No confidence in the "business confidence" hype

One hears a lot about "business confidence" as the key to recovery.

Here's how the argument goes: Businesses are so worried about any increases in future taxes or possible rises in interest rates (both of which are now very, very low relative to recent history) and  about deficits (which have increased dramatically in the past two years solely because of the downturn itself, but are otherwise due primarily to tax cuts and unfunded initiatives of the Bush administration) that they are refusing to invest.  Restoring "confidence" is key to unlocking investment.

The "confidence" argument underlies the Beltway obsession that "fixing" deficits need be the current central priority - as opposed to focusing first and foremost on finding ways of quickly getting people back to work, even if it means more government spending and putting deficits aside until we are experiencing significant recovery and a steep drop in unemployment.

The reality that undermines any case for the "confidence" fixation is that business profits among the major companies are currently at record highs. Further, economist Brad DeLong offers a chart that shows businesses ARE investing and that "confidence" is not an issue, at least if investment  in capital equipment and software is a relevant measure.

Companies are having no trouble at all finding the cash to boost their stocks of machinery, equipment, and software (as indicated by the blue line above.)  No trouble at all. And they are not scared of "uncertainty"--whether about future taxes, future health-care costs, or even future demand. Perhaps it would be better to say that healthy profits (because wages are flat on their back) and low interest rates (if you have collateral) offset whatever fear of low future demand is doing to discourage investment in equipment and software.

Business confidence is not abnormally low, and is not in more-than-normal need of a boost.

What is still profoundly in the dumps is residential construction investment. The housing market needs to be fixed. Not "business confidence" as a whole.

It appears from this data that the "confidence" argument is utterly overblown.

The areas in our economy that are critical for restoring confidence among the people are the collapsed and still badly damaged housing market (indicated in terms of investment by the red line above)- where the pain is borne by the 25% of mortgage holders whose home values are "under water," i.e. less than what they owe to the bank - and of course unemployment, which still hovers near 10%.

The focus for restoring "confidence" should be on the folks out of work and those whose homes have been endangered by  a wildly irresponsible financial sector overcome by greed.  Profits are at record highs, taxation is at record lows and businesses are investing in - it would seem - most everything except actual jobs.

Let's focus on public policies that begin to fix what clearly needs to be fixed - not some abstract notions about virtually non-existent problems that simply reinforce misguided and dishonest Republican ideology and fear-mongering.