Goolsbee’s Folly

Today’s WSJ contains excerpts of an interview with Austan Goolsbee, the White House’s Chief Economic Advisor.  It contains a shocker.  Goolsbee reveals himself to be the ultimate government micro business planner.  Noting that firms are holding, “hoarding,” cash rather than investing he worries about takeovers.  Buyout artists will takeover firms and force the firms to give the money back to shareholders — gasp — rather than spent it on internal growth.  Translation: Look for more anti-M&A government rules or rules against “hoarding.”  The reason firms are holding cash is that returns on investments do not make sense — there is too much government regulatory and tax risk.  Moreover, shareholders, if they get cash, do not hold it in mattresses — they are investors too.  Shareholder level investment may even be preferable to firm level investment because shareholder have more options in a fluid economy.  His statement that “past waves” of M&A do not lead to job growth is incredibility crude.  Many waves of M&A are restructurings of unhealthy firms outside of bankruptcy;  some jobs may be lost (and fewer than the loses that would be in bankruptcies perhaps) so that new jobs in better structured industries can be gained.

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