More than  few from the opposition have criticized corporations for sitting on too much cash.  Companies are not in the cash holding or cash management business.  Especially in today’s environment of near zero return on short term holdings, one should ask  why the companies are sitting on so much cash.  The short answer is that they cannot find a better risk adjusted return… yet.

That ‘yet’ answers why they do not just return it to the shareholders.  They are optimistic that opportunities will return.  And they are less optimistic that the banking system can be depended on to supply them with the credit when they need it.  It is safer to keep the cash to finance new projects internally.  It also avoids taxes on dividends to the shareholders.  And then shareholders must decide how to deploy the capital, and they face the same limitations.

But the big reason for this state of affairs is a the inconsistent and self defeating economic policy of this administration.  The Federal Reserve has plied a loose monetary policy to stimulate demand, but at the same time we have been showered with new laws and regulations and other friction costs that have stifled production.   The Federal Reserve has showered us with money and the Congress has made us afraid to spend it.

The bully pulpit war on wealth is not inviting to capital investment.  We are foolish to look at the laws themselves.  Risk is combination of hazard and outrage.  The OMB does not know how to score outrage, but it has become a major factor in the minds of those who deploy capital (and create jobs).

The short term horizon of the tax breaks is useless.  Nobody will take long term risks for short term gains.  Business and individuals do not think nearly as short term as the government that tries to control their actions.

At the risk of repetition the tax rates are secondary to their consistency. If we have to fear that our taxes will go up, deductions will be eliminated, depreciation schedules will be altered, and penalties will be triggered  then we will be hesitant to deploy new capital.  We also realize that we will have to comply with regulations that are yet to be written by regulators that have yet to be appointed.

We have deployed a discordant capricious policy that has brought us to a very liquid state of inaction.