Obama and Business: Economist Debates

As a featured guest on the "Economist's Debates" section of the Economist.com, Glenn Hubbard offers this commentary:

Not clear
One sense of being "good for business" is bringing customers through the door—or boosting aggregate demand. It is hard to award President Obama high marks on this point: the stimulus policies of his administration (and to be fair, the waning days of the Bush administration) have been ineffective. A poorly targeted stimulus package driven more by congressional wish lists than by serious policy analysis led Mr Obama to sign a package with spending of about $100,000 per newly unemployed American with only a modest effect on output and employment. Then, as now, a payroll tax cut, business investment incentives and encouragement of mortgage refinancing would have been on point. By contrast, the Federal Reserve's dramatic and unconventional interventions, while not without risks of their own, provided important support to the struggling economy.

Don't accentuate the negative
What of the criticism that the administration is "not good for business" because it is negative for business people and even business itself? As I argue below, there is a deadly seriousness to some of these charges, but the media hype is overblown. I see little evidence of any desire by Mr Obama for socialism in the sense of ownership of the "commanding heights". Rather, his apparently corporatist leanings towards the GM bail-out and rescues of financial firms stem more from a lack of economic understanding of the sources of the 2007-09 financial crisis and how to fix it. As with the stimulus package, Mr Obama demurred on leading the debate over financial regulatory reform, which culminated in the new Dodd-Frank law—increasing regulatory complexity and failing to address meaningfully the GSEs (government-sponsored enterprises), bank capital or the problem of "too big to fail".

Mr Obama does appear to be detached from business people. There are few prominent executives close to the administration's levers of power and access, and he routinely spars with groups representing large business (on, say, tax policy towards multinational companies) and small business (on, say, proposed tax increases affecting small businesses). But here, too, it is unfair to suggest that Mr Obama should use the departure of National Economic Council director Larry Summers as an opening to add a business executive. There are economists with whom the business community would be comfortable, and there are executives whose views would be at odds with the consensus for the business community.

Mr Obama should listen more sincerely to the laments and advice of business people (from 2001 to 2003, while serving on the Council of Economic Advisers, I talked regularly to a range of business leaders to keep President Bush advised on high-frequency changes in the economic landscape). But business people should look less for presidential love and more for an agenda for economic growth.

It is this last point that raises the serious critique of the Obama administration's attitude towards business. Public policy interest is not so much in the individual business people and businesses that garner media attention. The proper policy interest is in business as an engine of economic growth, increases in employment, wealth creation and dynamism. Mr Obama's limited experience (in his words) "behind enemy lines" of business is worrisome, but of greater concern is this seeming ignorance of or indifference to three points: (1) policy concern over tax rates, financial regulation and health-care mandates raises hiring costs and a business risk aversion; (2) mixing arguments against deceptive innovation on Wall Street with a suspicion of risk-taking towards wealth creation diminishes investment and growth; and (3) advocating a budget policy of much higher spending and tax increases only for the well-to-do raises—by its sheer inconsistency with fiscal arithmetic—fears of large, across-the-board tax increases, diminishing both consumer and business spending. (In making this last point, I acknowledge the fiscal inconsistency in the stated budget positions of many Republican congressional leaders as well.)

Problems now encountered by business—and the American economy as whole—reflect long-term seeds of destruction from global imbalances, errors of public policy and excessive public spending. There is no quick fix for these problems. America needs to save and invest more, promote free trade and loosen regulatory impediments to job creation. These things can (and should) be done by a president from either major political party.

For Mr Obama, this route would require a policy pivot away from stimulus towards growth, away from questioning risk-taking towards embracing entrepreneurship and innovation, and away from a broad welfare state towards a safety-net role for government. Failure to do so damages business. There are successful individual businesses throughout the world, but the vigorous dynamism of small and large firms alike is an American symbol.

It is this critical point that does not seem to be on the tip of the well-spoken president's tongue.

Visit the Economist.com and view the debate results