Is economic/political uncertainty the main reason as to why the private sector is not investing?

This is a paradoxical question, similar to the old "Which came first: The chicken or the egg?"

One of the main reasons we have economic uncertainty is because the private sector isn't investing. But one of the main reasons why the private sector isn't investing is because of the economic uncertainty. So it's a vicious cycle that resembles an ouroboros (a snake eating its own tail).

But I'm not really sure there is a whole lot of political uncertainty. I think we can be certain that there will be no effort to improve the economy by Congress between now and 2012. There will be no additional stimulus, there will be no increase in infrastructure spending, there will be no jobs programs put forth and there will be no attempt to generate the sort of demand required to spark economic growth.

Great conversation here about the role that government has or should have to encourage businesses to expand. Many U.S. business are expanding, unfortunately they are expanding overseas. Quantitative Easing discourages businesses from saving (lower yield) so many have built new facilities outside of the U.S. where growth is predicted to be greater.

So what can be done:

1. The Federal Government should consider laws that would encourage the creation of new jobs (not just moving them from one state to another).

2. Consider limited tariffs on goods / services that can be or are already being produced in the U.S. (This used to be called Protectionism)

3. Increase the level of budgetary oversight for government spending.

4. Get rid of the (hard) debt ceiling as a rule, and consider it as a percentage of GDP instead.

5. Foster innovation with grants for science and technology via competitions (X-prize meets American Idol).

Investment implies uncertainty, because "sure things" with no risk carry small return rates. So political currents (which are inherently unstable) don't really change anything. I think the refusal of the private sector to invest stems from the balance of consequences: lack of incentives and surplus of deterrents. There is no strong reason to invest and lots of good reasons to sit on your cash. Just a personal opinion, of course.

Another tier of investor is the Small Business Owner. Small business is the generator of most new jobs, historically. They don't have large coffers full of treasure to sit on. They make their living from the cash flow generated from the business. The investments they make when they do have a surplus of cash is in their own business, whether it be expansion or technology, it usually means additional employees. But, with the uncertainty of government regulation and additional costs of doing business as a result, their is no small business expansion or hiring. If people don't have jobs, consumer spending goes down. In my opinion, it is not the chicken or the egg conundrum, it is political uncertainty and government intervention that causes lack of investment in the private sector.

I'm sorry Rose, but where do you get your data from? I work for a staffing company, so I am pretty devoted to tracking labor trends and your claim that "government jobs have increased tremendously the last 2.5 years" is simply not valid.

Local governments are cutting jobs at the fastest rate in almost 30 years. Here are some numbers from a recent US News article:

- Since 2008, local governments have shed a total of 464,000 jobs.
- Nearly 100,000 local government employees have lost their jobs so far THIS year.
- 60 of the largest 100 metropolitan areas have lost government jobs since the recession began in 2007.

http://money.usnews.com/money/careers/articles/2011/07/08/public-sector-job-c...

And here are some figures from a recent Bloomberg article on the topic that show the government as a whole (federal and local) isn't faring much better:

- In July, 37,000 government jobs were eliminated, marking the ninth straight month of reduction.
- A total of 218,000 government jobs were lost in the first seven months 2011.
- Wells Fargo predicts 20,000 to 30,000 additional government job losses a month through the middle of 2012.

http://www.bloomberg.com/news/2011-08-05/austerity-calls-collide-with-u-s-vot...

The final toll on the public sector throughout the current recession is estimated to approach a loss of 1 million jobs. I don't know how you can square that with the claim that there has been a tremendous increase over the same period of time, especially when nearly half a million jobs have already been lost and that downward trend is expected to INCREASE in the near future.

Scott, I do believe your last two paragraphs nailed it, and your list of uncertainties isn't even all-inclusive, nor does it have to be.

There are so many government interventions and regulations out there, the consequences of which few people, including some of those who championed them, fully comprehend. Need I remind anyone of one of the most brilliant statements of our time? Paraphrasing: "We have to first pass the law so that we can find out what's in it." On top of that, many of the provisions contained in these recently-implemented laws and regulations won't be effective for years. Can anyone possibly expect anything but uncertainty?

To suggest that there is currently no political uncertainty is like the airline pilot who announces to a plane full of passengers that, although the airplane is spiraling downward toward swift annihilation, there is nothing to worry about because death and destruction is a certainty. "In fact, until we crash and explode into a million pieces, you are free to move about the cabin."

In reality, there has never been more uncertainty at once, at least during my lifetime. Uncertainly is risk, and risk impedes investment, including hiring.

Until hiring picks up in a meaningful way, there will be no recovery. One thing is for sure - very few people are going to rise up suddenly for no apparent reason, to go out and buy new cars and 64-inch plasma television sets. So, in many respects, this renders the "chicken and egg" argument moot. The consumer will not make the first move.

There are ways to mitigate some of the risk and uncertainty businesses are facing, and put people back to work, but I'm afraid the only way to do that is through the political process, which, at least thus far, has (to put it tactfully) not been terribly effective in this area.

Nathan, I'd like to think that everyone watches the temperature of our political system and the economy but I simply have no solid data to back it up. Anecdotally, I think some businesses are staying put because they don't know what they can count on. However, many others are seeing increases and need to hire. My son is in the staffing business and he is placing engineers left and right. With overall productivity levels having shot up in the last 10-15 years, many businesses that have upgraded their technology simply don't need as many employees as they use to. Others have outsourced and the labor rates are simply too low to think about hiring domestically.

If there's any lack of decision making due to uncertainty, I think it's more in the area of expansion and or acquisition that ultimately spurs new hiring. You could also make a great argument for this level of decision making and the amount of news you follow. Sometimes, the news doesn't reflect reality.

IMO the reasons for lack of investment centre around the banks, it is simply a case that here in the UK they are VERY reluctant to lend, this has created a lack of 'cashflow' within the economy which in turn has resulted in a 'bunker' mentality amongst consumers and businesses alike, couple that with journalists taking great pleasure in presenting doom and gloom to everyone and bingo you have the situation we all find ourselves in today.

Human beings are by nature gamblers who like to hedge their bets. Entrepreneurs take this behavior to the next level. Economic uncertainty and its cascade affect on the entire economy in both public and private sectors is the number one obstacle facing businesses today. The total economic impact of Obama care has still not been felt and from all reports, many businesses are shedding their health care in various degrees because of this uncertainty. On the flip side, from what I have read, consumer debt is decreasing not sure if savings are increasing.