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.
- See for example ACCF testimony on the impact of regulating GHGs under the Clean Air Act (http://accf.org/wp-content/uploads/2011/02/House-Energy-Commerce-Testimony-292011-FINAL.pdf
- Economic impact of DOE’s slow permitting process for LNG exports at http://actonlng.org/wp-content/uploads/2013/07/ACCF-LNG-Margo-Thorning-July-2013.pdf
- See ACCF testimony for discussion of other environmental issues that increase the hurdle rate for new investment such as the new administration estimate of the social cost of carbon, renewable fuel standards and renewable energy standards (see http://accf.org/wp-content/uploads/2013/07/ACCF-Testimony-for-Senate-Finance-Subcommittee-on-Energy-Natural-Resources-and-Infrastructure-July-31-2013-FINAL.pdf
- The Endangered Species Act is a further source of uncertainty. See more at Independent Petroleum Producers of America http://esawatch.org/sample-page/
Until the federal government offers a clearer regulatory path, corporations will rightly continue to be cautious and keep capital investments on the sidelines.
