Geo. Will, Barone: Uncertainty Causing Capital to Go On Strike

By June 7, 2010Economy, Energy

George Will and Michael Barone this weekend both theorized that the federal government’s spending, inconstancy and incompetence have produced what could be a 1930s’ style “capital strike,” where business will not invest because of uncertainty. Good historical comparison. Who gets credit?

Jake Tapper and George Will from ABC’s “This Week” roundtable discussion, Sunday.

TAPPER: Let’s turn to the economy as long as Liz has brought it up. The May jobs number report came out showing 431,000 jobs were created. Only 41,000 of them were in the private sector. The unemployment rate is 9.7 percent, and 46 percent of the unemployed have been jobless for 27 weeks or more. George, this is not good news.

WILL: It’s terrible news. In May, the private sector essentially stopped producing jobs. It was one-fifth the job creation of April. The 41,000 created in the private sector is less than half as many jobs that have to be created in order to keep up with the natural growth of the labor force.

Now the question is why is this happening? One answer might be that we’re seeing now the prospect of a jobless recovery because of what happened with the late New Deal when business threw up its hands and said there’s too much uncertainty.

WILL: The Bush tax cuts are going to expire. Interest rates have to go up sooner or later. The House, just before going on recess, passed a so-called jobs bill with $80 billion more dollars of taxes in it. There may be climate change regulation. No one knows quite how Obama Care is going to effect the private sector. In pandemic uncertainty, capital goes on strike.

Michael Barone, Examiner, June 6, “Oil slick, joblessness may stymie Dems’ rebound“:

[The] bad news keeps coming out. The Gulf oil spill is evidently not going to be stopped for at least another two months; you’ll see lots of oily pelicans on newscasts between now and Election Day. The May jobs report showed that 411,000 of the 425,000 jobs gained were temporary Census workers.

The Democrats’ stimulus package kept many unionized public employees on the job. But, as liberal economists Paul Krugman and Robert Reich have pointed out, it has not done much to stimulate private-sector job creation.

Maybe the contrary. We may be seeing something like the “capital strike” of the late 1930s, when investors and entrepreneurs held onto their money and refrained from creating jobs because of high tax rates and intrusive government.

Our emphases.

UPDATE (11:55 a.m.): Amity Shlaes, author of the excellent book on the Great Depression, “The Forgotten Man,” addressed the 1930s capital strike in her Bloomberg column last November:

The dynamic of preachy executive and elusive lenders recalls the mid-1930s, when a petulant Franklin Roosevelt gave a label to banks’ puzzling behavior: “capital strike.”

The capital strike was followed by the depression of 1937-38 within the Depression. Today, too, capital ponders going on strike. And without big policy changes the economy will face similar consequences.

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