Fareed Zakaria is an interesting writer who says some sensible things, as when he called the intensity of the war in Afghanistan "disproportionate" to the threat. But he also reflects the biases and distorted perceptions of a punditocratic subculture that continues to paint average citizens as reckless children and business executives as Delphic sages. Zakaria all but blamed the Great Recession on greedy consumers a while back: "If we wanted a bigger house, a better TV or a faster car, and we didn't actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies."
Now he says that corporations are sitting on $1.8 trillion in unused cash, money that could stimulate the economy, in part because business leaders are frightened of the President. How does he know? He says he spoke to a "series" of non-randomly-selected CEOs (he doesn't say how many) and, like hive-mind children in a Village of the Damned sequel, they spoke the same words and thought the same thoughts: "They still admire him," Zakaria writes, but they "all think that he is, at his core, anti-business." He is not of our kind ...
The Hive Mind unanimity of these proclamations are cause for skepticism in themselves. And I haven't read Zakaria's interview transcripts, but trust me: If these CEOs could safely make money by spending that cash today, Leon Trotsky could be in the White House painting it red and they'd still get busy writing checks.
The Great Recession was created in boardrooms and not living rooms. Bankers' decisions are tying these non-bank CEOs' hands. And if you take the "greedy consumer" idea to its logical conclusion we would be a society that imprison the marks and bails out the con men.
Oh, wait ...
Zakaria insists, based on his secret conversations with CEOs "who did not want to be quoted by name," that they're not just hoarding cash because of economic uncertainty (although he acknowledges that as the "primary cause"). What makes it worse, he says, is that they all think Obama's too much of a lefty.
Zakaria also adds that while "there is a strong case" (albeit a lefty one) for "a temporary and targeted stimulus," it looks "politically impossible." If enough people in his position repeat that idea, of course, it becomes a self-fulfilling prophecy. And if a stimulus is proclaimed impossible and these CEOs are sitting only the only remaining big chunk of cash, what's the only remaining conclusion? We better give them what they want.
Zakaria's CEOs chant in unison about the evils of regulation, but for a hive mind they're surprisingly vague on specifics. Zakaria mentions health reform, although essentially all of the "top 500" nonfinancial companies already provide coverage; cap-and-trade, whose future is uncertain; and financial reform, which is likely to help these nonfinancial companies obtain credit (while retaining their access to the kinds of derivatives they use for risk management purposes.)
The CEOs are uniformly polite, as such collective entities usually are in sci-fi movies. "Many ... voted for Barack Obama." "They still admire him." It's the "politics," and their (eerily unanimous) perception that he's "anti-business," that adds an additional brake on their desire to spend. Here's the bottom line: Any executive of a publicly-traded company who failed to spend the money needed to serve a ready-to-buy customer base would be violating her or his duty to stockholders and would probably be fired immediately.
Their problem isn't politics -- it's customers. As in, they don't have any.
Business isn't spending because consumers aren't spending. Consumer expenditures are flat and savings rates are up. Households have the same concerns about the economy that CEOs have, and they're reacting the same way: by spending less and hoarding cash. Granted, they don't have to answer phone calls from Fareed Zakaria while they're doing it, which simplifies their day somewhat, but otherwise the reaction is strikingly similar.
Greedy consumers: Where are they when you really need 'em?
Then there are the problems that banks have created for these CEOs. (Remember, they run non-financial corporations.) One of their greatest problems is that they can't trust their banks to be there when they need them. As the Wall Street Journal reported: " In the darkest days of late 2008, even large companies faced the threat that they wouldn't be able to do the everyday, short-term borrowing needed to make payrolls and purchase inventory." One of the reasons companies keep cash on hand is out of fear that could happen again. And, as we've discussed before, banks have slashed lending to the small businesses that represent a large customer base for these companies.
Banks aren't lending to consumers, either, or they're lending at inflated rates. And thanks in part to the "Greedy Consumer" folktale, there is no political will to pressure banks to write off some of the inflated value of the mortgages on their books. That would free up more money for other spending while potentially reducing the foreclosure rate, and it would distribute the "moral hazard" of greedy behavior a little more fairly. But we're inevitably going to be told it's "politically impossible."
To be fair, Zakaria never specifically endorses the purported views of these CEOs as his own. He just lets the impression drift into the ether: An anti-business Obama is frustrating business and stifling growth. His piece is especially frustrating because all the right information and conclusions are there. But like a Blair Witch inscription or a backward-looped message on a rock song, the message has to be decoded and the real information extracted: "There is a strong case for a temporary and targeted government stimulus." "Big government spending can only be a bridge ..." (Nobody denies that.) "Economic uncertainty was the primary cause of (business) caution."
The commentariat subculture which sees these facts yet still repeats the myths does so, I suspect, because it is determined to be bravely "centrist" -- no matter where the facts may lead.
Make no mistake. Zakaria is absolutely right when he says that "Obama needs to outline a growth and competitiveness agenda that is compelling to the (nonfinancial) business community." But that agenda must include returning the financial business community to sound and productive lending practices. It must give customers the wherewithal needed to buy the products these businesses make -- which means jobs. It must rebuild our infrastructure. Then these businesses will undoubtedly free up more of their $1.8 trillion, knowing that it can be used to create products for a market that's able to buy them. Which all sounds great, except that according to Fareed Zakaria it's "politically impossible."
Apparently there's more than one Hive Mind on the loose these days.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "firstname.lastname@example.org."
Website: Eskow and Associates
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