The Great Strike by American Businesses

It's almost an open secret: American businesses are on strike.


Hiring remains staggering slow and unemployment grimly high. Business expansion is at a slow-slog. Banks aren't lending, but businesses aren't borrowing either.

Anyone paying attention to these things has heard a lot of explanations. It's Obama's fault: the threats of higher taxes, Obamacare and Dodd-Frank is creating regulatory uncertainty. Or it's the fault of Republicans and deficit hawk Democrats who are resisting calls to replace falling private sector spending with more government sector spending. Or it's the animal spirits haunting us for our past sins of excess.

But what is really going on, I think, is a refusal by businessmen to play the business cycle.

The manipulation of the money supply by the Federal Reserve is now so openly conducted, and its history of leading to temporary booms and busts so well known, that businesses may have finally figured out the only way not to fall prey: to go on strike.

You see, ordinarily businessmen cannot "fight the Fed" during low-interest rate periodsby refusing to invest only in things cleverly designed not to be affected by the bust phase of the business cycle. They cannot do this because the questions of whether something is a Fed-inflated bubble depends on an uncertain future and all the usual business signals are scrambled by interest rate manipulation.

Basically, businessmen usually have no choice but to play by the Fed's rules. They must attempt to navigate the uncertain future if they wish to see profits expand, even when they know that interest rate manipulation is messing with their economic calculation.

But, in fact, they do have a choice. And that's to put everything on hold until the manipulation ceases—or at least becomes less extreme. With the Fed stuck in zero-interest rate policy mode, business may just be deciding it isn't worth the risk. Everything could be a bubble. Every investment maninvestment.

Better to wait it out, conserve capital. And hope that the Fed doesn't spark massive inflation.


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