The economy is a cycle; there are years of prosperity, followed by recession, prosperity, recession and so on. That’s the way it’s been for decades. Economists know that, business owners know that, and people in general know that.
Recessions are usually declared when GDP drops three month in a row. Sometimes it might take a couple of months for us to realize that we were in a recession and sometimes by the time we do, the recovery has already begun.
What surprised most economists is that this last recession has lasted much longer than usual and that the recovery has been slow at best. Most attribute this to a lack of confidence. Business owners and investors are very wary and unsure of what’s going to happen next.
This lack in confidence has been fuelled by the actions and attitude of the government, be it the debt ceiling debate, Obamacare, or the payroll tax. Every issue is a long-fought battle, no one knows how it’s going to end, and even when it appears there may be a deal in place it ends up being a short-term band aid that will be renegotiated in a couple of months.
All of this scares business owners. They refrain from hiring and/or investing. No one wants to take the risks that businesses have to take to grow.
In the best of times, business owners know that every investment is a risk. What they need to keep them going is a level of confidence that the risks they are about to take will be worthwhile. Kind of hard to map out a strategy when the government keeps changing the rules.
There’s a limited amount that a President can do to beef up the economy. Their main job is to inspire confidence so the private sector will do its job. Unfortunately, that is not what’s been coming out of Washington, D.C. So business owners are staying put.
But there is only so long people are going to sit around waiting for what Washington is or isn’t going to do.
For a while now I’ve been in contact with a small business owner. For months he’s been telling me he needs to buy new equipment and hire people, but he’s too afraid to jump in because he has no idea what tomorrow will bring. Last week when I spoke to him and asked him how he thinks the economy will look like this time next year, he was slightly more upbeat. Not because he believed Washington would finally do something about the economy, but because he’d almost given up on Washington.
He said, “I’m at the point where I am just going to ignore the markets and what the politicians say. I’m just going to do what I have to do and hope for the best.”
Basically this guy is no longer going to wait for the president to give him the confidence to proceed with his investments. He’s looking at his business to make his decisions. If he feels his business is at a point where it needs to grow, invest and hire, he’ll do just that. If things change, then he’ll adapt accordingly. He’s tired of standing still.
2012 may be the year where investors take the attitude they should have taken a long time ago: “We’re going to jump in and do what we have to do and let the chips fall where they may.” 2012 may be the year capitalism “declares its independence.” 2012 could be the year capitalism makes a come-back in spite of everything the Obama administration does or does not do.
We’re always saying the government can’t create jobs. Maybe business owners and investors have come to realize that it’s time they act like it.