Thursday, November 04, 2004

Bad for Business

Given that the medium run outlook of the U.S. economy is so grim, you might expect business to be somewhat skeptical of a Bush victory. After all, it’s this administration that has failed to do anything remotely proactive vis-a-vis the fiscal deficit, the current account deficit and etc. And the result of these policies will be some sort of meltdown in the economy in the next decade (if only I knew when). Perhaps business, realizing that their future earnings are threatened by the fundamental incompetence of Bush economic policy would, would...be upset. Alas, this is not the case. The New York Times has an article canvassing the opinon of business leaders on the results of the election. The lede says it all “From Wall Street to Detroit, there were plenty of sighs of relief as it became clear that President Bush had won another term.” In some short-term sense Bush is better for business: a Kerry administration might have raised fuel economy standards -- temporarily hurting the auto industry; a Kerry industry would have raised taxes on high income people -- hurting any business executive and etc. But any macroeconomic framework posits that at least some businessmen consider a time horizon longer than 2 years, and they must not be happy with a Bush victory. What matters for economic growth is stability. And the Bush administration’s policies are fundamentally destabilizing. How myopic are businessmen that they think a Bush victory is a good thing?

Perhaps the reason is the sample: industries directly impacted by government policy and reliant on government contracts: auto, military, Wall Street, energy, health care, and telecommunications. Excluding the auto industry and Wall Street, these industries might care more about what government does than what the economy does. The Bush administration is plenty willing to pass ineffective bills that let them profit. But the automobile industry suffered from steel tariffs in 2002 and well knows that the administration does not consider what’s best for the economy. Plus, the hesitance of the administration (and Alan Greenspan) to let the currency devalue as it must hurts the auto industry by articificially lowering the price of foreign cars. And Wall Street cannot be wishing for a crash. It will be exciting and some will profit, but they, of all people, should understand a little bit about what makes economic growth happen -- and gross incompetence is not one. I do wonder what sort of assumptions business operates under such that the long-term outlook seems not to matter.

Or else, maybe, the article is stupid. Uncertainty is bad for business. Not knowing who the next president was made people nervous. Perhaps the knowledge of the outcome -- simply that there is a clear outcome -- is what is boosting stocks today, and the businessmen interviewed are just blowing hot air. After all, even if it is bad for the economy and bad for business to have a Bush administration, it’s good for them.

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