September 27, 2011 3 Comments
A lot of people have made it a standard feature of their Reality-Based economic commentary that companies are ‘sitting on piles of cash’, with the implication being that the job #1 of a self-styled economy-fixer is to think of clever or innovative ways to cajole, trick, stimulize, ‘nudge’, or otherwise get companies to not ‘sit on’ so much ‘cash’. That – it is thought, via the standard Keynesian axiom that spending means wealth – is a key to ‘getting the economy running again’.
I think this is a case of what, I assume, are basically correct facts (companies holding lots of cash) being misdiagnosed. Let me try to help by suggesting that instead of ‘piles of cash’ we all start thinking of that cash as a rainy-day fund.
Now restate the complaint: lots of companies are holding larger-than-normal rainy-day funds. The good thing about this construction is that it naturally leads to a question: Why?
There’s only one rational answer: Because they think they might need it. But why would they think that?
Again, the answer is almost obvious: Because in their estimation, they are likely to face larger costs and/or smaller profit margins down the road.
What, I wonder, could possibly give companies that idea? Could it have something to do with – current government policy?
This constructively turns what has heretofore been a puerile, impotent whine (‘companies are sitting on too much cash!’) into a problem that appears to have a straightforward solution. The problem, clearly, is that these companies that are
sitting on piles of cash holding larger rainy-day funds in reserve view their projected costs as high and/or profits as low. Any solution, then, would presumably address this directly – not by whining at companies to ‘stop holding cash’, but by looking for ways to reduce the costs they think they’ll face. In particular, to remedy this, the actual motivation behind ‘holding too much cash’, would require something approaching a Maneuver X.
This runs directly counter, of course, to the ongoing ‘progressive’ project of continually arguing for the government to go and get lots and lots of money from other people and from corporations in particular. Unfortunately, the people most energetically whining daily about ‘sitting on cash’ tend to be the same people most opposed to any form of Maneuver X and most psychologically committed to having the government not only do all the intervening and regulation-making it’s been doing, but doing a whole heck of a lot more of it. One could call this a classic case of cognitive dissonance, but on reflection I think this would require the people doing it to be aware of the internal contradiction inherent in their position.