Poor Larry Kudlow.
On his show yesterday, Kudlow was pushing his usual hobby horses, looking for an “Amen” from the three business leaders he had on with him for his CEO roundtable segment. Noting the poor economic growth numbers, he gave his usual talking points, issued in the form of a question. Sadly, two of the three refused to play along, no matter how slowly Kudlow tossed the softballs across the plate.
Kudlow asked John Faraci, CEO of International Paper, why businesses with cash to invest — like International Paper — aren’t doing so. Faraci’s answer was not one that Kudlow was looking for:
I think this is all about consumer spending and demand. The problem we have is there is inadequate demand to create jobs. . . . 70% of our economy is consumer spending driven. The investment side of consumers feels better, but the housing side, as Mort pointed out, has not recovered yet, and until it does, I don’t think we’re going to see the kind of consumer spending that we would expect coming out of a recovery.
But Kudlow would’t let go, and tried again. Still, Faraci refused swing at the softball:
Productivity has obviously been very good, so we’re creating more capacity with less resources. But at the end of the day, this is really about responding to demand, whether it’s automobiles or packaging products we make for a whole variety of industries and end users. Really, we’re not going to go out and invest unless there’s demand.
This was not the answer Kudlow wanted, clearly. Better switch guests . . . “Don Peebles, is it fair to blame Obama?”
Peebles’s answer is not what Kudlow wanted to hear, either.
No it’s not. The housing industry is the reason why we still find ourselves where we are today in this sluggish economy. The housing market and the housing industry carried the economy in the boom, that and a combination of cheap money and high leverage. What’s happening now is the housing market is not able to carry the economy.
Mort Zuckerman, no doubt seeing Kudlow’s talking points being shot down in flames, had to intervene. He trotted out the Heritage Foundation and others, pointing to “regulatory or political uncertainty” as the big problem for those who run small-to-medium sized businesses, primarily with regard to healthcare.
Kudlow, seeing the opening, jumps in himself. Obamacare! Obamacare! But Peebles isn’t having any of it.
Of the three of us on this panel right now, I’m the only one running a small business, and I can tell you yes, the uncertainty and the high cost of health care is certainly a big cost factor to us. Every year now, our health costs are going up 25, 30% a year which is significant to us. The uncertainty of taxes is also somewhat of an issue for us. But the number one issue of growing a small real estate business (which I know Mort knows a lot about) is access to capital. The banks and the financial institutions are not investing in small business.
Damn. Better switch to the next talking point:
John Faraci, what about corporate tax reform? We have the highest corporate tax rate In The World right now. That can’t be a good thing for American business, that can’t be a good thing for incentives.
What a nice conservative softball. But again, Faraci doesn’t swing.
It’s not. Let me just come back to what we were talking about before, though. We do business with a lot of small companies. They’re suppliers to us. And we sell to a lot of small companies. We’ve got some big customers. We have many more small customers. And for sure, we’d all like certainty. But I don’t think certainty is what’s holding back the economy, I really don’t. I think it is all about demand.
Poor Larry Kudlow.
The last thing he wants to hear is that the problem is demand. Next thing you know, people are going to think that maybe part of the problem is the sizable decline in government consumption spending. As Krugman noted in a piece about stimulus vs austerity,
Obama, far from presiding over a huge expansion of government the way the right claims, has in fact presided over unprecedented austerity, largely driven by cuts at the state and local level. And it’s therefore an amazing triumph of misinformation the way that lackluster economic performance has been interpreted as a failure of government spending.
When state governments lay off workers, eliminate services, and close their courts for a couple of days to save money, people notice. When school districts lay off teachers, cut support staff, and put off repairs and maintenance, people notice. When cities cut and cut and cut some more, eliminating not just desk workers but firefighters and police, people notice.
And when people notice, they worry about having enough themselves to get by. They don’t run out and get things they don’t need.
That’s what Faraci and Peebles see every day, and they tossed this up at Kudlow’s viewers very nicely. The problem, first and foremost, is demand.
Kudlow can keep pushing his talking points, but it’s good to see some CEOs are pushing back on the misinformation.