A Must-Read Article From The WSJ…

…is today’s piece entitled Uncertainty and the Slow Recovery; A recession is a terrible time to make major changes in the economic rules of the game by Gary S. Becker, Steven J. Davis and Kevin M. Murphy, a trio of economists from the University of Chicago.

Becker, Davis and Murphy cite a litany of statistics indicating the weakness of the so-called economic recovery we’re in. Among them:

  • In the first quarter of 1983, which was the quarter in which America pulled out of the 1980-82 economic recession, the economy grew at a 7.7 percent annual rate. In the third quarter of 2009, the growth rate was 2.2 percent.
  • A  National Federation of Independent Businesses survey shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows.
  • The same NFIB survey has only seven percent small business owners believing the next several months will be a good time to expand, and only eight percent are hiring. A good economy would have upwards of 20 percent of those businesses hiring.
  • Business investment in the third quarter of 2009 is down 20% from the low levels a year earlier.
  • Job openings are at the lowest level since the government began measuring the concept in 2000.
  • The pace of new job creation by expanding businesses is slower than at any time in the past two decades and, though older data are not as reliable, likely slower than at any time in the past half-century.
  • The exit rate from unemployment is lower now than any time on record, dating back to 1967.
  • According to the Michigan Survey of Consumers, 37% of households plan to postpone purchases because of uncertainty about jobs and income, a figure that has not budged since the second quarter of 2009, and one that remains higher than any previous year back to 1960.

As one of two main causes for the torpid quality of the current “recovery,” – the other being the aftershocks to the collapse of the financial industry last year – Becker, Davis and Murphy suggest what has been apparent to the man on the street for some time; namely, the Obama administration’s running roughshod through the economy with wide-ranging and violently disruptive policies like cap-and-trade, bailouts, pay czars and, of course, Obamacare. Small businesses can’t stand this level of uncertainty and political risk and they’re also not big fans of the costs associated with increased regulation.

The authors don’t mention something else which is certainly in play among small businesses – when the government decides to play in the private sector’s sandbox, it’s never to punish big companies who have high-powered lobbyists and Congressmen in their pockets. Rather, the little guys who don’t have political clout are the ones who get screwed.

Take the auto business, for example. The federal government jumped in with both feet to save General Motors rather than allowing the market to destroy a company which was bringing to life the old joke that “we lose money on every unit we sell, but we make it back in bulk.” In doing so, the feds prevented an opportunity for newer, better companies to come along and gobble up GM’s market share – or for GM to be broken up into smaller companies free to distance themselves from its failures.

An example of one victim of that decision might be V-Vehicle, the startup car company backed by oilman T. Boone Pickens and Al Gore’s venture capital firm Kleiner Perkins which is set to begin producing cars at a new plant in Monroe later this year. There are those who think V-Vehicle is a scam, so much so that the company’s CEO felt the need to confim back in October that, yes, they do have an actual product, and the company is being viewed with some skepticism because they’ve attracted an enormous amount of state, local and federal government swag to help get them started. But if in fact V-Vehicle’s claim that they’ll be building a car which gets 40 miles to the gallon and sells at a profit for just $10,000 is true, the federal government’s sponsorship of GM is a major obstacle. GM is working on a product – the Chevy Volt – which would directly compete with V-Vehicle, though the Volt is projected to cost a great deal more and actually lose GM money for the foreseeable future. Assuming that V-Vehicle is on the up and up, it’s an example of how a small, energetic company would kick the crud out of a big, moribund one.

Perhaps V-Vehicle isn’t the best of examples given the lobbying clout their backers bring to the table. If in fact they’re legitimate in their claims, they would crush the Volt when both products come to market by 2012 – and in that case they probably don’t need the millions in government grants and loans they’ve pocketed – but outside of having Pickens and the Kleiner Perkins/Al Gore political connections in their favor you can bet they’re running against the current competing with Government Motors.

But if the Al Gore connection to V-Vehicle turns you off, consider the other potential players in the auto market – like Tesla Motors or Fisker Automotive, which are other startup-type car companies in the hybrid car market. Checking out their websites, they both seem to make sharp-looking cars; while there are multiple factors in play where profitability is concerned for a car company those firms look like they might have a chance to compete favorably in the hybrid market the Volt will enter.

The point is, the free market is poised to get us out of this current economic malaise. The government is in the way. The government needs to get out of the way, but yet this administration plans on even more intrusive involvement in the economy.

It’s going to be some time before we’re out of these woods.



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