What's America's Biggest Problem Right Now? It's Not Washington, It's Houses, Houses, Houses
David Brooks asks the headline question this morning and gives this answer: The biggest problem in America today "is that business people think that government is so dysfunctional that they are afraid to invest and spur growth."
I think this is not merely wrong, but also dangerously misleading. Washington's dysfunction is indisputable. But it is not America's first, second, or third biggest problem. Those are (1) the lingering effects of the housing bust are still impoverishing families and economic growth; (2) globalization pushing down wages for work that lives along a worldwide supply chain; and (3) essentials like health care, education, energy, and housing getting cheaper while families have to work longer hours just to keep up with even microscopic inflation.
As for business investment shrinking because of Washington's dysfunction? That's not just a feeling. It's a measurable stat. And the data suggest its not really true.
Here's a look at the last 30 years of private fixed nonresidential investment (i.e.: companies spending on pretty much everything that isn't houses and wages). If Washington were terrifying to American business, this line would limp off after the latest recession. But it doesn't. Business investment is growing.
In fact, when you compare nonresidential investment from the very bottom of this recession to the last three recession troughs, it compares pretty favorably. In fact, business investment in the 28 months since mid-2009 has grown almost as much as business investment since the bottom of the recession before the Reagan recovery.
Is this evidence that American businesses like Obama more than Clinton? No. It is evidence that American businesses liked Reagan more than Bush II? No. The safest thing to say is that it is evidence that there is no evidence that American businesses are utterly and uniquely freaked out by Washington today. They are investing.
They're just not investing in houses. If you want to know what's America's biggest problem right now? here it is, in one magnificently simple chart showing residential investment (houses, RED) vs. non-residential investment (not houses, BLUE) since 2000:
Ladies and gentlemen, there is our non-recovery recovery, drawn in bright red. Residential investment grew 80 percent (!!!) between 2000 and 2006. Then it fell by more than half. And it's hardly recovered. The moribund housing market -- the predictable, inevitable outcome of a popped housing bubble -- is the America's biggest problem, not overall business investment, which is already nearing its pre-recession high.
Brooks' diagnosis for America isn't just statistically questionable. It's dangerous. There is a fixation in Washington to pass any sort of deficit deal to cure the the uncertainty crisis in American business. But there no measurable uncertainty crisis. And there is a measurable household earnings and debt crisis.
Here's the front page of today's Wall Street Journal. Check out that headline.
It's a story about how Walmart, Burger King, and Kraft are all complaining that domestic earnings got crushed by end of the payroll tax holiday, rising gas prices, and stagnant wages. When they're on television, American CEOs like to talk about cutting entitlements to save American growth. But when forced to defend their quarterly earnings reports, guess what they blame instead? A shrinking deficit, wage stagnation, and energy costs. I believe a chief executive in front of his shareholders before I believe him in front of a camera.
David Brooks is a thoughtful guy. I don't doubt that he has talked to some business leaders who are sincerely afraid of the deficit debate. The business community at large, however, seems to have bigger worries than the machinations of Washington's budget debate. Centrist Washington analysts are obligated to see the world through the lens of Washington dysfunction. The rest of the country is not obligated to pretend that this is a useful way to see the world.
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