Businesses Not Hiring Because of Lack of Sales, Part MCMXVII

I can’t believe we’re still having this argument about the causes of the lack of hiring and the jobs crisis, but once again, empirical evidence is seen to have a liberal bias. The Wall Street Journal asked economists to cite the cause of weak hiring, and in overwhelming numbers, they cited a lack of sales.

“There is no demand,” said Paul Ashworth of Capital Economics. “Businesses aren’t confident enough, and the longer this goes on the harder it is to convince them that they should be.”

In the survey, conducted July 8-13 and released Monday, 53 economists—not all of whom answer every question—were asked the main reason employers aren’t hiring more readily. Of the 51 who responded to the question, 31 cited lack of demand (65%) and 14 (27%) cited uncertainty about government policy. The others said hiring overseas was more appealing.

Some executives echoed the survey’s central finding.

“We’re hiring a little here and there—but it’s not what it should be,” said Daniel Cunningham, chief executive of Long-Stanton Manufacturing Co., of Hamilton, Ohio. “And it’s because of the lack of demand.” Long-Stanton, which makes metal parts for the aerospace, medical and other industries, has snapped back from the recession, “but volume is still not up to where it was, or where it should be,” Mr. Cunningham said. Long-Stanton is privately held and has 75 employees.

Economics 101 professors win, again.

This is a simple story. There’s no demand, and so businesses won’t hire. The crippled demand has a lot to do with the massive unemployment rate. But it also has to do with the weakening workers’ share of US income. Those who have jobs are finding their wages to be static.

This may seem like a circular argument: there are no sales because people don’t have any jobs, and people don’t have any jobs because there are no sales. But there are other inputs here. Specifically, government has the capacity to generate demand. And it can do that through spending, not through fashioning grand bargains that cut spending. In Keith Hennessey’s chart of the Biden talks, the one bit of good news is that the FY2012 budget will only be cut, under this plan, by $2 billion relative to FY2011. But a near-static spending level amid growing population and inflation is close enough to a cut, and anyway, we don’t need the status quo, but more spending. While economists bicker over whether spending cuts or tax increases hurt the economy more, they should take the principle of the medical community, and first, do no harm.

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