Reason for Pessimism

Member Group : Lincoln Institute

Convention wisdom over the past few months has it the economy is finally beginning to emerge from the recession that began back in 2008. So it was a bit surprising that the Spring 2012 Keystone Business Climate Survey of major employers found chief executive officers around the commonwealth were more pessimistic about the direction of the state’s economy than they were a year ago.

In fact, by almost a two-to-one margin, the CEOs said Pennsylvania’s economy had gotten worse over the previous six months rather than better. A majority – 51% – said the state’s economy had remained about the same. That, however, is faint praise in that recent surveys have placed economic confidence levels at their lowest point in the 17-year history of the poll.

This raises the question: Is the economy really improving, or has the mainstream media bought into Obama Administration election year spin?

The answer is probably a bit of both. After four down years the dynamic nature of the American economy is such that some improvement – as reflected in the rising equity markets – is real and likely sustainable. However, government created uncertainty has fostered a climate in which many businesses are still not ready to risk significant amounts of capital on expansion.

At the national level the chief culprit is the Patient Protection and Affordable Health Care Act, more commonly known as Obamacare. Businesses have not been able to digest the highly complicated legislation, let alone begin to project how regulators might interpret the law. Adding to the chaos are constitutional questions, which will be answered in a few weeks when the Supreme Court of the United States issues its ruling.

But here in Penn’s Woods the business climate is also suffering from growing disappointment with state government. There was actually a slight uptick in business optimism last Fall as business leaders looked to a new Republican governor and historic Republican majorities in both chambers of the General Assembly and anticipated the passage of business friendly legislation.

To be sure some progress has been made, but the pace of reform has been disappointing, so much so that as the legislature lumbers into the last six months of its session the lack of progress has become downright disheartening.

This disappointment is reflected in the job performance rating of the General Assembly. Fifty-six percent of the CEOs surveyed have a negative opinion of the job being done by the state Senate, 22% view the upper chamber positively. The House fares marginally better: 53% have a negative opinion of the job being done by the House, 26% offer a positive view.

While generally applauding the fact Governor Corbett and the legislature held the line on both taxes and spending last year – and appear likely to do the same in the budget currently under consideration – business leaders say the cuts do not go far enough. Fifty-nine percent want state spending cut further. And there are no sacred cows. Seventy percent say they want cuts in public welfare; 42% would cut human services; and 38% want further cuts in higher education spending.

In short, the business community wants state government to do what it has done: cut costs and live within its means. Many businesses have trimmed their workforce, cut hours, reduced product lines, and taken other unpleasant steps in order to remain viable in the down economy. They look at government and want it to do the same.

And so, as major issues such as privatization of the state’s liquor stores, school choice, dealing with the looming state and school district pension crisis, and union power issues remain unresolved the hopes for a major change raised by the onset of Republican dominance in Harrisburg are giving way to disillusionment and becoming manifest in a growing pessimism over the direction of the state’s economy.

Making matters worse, everyone knows that when the legislature adjourns in early July for its two month summer vacation there is no chance of any proposal even remotely controversial being brought up in September or October as the General Election season will be in high gear.

So, little has been accomplished and the window of opportunity is closing. Therein lays the explanation as to why the brief burst of optimism that developed last year has reverted back to recession era pessimism.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected].)

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