Why My Business Has Ceased Investing

This post at Dr. Helen's site is dead on.  She posts a number of comments from Don Surber's site, starting with this one:

Commenter Sean says:

Businesses aren't hiring because no one knows what in the hell our economic system is going to look like 5 years, or even 5 months, from now.

Will "Cap and Trade" get implemented as the Democrats hope?

How much of an upheaval will "Healthcare Reform" end up being?

Is the administration and Congress done overhauling regulation of the Financial Industry?

No prudent investor is going to bet their money (i.e., invest in growth) when it is conceivable that the government is going to radically alter how 50% of this nation's economy functions.

This is exactly where I am right now.   The business I own has been growing at about 10% a year for the last five years.  In each of the last 3 years, we have invested an average of a half million dollars in new facilities.  In the past five years I have added over a hundred new positions in the company.

This year we will add ZERO.

It is not for lack of opportunity.  Because we are on the low-cost end of recreation, we have had a record year.  And because I am in the business of privatizing public recreation, my phone has been ringing off the hook.  All over the country, desperate public recreation authorities are calling me to say that they are out of money, their parks are about to shut down, and can I do something to keep them open.

To the extent we find opportunities to grow with limited investment, we are pursuing those.  But I just cannot put up any more capital in this environment.  If I make an investment, how much will the government let me keep?  How much are taxes going up (because they certainly are going up)?   Inflation simply must be around the corner given the monetary policy this country is pursuing -- so will my business be able to raise prices fast enough to keep up with inflation in my inputs?

The legislative risks we face are tremendous.   My two highest costs are labor (50% of revenues) and fuel and electricity (about 10% of revenues).  Thus, nearly 2/3 of my costs are going to be increased by the current health care bill and cap-and-trade bill.  The only question is how much.   If forced to guess, I would estimate that my labor costs are going up 8% and my fuel costs by 20%,which when you compute these by their percentage shares, says that my costs will likely increase by at least 6% of revenues.  My current profit margin before tax is between 6 and 8 percent of revenues.  I may be able to raise prices fast enough to cover this, or I may not.  In a business with thin profit margins, there just isn't much, uh, margin for uncertainty.

And none of this takes into account the proposed new paperwork load that will likely make my business less enjoyable to run (example of current mess).  From having to track and report our company's greenhouse gas emissions to keep track of the health insurance choices made by every employee, it is sure to be ridiculously burdensome.

So I am going to wait it out for a while.

  • Vangel

    You might be interested in the "regime uncertainty" argument developed by Bob Higgs. Higgs argued that the depth of the Great Depression (and its length) boil down to businesses being unwilling to invest because owners did not know what type of environment would exist in the next few years. His great paper, which should be read by anyone interested in the subject, can be found at:

    http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

  • http://evilredscandi.blogspot.com Evil Red Scandi

    Well, the bad news is that their next step is to tie you down and electrocute you until you tell them what orders they need to give.

  • http://valoanquestions.com/ VA

    You might be interested in the "regime uncertainty" argument developed by Bob Higgs. Higgs argued that the depth of the Great Depression (and its length) boil down to businesses being unwilling to invest because owners did not know what type of environment would exist in the next few years. His great paper, which should be read by anyone interested in the subject, can be found at:

    http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

  • stan

    Fabius Maximus explicitly rejects your point in his response to comments to this post. http://fabiusmaximus.wordpress.com/2009/10/05/update-2/#comment-24983

    I think he's nuts. Your decision mirrors what I am seeing among all the business people I know.

  • tomw

    I pointed chicagoboyz.net at this comment:

    http://chicagoboyz.net/archives/9610.html

    as an example of business concern for future 'conditions' ...

    tom

  • Peter

    In regards to your decision no to invest in infrastructure your situation might be unique. Your infrastructure after all is located on public lands. For the rest of us I am not so sure reducing infrastructure investments is such a good idea when faced with the high potential of hyper inflation. After all I would much rather invest in a new truck now for $200,000 and not need it for 4 years than wait the four years and have to pay $500,000 for the same truck. Even if I don't need it in four years If I could find a buyer it would have made for a very good investment. After all sometimes the best investment is not the stock market (or gold for that matter) but something of tangible value that you can hold in your own possession.

  • Thomas Swartz

    I hope your business continues to be sucessful , I laid off the my last 13 employees today .

  • Don L CT

    Can we sell short the Whitehouse? Where can I get such a foolproof investment?

  • smg45acp

    I could not agree with you more.
    Uncertainty is the death of investing and business expansion and so when you multiply uncertainty to the 100 power, like Obama is doing, you are killing investment.
    I don’t own my own business anymore, but If I did I would not even be considering putting out any capital until all of the craziness settled down.

  • Gulermo

    "After all I would much rather invest in a new truck now for $200,000 and not need it for 4 years than wait the four years and have to pay $500,000 for the same truck."
    You are still out the "investment"(working capital) ,(and attendant issues, ie; depreciation, maintenence etc.)for the period specified and considering that the future is an unknown, wouldn't it be a wiser position to, at the very least at this point, wait until the Government makes it's move vis a vis legislation. Re: the resale, would that be paid for in current non-inflated dollars, or the other type? No answer is required. This such a good deal, you should get in early and stay in long. Good luck with that.

  • vikingTX

    The scary part is that all the turmoil may be intentional on the part of this administration and whoever is pulling the strings. We would like to think that it can't happen here, but there is also the threat of a precipitating event that allows the elected powers to claim emergency authority. It is very difficult to commit money and resources to a course of action (business plan) that could be rendered obsolete in a matter of weeks by such an event.