Yesterday, I wrote about House Republican leader John Boehner's claim that the business community was so uncertain about President Obama's policies that it was terrified to hire any workers or make any of the investments necessary for a robust recovery. Today, I asked Moody's Economy.com founder Mark Zandi, an adviser to John McCain in 2008 who now advises Democrats in Congress, about that idea.
He started by agreeing with Boehner's premise that business is confused by the policy atmosphere:
I have clients in the business community, and I hear it universally. My utility clients are nervous about energy policy. Almost everyone is concerned about health care policy. All of the financial institutions are worried about financial regulation. They think in general we need to make policy changes. What makes them nervous is that they don't understand the rules, because in many cases the rules haven't been set forth. … [Financial regulatory reform] is an outline and regulators have to fill in the blanks. Folks in the financial industry don't understand what the rules are. If you don't understand what the rules are, how can you possibly make an investment or go out and hire a lot of people?
Unlike Boehner, however, Zandi doesn't think this uncertainty about policy contributes that much to the current economic climate. "The uncertainty is abating. We're past the worst of it," he said. "We've nailed down health care reform. We've nailed down financial regulatory reform. Tax policy is next, but we're pretty close."
So what's causing the uncertainty that everyone feels? "The predominant reason for businesses not taking the plunge," says Zandi, is the bruise left over from the Great Recession. "That is not unusual in the business cycle. It's more significant in this go round because of the severity of what we went through."
To explain, he imagines the mind-set of the cautious small business owner:
It was only a year ago that I was near death. I saw a lot of competitors go under and I can't forget that. … I was put through the wringer. I don't have clarity with respect to what my sales are going to look like over 12 to 18 months, and therefore I'm going to be cautious in using my financial resources.
The bad news for the president and Democrats is that there's not much that Congress can do in the next six months, Zandi says. He predicts an unemployment rate around 10 percent by Election Day. One solution he wouldn't embrace, particularly if the goal is to reduce uncertainty, is firing the White House economic team. "It's not like a light switch going on. Clearly changing leadership doesn't engender significant confidence. I don't think that would be prudent or helpful."
Zandi had other problems with Boehner's big speech. When asked about Boehner's claim that "all this stimulus spending has gotten us nowhere," he responded:
That is just wrong. The stimulus has been very helpful. … We'd be in a measurably worse place if not for the stimulus. … I don't think it is any coincidence that the Great Recession ended at precisely the same time that the [Recovery Act] … was providing its maximum economic benefit.
Instead of a national unemployment rate of 9.5 percent, he said, it would be closer to 11.5 percent.
Zandi does agree with the minority leader* on extending the Bush tax cuts. The Obama administration would like to extend only those cuts that applied to the middle class. Couples making more than $250,000 would see their taxes increase. "I think it's a gamble to raise taxes on upper-income households in 2011," he said. His argument is that the "collective psyche is incredibly fragile" and that policy makers should limit any potential shocks to the economy.
*Correction, Aug. 26, 2010: This article originally referred to John Boehner as the majority leader.