THE new economic villains are not greedy bankers or inept politicians, but businesses choosing to hoard cash rather than hire new workers. I've heard it suggested that this is greedy or even unpatriotic.

But businesses have good reason to hold cash right now. Investment is risky and demand is still weak. An ongoing tepid recovery, or even a double-dip recession, may mean firms won't need to grow for a long time. Or things might get worse; in that case a business owner may worry he won't generate enough cash flow to meet his payroll. Then he'll need that cash to avoid more layoffs. It might just be a sensible idea to hold off on expansion and keep assets as liquid as possible until there is some end to trouble in sight. Joe Nocera is not having it. He confuses risk aversion under uncertainty with a focus on short-term profits.

The only way that's going to happen, however, is if our society implicitly makes the kind of compact that German society makes explicitly: We have to be willing to allow companies to sacrifice short-term profits for the long-term good of the country. As the leadership expert Michael Useem wrote recently on The Washington Post's Web site, business needs to make “people a priority, not just earnings.”

I never thought I'd see the day Americans envy the German labour market. But in Germany, firms often opt to cut back on hours rather than lay off workers, while the government subsidises the workers' lost earnings.

As we suffer through our own economic hard times, the German approach is something we can only envy. Here, companies quickly lay off workers, many of whom never find their way back into the full-time labor force. Corporations shy away from investing for the future, even though investment is what will turn the economy around. The government, for its part, invariably starts talking about “job creation,” but rarely does anything that makes a difference.

But one reason German firms are keen to cut back on hours rather than sack employees is that it's very hard and expensive to fire anyone in Germany. It's so hard to fire someone that firms became reluctant to hire in the first place. That is why Germany has historically had much higher rates of structural unemployment. Many people who lose their jobs never find work again—and that's in good economic times.

America has reached a bad equilibrium. Firms won't hire because demand is weak. But demand is weak, in part, because unemployment is high which makes consumers uncertain. That suggests there is scope for policy intervention. I am not convinced that cutting payroll taxes is so effective. Firms are reluctant to invest and hire more workers even when it is cheap to do so because the medium-run outlook is uncertain. Payroll taxes are split between the employer and the employee. A payroll-tax cut (on the employer side; it's worth noting the holiday applies to the employee's share) makes it cheaper to hire workers, but that is only temporary. The government would likely reinstate the full tax eventually. That might be at a time when a strong recovery has taken hold. But if economic weakness drags on for a long time, it might not. To some degree, the tax cut becomes another source of uncertainty.

If employers want to avoid payroll taxes they already have that option: they can hire workers as contractors instead of staff. Contractors pay the entire payroll tax themselves (though it's worth noting that the payroll tax cut also applies to the self-employment tax). Firms are also spared the need to pay for a contractor's health care, and firing a lousy contractor is much easier and cheaper than sacking a full-time employee. Hiring a contract worker is less of a financial commitment all around.

There are probably good policy options available to boost demand. But if Americans want the increase in output to be sustainable they need to focus on what we know works. This means keeping labour markets flexible and resolving as much uncertainty as possible. Uncertainty not only comes from a poor economic climate, but from government policies that have become increasingly unpredictable and unsustainable. Only then will businesses feel comfortable making long-term financial commitments, and only then will consumers feel more inclined to spend. America should consider creative strategies like subsidising people who can only find part-time or contract work. This, at least, will get more people back to work and relieve some consumer uncertainty.