Excerpt
Job creation has been disappointing, but first-quarter corporate profits were up 44 percent from a year earlier. Consumers are nervous, but the Dow, which was below 8,000 on the day President Obama was inaugurated, is now over 10,000. In a rational universe, American business would be very happy with Mr. Obama.
But no. All the buzz lately is that the Obama administration is “antibusiness.” And there are widespread claims that fears about taxes, regulation and budget deficits are holding down business spending and blocking economic recovery.
How much truth is there to these claims? None. Business spending is indeed low, but no lower than one would have expected given widespread overcapacity and weak consumer spending. Business leaders are feeling unloved, but giving them a group hug won’t cure what ails the economy.
Ask the Obama-is-scaring-business crowd for some actual evidence supporting their claim, and they’ll tell you that business spending on plant and equipment is at its lowest level, as a share of G.D.P., in 40 years. What they don’t mention is the fact that business investment always falls sharply when the economy is depressed. After all, why should businesses expand their production capacity when they’re not selling enough to use the capacity they already have? And in case you haven’t noticed, we still have a deeply depressed economy.
Historically, there has been a close relationship between the level of business investment and the “output gap,” the difference between the economy’s actual output and its long-run trend — which means that there’s nothing surprising about low investment now, given the fact that the output gap is hugely negative. If anything, it’s surprising how well business investment has been holding up.
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