I have heard the complaint that businesses and banks have money but they just aren't investing it. Sometimes this is portrayed as selfishness on the part of the capitalists. Sometimes there is a conspiracy hinted at: greedy and heartless big business wants to sabotage President Obama's re-election and so is sitting on its money to keep the unemployment rate up. I only wish business were so public spirited.
It is precisely because they are greedy and heartless that the conspiracy theory is not credible. Imagine that there are profitable investments to be made that would create jobs and that businesses are forgoing in order to prevent Obama's re-election. Now each business would know that the jobs that it, as one business, would be able to create would not be enough to improve Obama's chances. So each business would calculate that by creating jobs it would be making money for itself and yet would still enjoy the benefits that come with Obama being a one term president. And, since each business faces the same incentive to defect from the project of undermining Obama, each would do what is in its own best interest and make investments that it judges to be profitable. The temptation to free ride would be overwhelming. Since the benefits of Obama's failure to win re-election would be enjoyed by those who had cooperated with the strike and those who had not alike, there would be no way to hold the coalition together. In other words, such a collective project would result in a prisoner's dilemma in which the only equilibrium would be defection by all parties.
Of course, in the real world people do overcome collective action problems so the conspiracy theory cannot be ruled out. But there are other facts that do not fit with it very well. We would expect that the businesses in Red states which are most opposed to Obama would be the most ardent cooperators with the strike. We would expect those in blue states to be doing the opposite. In fact, however, it is the blue states where jobs are not being created and the red states where they are.
In fact since the beginning of the recession one state, Texas, has created over a third of all new jobs. It is one of four states that has more jobs than when the recession began. Whatever else Texas is, Obama country it is not. Two of the other states, North Dakota and Alaska, are, like Texas, low regulation, low tax states. Jobs are created when those who have capital to invest believe they can make a profit. If taxes are constantly going up, state government is continually borrowing and living beyond its means, regulations are constantly being created and altered, businesses and banks will not invest in risky ventures. Capital will, in effect, go on strike. Capital is voting with its "feet" to go where it is well treated, allowed to keep the fruits of its labor and doesn't have to worry about constantly changing rules.
Taxes in Texas are famously low. But there are aspects to its business friendly climate that are just as important. Rules do now change as quickly there. For one thing, the legislature only meets every other year. More important are the kinds of rules they make, which are both clear, unambiguous and encourage individual responsibility. For instance, instead of a complicated regime of disclosure requirements and minute decisions about what types of loans are allowed Texas--in the wake of the S and L debacle of the late 80s--made a simple rule: you can only borrow 80% of a home's value for a mortgage. No exceptions, not obscure and changing definitions. It is a somewhat harsh rule, that in the first instance makes it difficult for many young families to buy a home, but the long run benefit is substantial. There was no wild run up in housing prices in Texas and so not nearly so much of a crash. And because there was no borrowing fueled speculative frenzy, Texas overall had a very affordable housing market.
That is, if it is allowed a "vote." Some capital is compelled and forcibly relocated. Remember there are four places where jobs have seen a net increase. The three I have mentioned are red states. The fourth is Washington D.C. The job creating capital that has taken up residence there was not persuaded but compelled. The one thing that the Obama administration indisputably managed to increase is the number of people working for the government.
On the issue of cartels, Megan McArdle has an interesting post on the possibility of a cartel in underwriting IPOs. It appears that some businesses are able to solve their collective action problem. Real estate agents have been able to pressure their fellow members to charge the same commissions to everyone through a system of informal pressure that has lasted decades and is only now unraveling in the face of pressure from the internet.
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