The U.S. Economy following the November Election

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The U.S. Economy following the November Election I generally disagree with Rana Foroohar of Time magazine; we usually seem to see the world differently, perhaps through different lenses. In Foroohar (2012a), however, I find several points of agreement.

Foroohar (2012a) noted the bet made by Fed chairman Bernanke that implementing quantitative easing (QE), in both iterations, would be complemented by political moves to simplify the tax code and to improve the confidence and optimism of business leaders to invest in job creating activities. Instead, the Norquistians, who seem to dominate the Republicans in Washington, DC, and the Democrats, who seemingly never passed a course in finance or accounting, never mind a full business curriculum, continue to constipate the bowels of governance. Bilateral cooperation in 2012 seems to mean collaborating with anybody who agrees to do what I want, holding fast to some illusory ideal of no increases in revenue or decreases in the spending I want, in the embodiment of Voltaire’s perfection-as-the-enemy-of-the-good scenario.

As a result of the QE imbalance, US equities and corporate cash are at relative highs, while confidence, never mind certainty, in the direction of financial and economic policy remain at or near all time lows. Ironically, as Foroohar (2012a) observed, the beneficiaries are the wealthiest 10% who own 90% of U.S. equities, the very group the Democrats love to bash and resent. While commentators lament the stalemate in federal governance, the targets of proposed higher taxes are reaping the benefits. Ironically, as long as both sides rigidly stick to their platforms, the wealthy in the U.S., both individuals and institutions, gain. The losers are the sustainable economy and those praying for job creation, or are they?

Foroohar (2012b) noted a housing market recovery, improved consumer confidence, increased consumer spending, reduced delinquencies on credit cards, and lower mortgage debt, apparent indicators that the consumers in the lower 90% of the wealth continuum are also benefiting from the current economic condition. The question of sustainability, however, remains. Foroohar (2012b) pointed to lower-than-expected third-quarter earnings reported by industrial and tech corporations and artificially-low interest rates as indicators of unsustainability. Bernanke and the U.S. governance structures may have helped dodge a deeper recession but little they have collectively done and not done seems to be able to stimulate capital spending and hiring and more than seasonally-adjusted modest levels. If we can find some sustainability, perhaps a do-nothing Congress may emerge as a good thing, at least doing no harm.

References
Foroohar, R. (2012a, September 24). The S&P soars, the economy snores. Ben bankrolled stocks to boost demand. But what if the wealth effect doesn’t work? Time, 180(13), 24.

Foroohar, R. (2012b, November 5). The two-faced economy. Consumers are spending, corporations are not. Which group is getting it wrong? Time, 180(19), 21.

Economic Stimulus News

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Now, can we get to the real problem?

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For most of 2011, national lawmakers in Washington, DC have invested what seems to have been the vast majority of their time, and our attention, on the need to get the debt ceiling raised and the nation’s revenues and expenses aligned.  Meanwhile, the economy flounders because business executives in the United States, and increasingly globally, have little or no confidence in the direction or stability of the legal and economic arena.  Uncertainty like that makes strategic investing in jobs and in job-creating expansion risky and seemingly unwise. The debt ceiling crisis is a symptom of a much more difficult problem, the mismatch between overspending and too little revenue.

Political rhetoric out of Washington, DC is simply lip service meant to placate the itching ears of the electorate. Politicians have devolved into re-election machines focused on the next election cycle as soon as the last one is over. Most members of the U.S. House and Senate simply have no experience or education that would allow them to create effective policy for most of the topics they must address. So, with no basis for for developing, debating, and implementing effective solutions to the problems the nation needs them to address, elected and appointed decision makers in Washington seem inclined to simply parrot back the words the electorate and self-serving advisors and lobbyists beg them to say.

A full 25% of elected members of the U.S. House of Representatives and Senate have no work experience outside of elected office. They get elected and re-elected because that is what they know how to do. Another 25% are attorneys, but most of them know nothing about job creation and getting the economy moving, other than the potential knowledge and experience of legal matters related to employment and business expansion.

Creating jobs and growing the economy requires one element missing from the U.S economy today; that missing link is the willingness to risk. The uncertainty created by the Washington bureaucratic machine is a consequence of a leadership void and the absence of a rudder and a keel for the ship of state and the barge of business. Until people in positions of leadership take the risk associated with actually leading, investors and business executives will continue to hoard cash and pursue hard assets rather than doing the dance they have all learned called entrepreneurship, innovation, and business and economic growth. Attempts at economic recovery may continue to prove comparatively fruitless in an environment lacking leadership and brimming over with uncertainty.

Written August 3, 2011 on the road to Halong Bay from Hanoi, Vietnam