What's Wrong With the Economy?

The recovery continues to be weak. Why? Businesses have accumulated huge cash reserves, $1.8 trillion, but they refuse to spend them. What's going on?

Fareed Zakaria asked this question of a number of CEOs. While Zakaria did not come right out ans say it, there are some telling quotes in his column.

Economic uncertainty was the primary cause of their caution. "We've just been through a tsunami, and that produces caution," one said to me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, the CEO of General Electric, complained last Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad new laws and regulations being cooked up in Washington.

One CEO said to me, "Almost every agency we deal with has announced some expansion of its authority, which naturally makes me concerned about what's in store for us for the future." Another pointed out that between the new health-care bill, financial reform, and possibly cap-and-trade, his company had lawyers working day and night trying to figure out the implications of all these new regulations. Lobbyists in Washington have been delighted by all this new activity. "[Obama] exaggerates our power, but he increases demand for our services," the superlobbyist Tony Podesta told The New York Times.

Most of the business leaders I spoke to had voted for Barack Obama. They still admired him. Those who had met him thought he was unusually smart. But they all thought he was, at his core, anti business. When I would ask them for specifics, they pointed to the fact that Obama had no businessmen or women in his cabinet, that he rarely consulted with CEOs (except for photo ops), that he had almost no private-sector experience, that he'd made clear that he thought government and nonprofit work was superior to work in the private sector. It all added up to a profound sense of distrust.

So there is the real problem - President Obama. Business leaders are afraid of his administration and the growth of government. Because of this, they refuse to invest their cash reserves.

Think about this. Here is a sum of money more than twice Obama's stimulus. It is not borrowed so it can be spent any way that seems profitable. There's your recovery but it is just sitting there, unused - a hedge against future government action.

This is exactly what President Reagan warned of. The more government expands its power the more it slows business growth. That phrase, "Almost every agency we deal with has announced some expansion of its authority..." shows how Obama's progressive attitudes have permeated his administration. The Progressives see government intervention is every aspect of life as a good thing but there is a cost. The more government intrudes itself, the more it costs everyone else.

No one in the Obama administration realizes this. He stocked his cabinet with professors and lawyers. They have never had to deal with the government from the other side. They are theorists, not realists.

As long as business leaders distrust Obama the economy will continue to limp along. No amount of stimulus spending can change this.