We asked the CFOs why projects that exceed the hurdle rate are not pursued. The answers fall into two categories.
The first is best summarized by a CFO who wrote us that "we want to maintain a strong cash position in the current economy." Given the risk, corporate America is playing wait-and-see. This applies to investment as well as employment decisions. The second is summarized by another CFO who wrote us complaining about "insufficient capital." That is, even though the firm might have a great project, it can't get funding from the bank.
There are "haves" and "have nots." The haves are cash hoarders who will not pull the trigger on good projects because they are worried about the future and want to conserve cash. The have nots are firms that lack cash and can't get bank loans to finance good projects because the banks want to conserve cash.
The survey evidence suggests that a small tweak in interest rates would not drive growth. It would be far more effective for policy makers to pursue an agenda with the goal of reducing policy uncertainty. After all, the patient will best return to health in a stable environment.
Campbell R. Harvey is a professor of finance at Duke University's Fuqua School of Business. He served as editor of The Journal of Finance from 2006-2012.