One of the sources of uncertainty about the global economy is the unsettled debate among leaders in Western Europe’s Eurozone about the use of monetary policy to solve economic problems. That debate rages in the United States despite rarely seeming to be framed in those terms.
The downturn in 2008 was led by a liquidity crisis, a shortage of cash, that resulted from mythical wealth and cash from over-valued real estate. The real estate bubble resembled a grand Ponzi scheme without a Madoff-like figurehead to blame. The feared second dip is not a result of a crisis of liquidity but of confidence and uncertainty. Bruder (2011), writing about Egypt following their Arab Spring episode, observed that investors do not and will not pour capital into economic environments when the direction of the country is uncertain. In that regard, the current climate in the United States is similar to that of Egypt.
Hough (2011) observed that publicly-traded U.S. companies, excluding financial companies, currently hold 12% of reported assets in cash, the highest reported level since 1954. Business executives are unwilling to release the estimated $1.2-2 trillion in cash on their balance sheets (Foroohar, 2011), and unknown amounts hidden offshore and elsewhere, until people in positions of leadership lead and re-establish certainty and a sense of confidence about fiscal policy, tax policy, spending policy, the deficit and whether to continue deficit-driven budgets, and what to do about companies and countries allegedly to big to fail. Compounding the uncertainty are conflicts and political turmoil seemingly around the globe and the limited recognition that the issue of debt extends beyond nations to states, businesses, and individuals.
While the political debate in the U.S. capital seems to focus on taxes and entitlements, too little attention shifts to releasing some of the cash on corporate balance sheets. One reason for this may be the dearth of business understanding among elected representatives in both chambers of the U.S. Capitol. The cost of participating in three significant conflict zones sometimes enters the discussion and then seems to dissipate with the somewhat cynical recognition that all this military spending, on personnel and equipment, keeps at least that part of the economy moving.
Debate rages in some circles about what the stimulus actually stimulated. Pouring a ton of cash into the economy logically had to stimulate something, but it seemingly didn’t stimulate as advertised. A review of the projects funded by stimulus money seems to suggest that, at best, the stimulus kept economic indicators from getting much, much worse than they got. On the other hand, very little money seems to have stimulated new spending; the stimulus may have simply enabled companies and universities to pursue projects already underway, and not cut them and their corresponding jobs.
If, as Foroohar suggested, companies will not spend their cash in the United States even with more certainty, then perhaps policy gurus need to provide incentives for that cash to flow into domestic jobs and facilities. Foroohar, citing Nobel laureate Michael Spence, noted that evidence of companies outside of government, healthcare, retailing, and hospitality contributing to domestic job growth suggests the need for the paradigm to shift, yet public discussion of doing something new is lacking. Policymakers seem content to continue trying what they have always tried and somehow hoping for a different result; yes, that is what some define as insanity.
Part of the new paradigm may need to include creation of jobs that allow people to work where they currently live. Such a policy would help people continue to make payments on homes until the housing market recovers. One of the challenges to developing this policy is that, as Foroohar suggested, alignment is poor between the skill sets of the recently and the chronically unemployed and the skills needed to fill 3 million current job openings and unknown yet-to-be-stimulated jobs from the new policies.
Foroohar (2011), citing a Kaufman Foundation study, noted a decline in entrepreneurship in the United States since the 1980s, corresponding to the rise in the financial sector. Why? What will reverse this trend?
Oddly, a Time article from the May 30, 2011 issue (Zakaria, 2011), apparently citing the same study, noted that small business yielded close to 100% of net job creation in the United States between 1980 and 2005. In the May article, the author recommended stimulating small business growth by facilitating basic research, re-engineering the patent, and presumably other intellectual property, processes, rationalizing regulation, and stimulating funding of new ventures. The May article recommended retaining more of the highly skilled immigrants trained in United Staes universities; a variation on this theme, consistent with a seemingly unrelated recommendation from the same author, is to provide the training needed to turn unemployed and underemployed residents of the United States into comparably highly-skilled workers. This does not need to be an either-or scenario; both are feasible as the approaches are not mutually exclusive.
The May article (Zakaria, 2011) identified repatriation of manufacturing jobs and stimulus of production of “high-end, complex products,” retraining, growth industries, small business, and putting people back to work in interim positions to address near-term, dare I say “shovel-ready,” needs in the country as a long-term and near-term approach to the challenged economy. Good ideas, each of them essential to building the economy sustainably. Not only are they not mutually exclusive but they are also not operating in a zero-sum economic environment. Success of one does not detract from the success of other approaches and, if done right, they can be sustainably additive.
Foroohar (2011) suggested the need for a national economic policy. Concerns by Republicans and Democrats about the concept may derive more from implementation and control issues than about the merits of such a policy. Perhaps out-of-the-box thinking is another area for which the backgrounds and education of our elected representatives has them prepared sub-optimally. Attorneys and politicians, the dominant backgrounds, prepares them for writing policies and laws, but not for being creative in determining the content or focus of those policies and laws.
Sadly, as Scherer (2011) indicated, we are more likely to see political gamesmanship and handwringing than new policy before the 2012 election victors, whoever they may be, take office. While our elected officials in Washington, DC resume the pursuit of their primary obsession, re-election, after the seeming distraction of governing, the U. S. economy and electorate wait for somebody to lead. Voters in the United States, and especially business executives, seem to be watching elected representatives in Washington, DC to see if anybody steps up to lead before November 2012.
Bruder, R. (2011, August 8). Jobs first, then peace. Why we shouldn’t give up on the Arab Spring. Time, 178(5), 22.
Foroohar, R. (2011, June 20). What U.S. Economic Recovery? Five Destructive Myths. Time, 177(25), 22-26
Hough, J. (2011, August 27). Those safe havens you’ve been flocking to aren’t so safe. Wall Street Journal, 258(49), B7.
Scherer, M. (2011, June 20). Grin and bear it. With the economy sputtering again, Washington has no plans to ride to the rescue. Time, 177(25), 28-29.
Zakaria, F. (2011, May 30). A Flight Plan for the American Economy. Time, 177(22), 36-38.