As you’ve read in this blog in the past, we are a baseball family. We all love baseball not only for the game, but for how it reflects life. There’s no better sports analogy than the strike out when things go badly for someone. Even if you’re not a baseball fan, I hope you got to see Stephen Strasburg pitch for the Nats before he got hurt. Much was written about his 101 mph fastball (quickly eclipsed by Chapman’s 105 mph heater – that’s friggin’ crazy) and knee bending curveball. But, what amazed me most about him was how many major league hitters he made look just plain silly. If you watch as much baseball as I do, you’ll notice that about once or twice a game, a hitter will be so badly fooled that they just look completely overmatched. Strasburg made that happen two or three times per inning. It’s that image of a hitter flailing helplessly at a curveball that he was certain was a fastball when it left the pitcher’s hand that I want you to hold in your mind’s eye as I tell you this story.
I was driving to the airport earlier this week listening to WTOP News Radio. For those of you not from Washington, DC, WTOP is one of the oldest, most venerable news stations in the city. My dad used to listen to it on the old AM radio in his 1966 Dodge Coronet. It’s a friggin’ institution. Traffic and Weather on the 8’s, sports at 15 and 45, and business news with Tucker Eckels from the Washington Business Journal. The very fact that they were able to find a dude name Tucker Eckels to do the business news is impressive. But, don’t blame him for this story.
As I tuned into WTOP earlier this week, a business analyst was talking about the “surplus” of capital on the balance sheets of US corporations. He didn’t give a number, but I’ve heard numbers as high as $2 trillion (yes with a “T”) that is sitting on the collective balance sheets of US companies, not being invested for growth. The WTOP analyst’s beef was that these companies should be putting this money to work to create jobs and lower unemployement. The analogy he used was this: what if the United States Treasury had $2 trillion of “excess” cash and just sat on it rather than using it to hire people who are out of work. He claimed there would be national outrage and citizens would insist that the Federal Treasury use that money to hire people.
At the risk of sounding like a teenage girl texting her best friend – OMG. A swing and a miss! I almost had to pull off to the side of the GW Parkway to digest this horseshit. And, remember, this wasn’t coming from some drunk unemployed laborer in a bar; it was an analyst on an allegedly serious news station that serves the listening audience of the Capital of the United States of America. Where do we even start with this? Well, let’s start at the end and work backwards.
What IF the Federal Treasury had an extra $2 trillion in its coffers with no particular program to fund with it? Seems fanciful with members of both parties in Congress having infinitely long lists of ways to waste money, but let’s run with it. Could be fun. I guess the first question I might ponder is “where did that money come from?” Santa Claus? The Easter Bunny? The Tooth Fairy? Rahm Emmanual? Mick Jagger? Meatloaf? Where? Oh, yeah – it came from taxpayers. It’s not the Treasury’s money! It’s my money! It’s your money! If the Treasury had an extra trillion or two sitting around with nothing to do, wouldn’t it make sense to send it back to the people who own it? In fact, in that unlikely scenario, we have about 200 years of data to show that we’d collectively put it to use in ways that would grow the economy and create jobs. If you doubt me, look at consumer spending data during the last few up cycles, including ones under Democrat presidents.
Now, let’s turn to these evil corporations who are hording cash. With interest rates pretty dang close to zero, you can be assured that the money sitting on corporate balance sheets is providing a zero real return to the shareholder’s of those companies. Since every corporation has a target return on capital that is greater than zero, why in the world are these dopey executives sitting on cash instead of investing it in new projects, products, and business lines that would require them to hire people who are out of work? Have they finally concluded that life is more fun without earnings growth? Is it because they can get in more golf if they don’t have the hassle of hiring those pesky employees? Possible, but I doubt it. I’ve been in the business world for a long time and most executives I know are highly driven to find growth, invest capital, and maximize return on that capital.
So, why is it that companies are sitting on so much cash? The answer is uncertainty in the regulatory and tax environment. The President and Democrat congress have created an unprecedented anti-business, anti-growth regulatory environment from Obamacare straight through to Dodd-Frank (I’m addled by the irony of the two members of congress most responsible for the financial crisis having their names on a financial “reform” bill, but that’s Washington for you). Furthermore, the Democrats in congress have created a very uncertain tax environment with a president, speaker and majority leader making it clear they plan to do everything in their power to increase personal income taxes and taxes on capital gains and dividends. This may appeal to the Democrat base, but it is bad news for any business investment. If you want to decrease something, just try taxing it more.
I actually don’t know if the WTOP analyst is an ideological stooge for the Democrats (I never caught his name) or just stupid. Maybe both. Either way, his attempt to take a swing at the unemployment problem looked like one of those guys who got fooled by Strasburg’s curveball. The point is that our President and his congressional lap dogs have an important decision to make over the next several years. Do they want growth and job creation or do they want radical left wing ideology? You can’t have both. The jury is in on that. If you want companies to free up the $2 trillion sitting on their balance sheets and start hiring again, you can’t just go on the radio and whine about it. You have to put pro-growth, pro-investment policies in place and let the basic laws of economics take it from there. I don’t know which path they’ll choose, but it will be interesting to watch. Until then, I’m flipping over to Sports Talk 980.
Next up: Why do Liberals Hate Corporate America?