Microsoft chairman Bill Gates was on Fareed Zakaria’s show on CNN this weekend, and he had an interesting explanation for why businesses aren’t spending more.
In response to a question about fiscal policy, the debt, and sequestration he added
GATES: Well, yes, sequestration is kind of this across the board thing that — should you plan for that or not plan for that. Say you’re a graduate student right now, is there going to be money for your lab, not money for your lab? Really awful to not make decisions.
I’m not a macroeconomics person. You know clearly there’s this global almost devaluation where everybody’s trying to get their currencies to be worth less, which is quite unusual, which has business standing on the sidelines a bit in terms of their capital spending.
And you’d like to unlock that. It’s one of the big pools of money that’s out there.
We’d suggest that Gates has things backwards. Weak end demand is what’s causing businesses to not invest as much as they otherwise might. Aggressive monetary policy is designed to make hoarding cash less appealing (and intuitively, if you’re worried about “devaluation” then standing on the sidelines is the exact opposite of what you’d be inclined to do).
Anyway, his point about the silliness of these across the board sequestration cuts is spot on.
(Via Dan Drezner)