Economic Growth: Incentives Matter
By Randall Holcombe • Monday February 7, 2011 11:02 AM PDT • 5 Comments
President Obama spoke to the U.S. Chamber of Commerce today (February 7), to try to encourage the CEOs of American businesses to do their share to reinvigorate the economy by investing, hiring, and matching what his administration has done through its various stimulus programs. In part, the president said, “As we work with you to make America a better place to do business, ask yourselves what you can do for America. Ask yourselves what you can do to hire American workers, to support the American economy, and to invest in this nation.”
The bottom line (and, I mean that literally in this case) is that businesses are not charities. They need to make profits to survive. If they see an opportunity to invest that they expect to lead to profit, they will take it without any presidential prodding. If they see an opportunity to hire more workers that they expect to lead to profit, they will take it without any presidential prodding.
Investing, and hiring, are not sacrifices. They are risks businesses take in the pursuit of profits. If the risk pays off, businesses benefit. If not, businesses lose, and if they lose too many times, they go out of business, like GM and Chrysler. (Whoops, those may not be good examples.)
Right now, many businesses are playing it safe, and understandably so, because of the regime uncertainty that the Obama administration has introduced into the economy, something my fellow blogger Robert Higgs has consistently emphasized. President Obama does not seem to understand that investment and hiring mean taking on risk, and prudent CEOs weigh that risk against any potential return.
Increase the risk, or lower the return, and businesses will invest less and hire less.
The president’s call for CEOs to “ask yourselves what you can do for America” does not end there. He goes on to say that under his administration, CEOs should not expect any investment and job creation to result in “greater profits and bonuses for those at the top.”
He’s telling CEOs they should take risks with their businesses for the good of their country, but that they should not expect any personal benefit if the risks they take pay off. This strikes me as a message he would be better off not delivering. He is saying to CEOs, you take a chance, with your business and your career, for the benefit of “the middle class,” but I will make sure you — the CEOs who take these risks — will not benefit yourselves.
The president says he wants to cooperate with the private sector to help the economy. Is this the message he should be sending to those whose cooperation he is seeking?
Tags: Business, Economics, Employment, Politics, Propaganda, Unemployment 
And to think I and others are vilified for pointing out the fact that this moron is a Marxist/socialist wannabe dictator. He openly spews his Anti-free market c*** (business must learn to share their profits with the electorate) and then has the co-opted media lie about it so as to fill the electorate with false hopes and lies. Class warfare at it’s finest courtesy of a Marxist pig!
joetote | Feb 7, 2011 | Reply
It should be painfully obvious to one and all that our president knows nothing about economics. His ignorance about savings, capital formation, profit and loss, and anything remotely tied to running a business, is truly astonishing.
His desperate calls to business leaders to hire more employees reminds me of Hoover’s attempts to strong-arm CEOs to prop up wages during a depression, and we all know how that turned out.
Steve Hogan | Feb 7, 2011 | Reply
The Political Dictionary: Liberal Economics
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Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their fair share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.
Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government runs a deficit while it tries to discover the “knack” for creating the jobs that the rich are hiding.
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Andrew_M_Garland | Feb 7, 2011 | Reply
Another part that may be just as important but isn’t discussed anywhere near enough is metrics. Standard cost accounting misleads managers since it allocates overhead to individual products. Managers then can’t see that if they increase sales while keeping fixed costs (including labor) the same, they’ll increase profits far more than the financial statements suggest. This allocation of overhead also means that decreasing inventories registers as a loss (which may have played a role in the GM and Chrysler bankruptcies). I have to wonder how much just changing US GAAP to eliminate these problems would increase our economic growth rate.
Ian | Feb 8, 2011 | Reply
We see again that the potus as smart as he claims to be is dumber than dirt. What businessman either mom and pop or major corp.worth their salt takes risks for no return? If the employees wish to benefit from the risks and share the profits they should buy the companies stock.The potus should get out of the way and let business do what it does best,create a profit and jobs. the potus should stick to what he does which is innuendo and falsehoods,he should spend his time trying to do something presidential. I suggest that rather than emulating Reagan he should follow Nixon`s example and RESIGN. That would be a big boost to the economy.
derfel cadarn | Feb 9, 2011 | Reply