The must read essay of the day. Money quote:
Of the four ways government can principally influence the economy for better or worse – fiscal policy, regulation, monetary policy, and trade – it appears that investors will continue to be forced to rely on monetary policy for help. Taxes will undoubtedly rise for some, and the one effective way the federal government could effectively ease more – regulatory policy – seems less likely now than ever before. The Wall Street law firm Davis Polk has created a new business of simply keeping track of the seemingly infinite number of rules that will need to be written to complete the process of financial regulation put into place by Dodd-Frank. Sadly, only 33% of the 398 required rulemakings have been finalized. (Only 265 rules to go!) Another 33% have yet to have even been proposed. Is it any wonder the Fed has had trouble turning excess reserves into effective monetary stimulus?Read the whole thing.
What are we doing as a company in light of this uncertainty? We’ve put on hold business expenses short of pencils, and any capital spending we were considering, including an update of the men’s bathroom some have begun to call “the latrine.” Instead of calling clients and focusing on our research, we are scheduling, probably in vain, conference calls (read fees) with our attorneys and accountants to try to create contingencies against potentially bad outcomes for us in the tax code. It has forced us to ask ourselves questions that seem at odds with economic growth, like, are there any unintended consequences of employing more than 50 people?
The first sentence of the quotation above is the most important from a policy perspective. There are only four ways that government can act to influence the economy, and two of them -- regulation and trade policy -- have been operating against economic growth since the beginning of the Obama administration and the post 2010 gridlock. Now fiscal policy is going to go negative. There may be all sorts of good reasons for any individual policy decision, but there is no denying that the total effect of federal policy, especially that within the control of the political branches, has been to counteract the benefits of the Fed's very expansionist monetary policy.