Where should corporations expand capacity?
Author, economist and gloomy contrarian investment adviser Marc Faber was asked if corporations should expand in the United States:
You would be out of your mind, with health care reforms and with the government interventions and the uncertainty about future taxes in the US, to even consider expanding in the US and this is a problem. I mean people say that loan demand is down because banks are not lending, but maybe nobody wants to borrow any money in the US and nobody wants to expand in the US but they are expanding in China, India, Vietnam, Bangladesh, Africa and Brazil.
The business world is an international place today, and if you run a corporation, whether you employee 50 people or 10,000, you can choose where you invest your money in terms of capital spending. Where do you want to expand factories? If I employed people in the US, I would rather think of reducing the 50 employees maybe to only 20.
Intel’s CEO would agree, because the bureaucratic infrastructure in much of America is profoundly anti-business. And therein lies a central problem of fixing the economy. The “Chinese manufacture / Americans buy” model is irretrievably broken as a path to restoring economic growth to the US, simply because the US can’t go on borrowing indefinitely.
Even if the GOP were to get commanding majorities in the House and the Senate in November, they are not in a position to implement the exigent economic and business policies, and the executive branch has no relevant experience to implement proper policies even if it wanted to. Thus, getting things fixed is likely to be a lengthy process, though it need not be. Self-inflicted wounds that create needless human suffering.
September 27th, 2010 at 2:28 pm
Thank You! I seldom see the “Even if the GOP were to get commanding majorities in the House and the Senate in November, they are not in a position to implement the exigent economic and business policies,…” adequately expressed. The key point here is that the leadership of both political parties has demonstrated that they are profoundly Keynesian in orientation. The structural, unresolvable, distortions of the Welfare and Regulatory State model of government are based on the unquestioned obedience to the principles of neo-Keynesian economic theory. Until the hold of this flawed economic theory is broken in Washington, the responses to our economic weakness will likely involve (much as we used to say when I was involved in the U.S. aid response to the famine in Mozambique) “making the East German agricultural system work.” Uhhmmm. You can try all you want to make neo-Keynesianism “work” but since the theory is fundamentally flawed, it ain’t goin’ ta happen. First, the Keynesians must be removed – Romer, Summers, Geithner, Bernanke – then destroy the link between the theory and program/policy prescriptions. Since this process will involve the delegitimizing of the leadership of both parties, success will, unfortunately, require a great deal of time and energy.