It's the Demand, Stupid

July 25, 2011
Posted by Jay Livingston

It’s nice to have one’s ideas supported in unexpected places.

Last month, I speculated (here) on the reasons job growth has been so dismal. The Republicans explanation is that employers are reluctant to hire because they are “uncertain” about government regulation. My explanation was simpler: “If companies aren’t hiring, the real problem, I suspect, is not lack of certainty but lack of customers.”

The Wall Street Journal, under the capable ownership of Rupert Murdoch, is not widely known as a lefty rag. But last week, they ran an article about this same question. Here’s the lede:
The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey. . . .
It continues:
In the survey, conducted July 8-13 and released Monday, 53 economists—not all of whom answer every question—were asked the main reason employers aren't hiring more readily. Of the 51 who responded to the question, 31 cited lack of demand (65%) and 14 (27%) cited uncertainty about government policy. The others said hiring overseas was more appealing.


Bob S. said...

And why is there no demand?

Because people aren't buying because of the uncertainty.

I would have thought this was obvious to a collegiate like you.

It is a vicious cycle.

Let me ask you...what are your last 5 major purchases, when did you buy them and how (cash, credit, etc)?

Now can you also name three to five purchase you didn't make because you are uncertain?

Jay Livingston said...

Hi Bob. I must not have made myself clear. The uncertainty I was referring to is the same uncertainty I referred in the earlier post and the same uncertainty in the GOP talking points: uncertainty about government regulation. If I and other people have hesitated to buy stuff because of uncertainty, it's probably uncertainty about the economy generally or specfically uncertainty about our own job security, income, and benefits -- not uncertainty about how the government might regulate derivatives trading or anything else.

Bob S. said...


Have you ever heard of the problem solving method called "5 Whys"?

I really recommend you look into it and learn a little about root cause analysis.
You don't always need 5 Whys to get to the root of the problem...but it helps people from stopping short.

Why is demand down?
Because people aren't buying.

Why aren't people buying?
Because they don't know what the economy is going to do next.

Why don't they know what the economy is going to do?

Because they are uncertain what the government is going to do next.

Good grief. This is basic stuff Jay.

People don't know if their taxes are going to go up or down.
People don't know if the government is going to take over another business segment.
People don't know if the government is going to force banks to loan them money for a mortgage or stop the banks from loaning money.

Why should people buy -- DEMAND -- until they know what the government is going to do?