Political Correction

House GOP 'Jobs Agenda' Ignores Evidence Of Real Problem: Lack Of Demand

August 29, 2011 11:45 am ET - by Jamison Foser

The Washington Post reports that Republicans are planning a renewed push to gut laws that protect the environment and workers, ostensibly in an effort to create jobs:

House Republicans are planning votes for almost every week this fall in an effort to repeal environmental and labor requirements on business that they say have hampered job growth.

With President Obama and his Republican challengers in the 2012 campaign focusing on ways to spur economic growth, House Republicans will roll out plans today to fight regulations from the National Labor Relations Board, pollution rules handed down by the Environmental Protection Agency and regulations that affect health plans for small businesses. In addition, the lawmakers plan to urge a 20 percent tax deduction for small businesses.

According to Republicans, businesses aren't hiring because of excessive taxes and regulations. If that's the case, we'd expect to find indications that businesses would like to hire additional workers to meet demand, but can't do so because onerous regulations and a crushing tax burden leaves them penniless. 

Yet the Wall Street Journal reports today

Corporate America racked up big profits in the first half of the year even as economic growth slowed to a crawl. [...] Corporate profits rose an estimated 3% in the second quarter from the first, better than the 1% improvement in the first three months of the year, the Commerce Department said Friday. Profits were up more than 8% from last year's second quarter. The domestic nonfinancial sector drove most of the growth, as financial profits declined.

If corporate profits are doing so well, the GOP suggestion that firms would like to hire but can't do so because all their money goes to taxes and complying with regulations can't be right. What, then, is the problem? A lack of demand:

Forecasting firm Macroeconomic Advisers, which sees growth at a 2.3% pace in the second half of this year and 2.8% in 2012, expects firms to keep banking strong profits. But even if businesses remain strong enough to make it through a slowdown, they may have to wait longer for a burst in demand strong enough to propel hiring.

"The biggest problem is that their order books are thin," said Macroeconomic Advisers chairman Joel Prakken. "They need fat order books to add people. They need fat order books to buy machines."

Among the examples the Journal cites:

Packaging and label maker Avery Dennison Corp. already cut its profit outlook for the full year after sales took a downward turn. In the first quarter, the company's organic sales grew but they fell 2% in the second quarter. "That's a fairly severe drop," chief executive Dean Scarborough said. "We're definitely seeing a shift in sentiment."

Avery Dennison is closely tied to consumer spending. Its clients-retailers and label printers-need less of its goods when consumers clamp down on spending. Its outlook for profits changed after the Pasadena, Calif., company noticed customers reducing inventory and being more cautious, said Mr. Scarborough. "For us, this looks a lot like 2008, prior to the financial crisis."

It doesn't get much clearer than that: Companies aren't hiring because consumers aren't buying. But Republicans oppose policies that could put money in consumers' pockets, thereby increasing demand. Instead, they want to throw tax cuts and other favors at corporations that already have plenty — but that see no reason to hire until their customers have money to spend. It's almost as if Republicans don't care about fixing the economy, they just want to use the crisis as an opportunity to pursue their ideological goals and gut environmental and labor regulations.

None of this is new, of course. It's been clear for quite some time that companies aren't hiring because of a lack of demand, and that the basic Republican approach to the economy is wrong. It is, however, a reminder of a neat trick conservatives have pulled off over the past few decades: They successfully portray liberals as soft-headed Ivory Tower intellectuals obsessed with abstract and nonsensical theories, in contrast to practical, common-sense conservatives who understand how the world really works. 

This is completely backward when it comes to economics, among other subjects: It is conservatives who consistently peddle implausible fantasies about tax cuts always leading to increased revenue; who, when faced with clear evidence that corporations are profitable but aren't hiring due to lack of demand, produce elaborate theories that the real problem is over-taxation (though taxes are low by both historical and global standards) and "uncertainty" and excessive regulations (though those regulations haven't prevented soaring profits.). It is the conservatives who pick up the Wall Street Journal, see companies clearly saying that what they need is more spending from their customers, and conclude that the real solution is to gut the Clean Air Act.

They are wrong, certainly, but the way in which they are wrong is striking: They are guilty of the very slavish devotion to abstract and discredited ideology they accuse liberals of practicing. 

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