Why Are Businesses Hoarding Cash?

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Fareed Zakaria, after noting that America’s 500 biggest nonfinancial companies are sitting on $1.8 trillion of cash, wonders why they aren’t spending it on new plants or expansion into new product lines:

I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.

Economic uncertainty was the primary cause of their caution. “We’ve just been through a tsunami and that produces caution,” one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, chief executive of General Electric, complained Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad laws and regulations being cooked up in Washington.

I really have to call BS on this. Fortune 500 CEOs probably do have some genuine uncertainty about the tax and regulatory environment going forward, but big companies work with that kind of uncertainty all the time. It doesn’t stop them in their tracks. What’s more, most of the current uncertainty revolves around financial regs — which aren’t a big deal to nonfinancial companies — and healthcare regs, which aren’t a big deal to most non-healthcare companies. In other words, this stuff just doesn’t have an enormous effect on the vast majority of the companies we’re talking about here.

So what is keeping them from spending their cash? Why aren’t they expanding? Could this question possibly be any simpler? They aren’t expanding because the economy is weak and they don’t see consumer demand picking up any time soon. They’ll start spending as soon as they believe that’s going to change. It’s too bad that CEOs, even Democratic-leaning ones, tend to be so ideologically invested in regulatory issues, because they ought to be the biggest boosters out there of action to stimulate the economy. Enlightened self-interest, if nothing else, should have them marching on Congress demanding action.

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