Regulatory Uncertainty Keeping Capital Investment on Sidelines

In today’s Washington Post, Robert Samuelson discusses sluggish capital spending and the recovering economy:

In the struggle between capital and labor, capital is winning — and that’s hurting the feeble economic recovery. To simplify slightly: Labor (wage-earners and consumers) can’t spend, and capital (businesses and shareholders) won’t spend. Without a powerful growth engine, the economy advances haltingly.

Samuelson highlights a number of reasons for sidelined capital spending: globalization, new technologies, weaker unions, financial market pressures and more.  Read Samuelson’s entire column here.

But, there are some critical explanations overlooked by Samuelson on why U.S. investment is still sluggish four years after the recession.

Uncertainty about key policy issues has made business cautious about investing and raises the hurdle rate that new investment must achieve. Real non-residential fixed investment is still almost $30 billion below the fourth quarter of 2007 when the recession began. The primary drivers of corporate uncertainty today include Dodd/Frank implementation, the Affordable Care Act, reform of the federal tax code, as well as fiscal and monetary policy.

Top at the list of uncertainty for many corporations is environmental and energy policy regulations from agencies such as EPA and DOE.

Until the federal government offers a clearer regulatory path, corporations will rightly continue to be cautious and keep capital investments on the sidelines.

Margo Thorning

Dr. Margo Thorning has frequently testified as an expert witness on capital formation, tax, energy and environmental policies before multiple U.S. congressional committees. She has also traveled coast to coast to present findings to state and local lawmakers, business organizations and the media on the economic impact of climate change policies on local job and economic growth.

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