Republicans Are Still Wrong: Business Still Hoarding Cash, Still Not Over-Taxed

September 19, 2011 1:43 pm ET — Jamison Foser

Despite constant claims from Republicans that businesses can't hire because excessive taxes and regulations leave them teetering on the verge of bankruptcy, the Wall Street Journal reports that companies are sitting on a ton of cash: 

Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century, as businesses build up buffers rather than invest in new plants or hiring.

Nonfinancial companies held more than $2 trillion in cash and other liquid assets at the end of June, the Federal Reserve reported Friday, up more than $88 billion from the end of March. Cash accounted for 7.1% of all company assets, everything from buildings to bonds, the highest level since 1963.

So, the GOP's analysis of the unemployment problem is fundamentally wrong. Businesses have plenty of money to hire. Why aren't they? Oh, right: There isn't sufficient demand for goods and services:

The reduction of debt could place the economy onto firmer footing in the long run. In the short term, however, the effect of consumers paying off debts and companies hoarding cash is less spending, investing and hiring.

Economists call this problem the "paradox of thrift," when individuals and businesses need to save more to prepare for a downturn, but everyone doing so at the same time makes a downturn more likely.

"For one household or business to save money is a good thing," said Dana Saporta, an economist with Credit Suisse in New York. "For everyone to be doing this at the same time could serve to slow economic growth."

Republicans used to acknowledge the concept of demand, but now they prefer to use the worst jobs crisis in decades to push their unrelated ideological goals. And the government austerity they demand only makes things worse, as Saporta explained. Of course, Republicans then use the negative results of austerity to peddle more austerity and more unrelated ideological goals, so it all works out... for them. The rest of the country, from the unemployed to businesses that lack customers, isn't so lucky.

The Journal article does contain a hint of support for one Republican buzzword: "uncertainty":

Alan Miller, ... chief financial officer of Frequency Electronics Inc., a maker of precision timing instruments for satellites and other applications, said he has been under pressure from investors to use some of the company's $22.7 million cash holdings to reinstate the dividend that was suspended during the 2008 crisis. So far, the company has resisted.

"We felt that it was more important to retain the cash at this point in time with the continuing uncertainties in the marketplace," Mr. Miller said.

But note that Miller's concern is about uncertainty in the marketplace, not uncertainty about regulations. Yet again, the so-called "job creators" are clearly saying that the problem is people aren't buying enough of their products. But Republicans won't listen.