Wednesday, April 22, 2009

How Anticipated Spending & Regulation Kills Growth

The political leaders that be, particularly in the US are creating their own self fulfilling policies using the current economic realities to justify greater regulation and massive unaccountable spending (via Rich Karlgaard):

Let me say this again. The yield curve predicts growth. Check. Consumer sentiment is ticking up. Check. But CEO confidence is lousy, and CEOs are (not) spending accordingly. Whoops. This begs the question: Why are CEOs in such a low mood?

Answer: If you are a CEO in financial services, manufacturing, energy production and health care, you are going to be more regulated. Period, end of story. Your response to forthcoming regulation of yet-to-be-determined complexity will be to hunker down. Keep your name out of the news, improve the balance sheet and hold tight.

This is why the U.S. economy, which wants to turn the corner, is still stuck in the intersection as it decides which way to go.
Consider what's happened to GM. As Glenn Reynolds asks in response to comments following GM's intention to default on debt speaking to the questionable lobbying and allegations of corruption: "And a good question: “Why couldn’t we have done this in December? What did taxpayers get for the $13.4 billion we invested in the company?” A better question: What did the people who approved the investment get?"

Jim Lindgren points out the relationship between high taxes, high unionization and high unemployment and not surprisingly finds a positive correlation. Fortunately the world hasn't gone insane and according to Rasmussen, 60% of Americans believe government to have too much power with too much money (via Club for Growth).

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