| Where's Business Demand? |
10 March 2003
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Consumers Give up on Spending; Recession May Follow
The only source of joy in the American economy has been consumer spending. So it was with deep concern that investors and others who care heard that consumer confidence had dropped off the table. Without the demand of consumers, there would have been none at all. With war still inevitable, business seems unwilling to spend, and that could lead to Bush the Lesser lose his re-election bid just like his father did, unless business spending kicks in.
The timing parallels that of the first Bush presidency in a shocking way. War with Iraq right after mid-term elections may yield approval ratings that are through the ceiling, but after that, the economy will still be shaky, unemployment too high for comfort, and the federal deficit soaring (remember the worries policy-makers had finding ways to handle surpluses?).
If there is any hope, it now lies in business need to replace capital. The last great spending burst was in preparation for Y2K, and those machines are now more than three years old. Obsolete by any standard, worn out in other cases. The opportunity is there if Washington will seize it.
To encourage business investment, tax cuts are pointless. Accelerated depreciation of assets and tax credits for equipment purchases are far more effective. One wonders if the Bush White House has enough sense to put re-election ahead of ideology.