iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
Paul Heroux

GET UPDATES FROM Paul Heroux
 

'Bail Out of America' or 'Bail Out America'?

Posted: 10/26/11 12:04 PM ET

The private sector acts in its own interest and in doing so, it is 'bailing out of America.' What we need the private sector to do is 'bail out America.'

There is a tension growing between the private sector and the government. Who creates jobs? This has become the popular question as of recent.

If the private sector creates jobs, as is so often touted by the GOP, what's going on?

Is it President Obama's Policies?

Excessive regulation has been called the reason the private sector isn't creating jobs but that is a political slogan and it doesn't square up with the evidence. A recent survey of Small Business Economists found that regulation wasn't why businesses weren't investing, it was confidence. The report stated:

80 percent of survey respondents felt that the current regulatory environment was "good" for American businesses and the overall economy.

Republicans have been chanting that public investment "crowds out" private investment. They are missing a major lesson of Macroeconomics 101: public investment doesn't crowd out private investment in the short run; it does so in the long run.

Private Investment?

US companies are sitting on over $2 trillion in cash reserves. If private sector businesses are the 'job creators,' why are they sitting on over $2T that could be used to create jobs? That is nearly 3 times as much stimulus to the economy as the ARRA provided. $2T would get this economy moving again.

The main reason that businesses aren't investing in America is the lack of consumer confidence in demand. If there was some guarantee that investing this $2T cash reserve would turn into profits, there is no question that businesses would invest; making money is what they do. But they are worried that it won't happen. Businesses are reluctant to take risks, which means that they are acting in their interest and not the interest of the nation. This is a classic case of a self fulfilling prophecy. And since businesses won't spend to jolt the economy, the Obama Administration believes it must use the government in the short term to save the economy (as did the Bush Administration).

The thing that is going to pull America out of this worldwide economic slump is a huge jolt to the economy that gets people spending again. The thing that is going to get people spending is a pay check. And people are going to get a pay check from the private sector, the government, both, or neither. As of right now, we consider two options: the private sector can use $2T or the government can borrow. Clearly, the private sector is the preferred option.

President Obama's $447 billion jobs plan has its opponents. The interesting thing about this plan is how Nobel Prize winning economist Paul Krugman said on MSNBC on the Rachel Maddow Show that Obama's jobs plan is only about 1/4 of what is needed. If it is about 1/4 of what is needed, that is on par with the $2T in cash reserves that the private sector is sitting on which could and should be used to jump start the economy.

The government has done what it was supposed to do in keeping the recession from turning into a depression. Now that we are out of the recession and in a weak recovery, perhaps it is time that the nation stop putting pressure on Obama to create jobs and starts putting pressure on the private sector to hire and invest in America. And Obama doesn't need to get out of the way anymore than he already has -- remember the quote above -- "80 percent of survey respondents felt that the current regulatory environment was "good" for American businesses and the overall economy."

Angry Americans

A movement that began in Canada is building in the United States that is angry with the private sector. They are angry that 3 years after the economic crisis caused by reckless investing that no one on Wall Street has been brought up on criminal charges. They are also angry with what they see as big banks harming average Americans. For example, Bank of America is laying off 30,000 employees and increasing ATM fees to $5 per transaction but it is not cutting executive pay or bonuses. A host of other companies are cutting back on costs by laying off employees. Cutting labor at the bottom and not executive bonuses at the top is a very self serving strategy and one that is not in the best interest of the national economic recovery. This will ultimately undermine the long term sustainability of private companies and America.

If the private sector acts in the best interest of America, it has not shown it during this economic crisis. Having just graduated from Harvard in May, I personally know people who are in their mid-twenties with little work experience who have accepted job offers with starting salaries of $100,000, $140,000 and even $300,000! (Yes -- good for them!) But the point is that the upper echelons of the private sector, the echelon that can do the most to stimulate the economy, is not hurting like Main Street America. If the private sector acts in the best interest of America, then we will hear about a precipitous drop in that $2T in cash reserves along with a steady decrease in unemployment.

PAUL HEROUX is a consultant in private practice and a graduate of the Harvard University JFK School of Government. He can be reached at PaulHeroux.MPA@gmail.com.