Legal Commentary

Business Judgment

By Big Tent Democrat

Via Atrios, Yves Smith:

[T]he cost of money is only one factor in a business’s decision to expand, and outside of financial firms, it’s typically a constraint, not a spur. If you run a dry cleaner, are you going to say, “Gee, my borrowing rate went down a point, I think I’ll open that new store”? The fall in the cost of money would change your action only if it was a critical factor, at the margin, and had restricted you. And for the vast majority of enterprises, the decision of whether to grow or not is based first and foremost on their reading of the environment, which includes the strength of the market for their services, the likelihood of competitor response, whether there are steps they can take to alleviate risk, like securing commitments from prospective customers or tying up critical technology or vendors.

Paul O'Neill:[More...]

I'm kind of amused by some of the conversation about companies hoarding $1.5 trillion worth of cash, or something, because I had a rule when I was in the private sector for 25 years, including 13 running Alcoa, and that is, don't hire people unless you have somebody demanding goods that you can't produce with the people you already have. [. . .] So it seems patently unrealistic to me to urge people to spend money unless there's a demand that they're not able to satisfy with their existing resources. [. . .] Why would you? I mean, it's crazy. It's not a charitable function if you're running a business to say oh, my goodness, we have so many millions of people unemployed, I should rush out and spend my cash and hire more people if there's no demand for the goods. It's crazy to me.

(Emphasis supplied.) The problem is dismal aggregate demand. And until there is more demand, there will not be employment growth and in de facto recession is where we will remain. The private sector can't spur it. Only government intervention can. And monetary intervention simply will not do much. It must be fiscal stimulus. Or we can stop worrying and learn to love 15% real unemployment rates.

Speaking for me only

Full post as published by TalkLeft on August 12, 2010 (boomark / email).