wary of expansion for now.
An equally huge impediment to expansion is uncertainty. These businesses don’t know if they will get whacked by healthcare taxes. (Imagine. There are only thirteen new taxes in the healthcare bill.) The owners may be hit with huge increases in capital gains taxes. And by an extra tax for the Afghan War. And by higher income taxes. And maybe even by higher energy costs because of cap and trade taxes.
Uncertainties like these make poor bedfellows with a dramatic recovery. Imagine doctors telling that heart patient he might have a heart murmur now. And his bypass could clog. And a stroke is a possibility. They will need a few years to determine these things. Meanwhile, they advise him to go back to running five miles a day.
Don’t expect him to lope around your neighborhood anytime soon.
From Tom ... as in Morgan.
For more columns and for Tom’s radio shows (and to write to Tom): tomasinmorgan.com.