Headwinds and Tailwinds to the Economy

Presidents get too much credit and blame for the economy. They can provide headwinds and tailwinds, but global market forces tend to control what happens. By headwinds, I mean the wind is against the economic growth, with tailwinds aiding economic growth.

In the US, we are under the third longest economic growth period in our measured history with 103 consecutive months of growth. We have also had seven consecutive years of 2 million plus jobs created. And, the stock market more than doubled under Obama and continues its rise under Trump. These are great numbers. But, before we pat ourselves on the back too much, not everyone has benefitted and wealth disparity among economic classes has been widening for the past thirty-five years.

Economists I have watched project the good news to continue for the year, but several have cautioned about the future and if we don’t address the inequity, we will have major problems on top of other concerns.

On the tailwinds ledger, the global economy continues to grow and the World Economic Forum projects a 3.9% increase for the year. In the US, the cut back on regulations, plus the reduction in new ones over the rates of the past, have given more confidence to businesses (more on this later). Plus, the reduction in corporate tax rates will help fuel some growth, provided these companies who are sitting on cash, choose to invest it in their people and business. And, with more money in many people’s pockets, this will add some fuel.

On the headwinds ledger, several economists have noted we are robbing Peter to pay Paul, leveraging our future with even more debt. Not only did we not address the expected increase in debt taking it from $20 trillion to $30 trillion in 2027, the tax law will increase it by $1.5 trillion. The interest cost thereon will take a greater bite out of our budget. But, other headwinds are of concern. Retrenching from global markets and trade agreements replacing them with binary ones, will be dilutive to growth. Not investing as much in science and innovation is a major concern to Joseph Stiglitz, a Nobel laureate in economics.

This will be heightened if we restrict immigration. What seems to get lost in the argument where some have become too cold-hearted in my view, is immigration is accretive to the US economy. Plus, the people immigrating tend to be more entrepreneurial and better educated, in many cases. These sh**hole countries that someone demeaned are sending us more educated people than reside here in the states, on average.

We should not fail to remember that “innovation is portable” so says David Smick, an economic advisor to Ronald Reagan, Bill Clinton and Jack Kemp, one of the smartest Congresspersons who considered a run for President. If we do not provide an inviting place, innovation may be hindered. I should note that Steve Jobs was born to Syrian immigrants to the US. What if they had been denied entry? Apple might not have ever come to fruition.

Finally, not all regulations are bad, so restricting regulations may cause headwinds down the road especially with more freedoms given to pollute the environment and take advantage of customers. This is a developers mindset. Remove obstacles to build, but leave the clean up for others. Unfortunately, we taxpayers are the others. We citizens, that must drink and breathe more polluted waters and air and realize the impact of climate change, are the others. As coal ash deposits have taught us, there is a cost to environmental degradation.

So, we need to be mindful of what we are facing. I have communicated with numerous Congresspersons, Senators and the President, that we are avoiding some elephants in the room – debt, climate change, water crisis and income inequity. In my view as an Independent voter, passing a tax law that increases the debt was extremely poor stewardship, as we cannot cut our way out of this problem. The math won’t work.

 

Our slip is beginning to show

I read two interesting and related articles in the past two days which reveal our slip is beginning to show. The first article spoke of the noticeable decline in travel to the US since the ill-conceived travel ban was instituted by our new President.

The decline is from multiple countries beyond the boundaries of the seven countries noted by the President and has been termed the “Trump Slump.” The lost revenue on our mainland travel is estimated at $185 million per The Global Business Travel Association as reported in The Guardian.

The second article noted the fall off in foreign students interested in attending US colleges and universities. The reason cited is not feeling welcomed by the new administration. This is precisely the kind of immigration we want. The reason is “innovation is portable” per former Reagan and Clinton advisor David Smick. If we attract and retain foreign students, their ideas will bear fruit here. And, jobs initially surround the innovator.

These glimpses of our slip are just the beginning of a decline in revenue should we continue forward with our inward, nationalistic focus. Our slip will show even more and the impact on our growth will be more noticeable.

In an earlier post called “You cannot shrink to greatness,” global trade is accretive to the world’s economy, including ours. By not being welcoming, we will be harming only ourselves. This is a key reason some economists have predicted a malaise or recession under this President once the market euphoria contends with reality.

Words and actions have consequences. If we want to be a global country, we need to act like one.

Two misconceptions need to be challenged

“Innovation is portable,” said David Smick, an economic advisor to Congressman Jack Kemp and Presidents Ronald Reagan and Bill Clinton, in his book “The World is Curved.” In essence, innovation will occur where it is welcome and the initial jobs will be created around it. We should not lose sight of this observation as we discuss our economic future.

Smick surprised many when he noted in his book the similarities in Bill Clinton and Ronald Reagan, who were the number one and three best job creating Presidents, in that order. They both loved global trade and hated deficits. And, they were known for their collaboration with Congress, even with an opposite majority in power. Collaboration is essential to getting buy-in and understanding of the problem and possible solutions.

With this context, we need to challenge some notions that do not tell the whole story and, as a result, could lead us down the wrong path. We need to look at holistic causes to problems, so that we can address them effectively. Our problems are not solvable by bumper sticker solutions, no matter how loudly and forcefully they are espoused.

Here are two of those simplistic notions and challenges to think about:

Immigration is taking jobs away. This is far too simple a statement. Our history has been built on immigration, who have tended to be hard workers and spawned a higher relative percentage of entrepreneurs. As noted in the famous play “Hamilton,” by Lin-Manuel Miranda based on the book by Ron Chernow, immigrants tend to work hard to make it in our country, as they did not have such opportunity from whence they came. Our economy actually flourishes more with immigration. But, as we look to better govern immigration, we should look at the whole picture. And, on the subject of illegal immigration, a concerted study of the impact of curtailing such on certain industries – housing construction, landscaping, agriculture harvesting, etc. – is critical as we move forward with better governance.

Global Trade is bad for domestic jobs. Global trade is actual good for a domestic economy creating more jobs around the world and here. The downside is companies tend to chase cheaper labor and always have, but an even greater threat to jobs is technology advances. A CFO said in the book “The Rich and the Rest of Us,” an employer will hire no one if he could make it work. Yet, what creates jobs more than anything else is “customers,” per Nick Hanauer, a venture capitalist. And, more trade means more customers. When we look to better govern trade, we need to look holistically at the jobs created domestically versus the ones lost. The ill-fated Brexit decision failed to consider all of the foreign companies who have European Headquarters, distribution and manufacturing sites in the UK. These companies are now reconsidering locations should Brexit move forward.

Of course, we need to better govern immigration and global trade, but we must guard against throwing the babies out with the bath water. Let me close with three thoughts.

First, we cannot shrink to greatness. Retrenching from your global market share makes little sense.  Second, think of all of the foreign companies who employ people in the US like Michelin, BMW, Mercedes, Husqvarna, Doosan, Volvo, Nissan, etc. who do so to keep manufacturing near distribution of its goods to their customers. Third, as an example, Steve Jobs is the biological son of Syrian immigrants. Had he not been in America, would Apple exist today at all or as an American company?

We cannot govern off bumper stickers. Our issues are complex. People who tout such ideas are doing a disservice to the problem and citizens through false promises.

 

 

While US ponders bathrooms, we are missing a larger picture

David Smick, the author of “The World is Curved” and former economic advisor to Ronald Reagan, Jack Kemp and Bill Clinton, notes that “innovation is portable.” His attention getting comment is if we don’t grease the skids like we have in the past, innovation will occur elsewhere. And, where innovation occurs, the initial manufacturing will be there as well.

On this D-Day anniversary, an interesting article appears which should make our leaders stand up and take notice around this concept of innovation. In essence, this article called “7 Reasons why European Cities are going to beat US Cities as Hubs for Innovation,” says America needs to not forget what made us great and start improving what we do in cities to attract, retain and reward innovators.

To be frank, we also need to stop spending our time debating issues that matter little in day-to-day matters and start focusing on major initiatives that will move this country forward such as addressing the new technologies, investing in hubs of growth, retraining workers and training students, and investing in our infrastructure and environment. Debating where folks go to the bathroom and discriminating against people is not where we should be spending our time. This is small minded and unconstitutional. It also hamstrings financial growth and innovation.

Rather than repeat this article, let me merely list the seven reasons and encourage you to click on the link below. Relative to the US:

  1. Europe has better designed cities
  2. Europe has more smart cities
  3. Europe has more rapid adoption of soft infrastructure for entrepreneurship
  4. Europe has better safety nets and less inequality
  5. US has lost its leadership in key benchmarks of innovation
  6. US has more venture capital, but it matters less with other sources
  7. Europe makes it easier to be an entrepreneur

The US has a tremendous university system which draws people from all over, but access to those systems may not require people to move here as much as they did with online learning. Also, when they do come, we need to make sure we keep talented people here and not build actual and figurative walls around our country – I worry more about the figurative ones than actual ones.

We have pockets of success, but unless we focus more on this and less on issues of little import, we will miss an opportunity to invest in keeping America competitive. In our favor is a freer, more mixed society which provides all genders, races, ethnic groups, sexual preferences, etc. opportunity. Leaders of companies should know that you never know where innovation will come from, so you better make the communication avenues available to all people.

Let me close with an easy example. Before he died, Steve Jobs designed Apple’s new headquarters. He purposefully placed small meeting rooms with white boards and technology access along the paths to the restrooms and breakrooms. Why? So, that when people bumped into each other and discovered what each was working on, they could easily pop in a room to share ideas. That is precisely how we should design our hubs of innovation. If we do not, we will fall behind.

http://www.fastcoexist.com/3060446/world-changing-ideas/7-reasons-why-european-cities-are-going-to-beat-us-cities-as-hubs-for-i?utm_source=mailchimp&utm_medium=email&utm_campaign=coexist-daily&position=1&partner=newsletter&campaign_date=06062016

 

If you want to enter Bill’s history into the race….

Let me state up front that I did not vote for Bill Clinton for President either time he ran, as I was a Republican at the time. Now that I am an Independent and with the advantage of history, I can look back more clinically at his presidency.

I mention this as Donald Trump, the frontrunner in the GOP primary race, wants Former President Bill Clinton’s history as a philanderer to be fair game for the Former Secretary of State Hillary Clinton’s race for the White House. My advice for Mr. Trump is be careful of what you ask for, as all of Bill’s history as a president should then be included. You cannot pick the parts you like.

It is a matter of record that Bill was a philanderer. His wife, in a highly personal decision, has decided to stick by her husband. And, like only 50% of Americans who married, they remain married today. So, it is not our position to judge her decision as it is not hers to judge other married women in a similar situation. But, if The Donald wants to adjudicate Bill’s philandering, he is a big boy and can bring it up all he likes.

Yet, he needs to be mindful that all of Bill’s record now is fair game. His was the presidency that produced the greatest job growth of any president, including FDR’s. While Ronald Reagan had the best numbers as a Republican president, Reagan trails Bill Clinton’s numbers by 6.8 million jobs per the Bureau of Labor statistics (22.9 versus 16.1 million)

Further, when Bill left office, he handed George W. Bush a surplus budget. Clinton worked with Congress to outsource certain government functions and with the economy clicking on all cylinders and with no wars under his watch, the budget was balanced and had a little surplus. Plus, working with Congress significant legislation was passed to help disabled Americans. And, per David Smick, who wrote “The World is Curved,” and was an economic advisor to Reagan, Jack Kemp and Clinton, the latter was big on international trade just like Reagan.

It should be noted, his presidency was not perfect, as none are, so there a few issues that could have been done better. I was not a fan of the repeal of the Glass-Steagall Act, which let banks get into more business. I felt we under-reacted to a small bombing on the USS Cole and should have made a more demonstrable retaliation. But, he did keep us out of war, so that cannot be overlooked.

The interesting tidbit in this equation is if Hillary wins the White House, Bill will be in a very unique role of First Gentleman. Now, with his philandering record, he may not qualify for the term “Gentleman,” but he would be in a position to share his opinions if asked, by his Presidential wife. And, with that successful track record as echoed by a 62% favorability rating when he left office, that would not be a bad thing.

Collaboration proves to be successful

The strident bent of a small group in Congress that is holding that body and our Country back from governance is at odds with what has been most successful over time. Governing in a democracy is hinged on the art and execution of compromise and collaboration. Neither political party has all of the answers and some within those parties are not even asking the right questions. So, if you are unwilling to collaborate, you will not know where your opinions may be off base. In short, if you are not there to govern, then why are you there?

There are two recent examples of very successful presidencies that are due to collaboration and compromise, one a Democrat and one a Republican. Both Bill Clinton and Ronald Reagan have been deemed by their parties and others to have had good presidencies. Yes, they had their faults and made mistakes, but they also had some similarities. The Bureau of Labor statistics show under Clinton’s tutelage, more jobs were created than under any other president, even more than under FDR. The BLS statistics show that under Reagan, more jobs were created than under any other Republican president and he ranks in the top three behind the two men noted above.

It does not stop there. Clinton left the White House with a balanced budget which he worked with Congress to achieve over the last few years of his presidency. Reagan also was tireless in his efforts to have a balanced budget, actually raising taxes a number of times after his too deep tax cut early in his presidency. It should be noted that per an economic advisor to both, David Smick, who wrote “The World is Curved,” both presidents were very big on free trade and trade agreements.

Yet, both men were huge collaborators with Congress. In fact, Reagan was best friends with Democrat Speaker of the House Tip O’Neill as put forth in the book “Tip and the Gipper,” by Chris Matthews, who was on O’Neill’s staff. Reagan and O’Neill disagreed a lot, but both loved their country, so they found common ground and passed legislation. Clinton was not best friends with the two speakers from the opposing party, Newt Gingrich and Dennis Hastert, but he worked with them and fellow Democrat speaker Tom Foley to get things done, including the efforts to get us out of a deficit position and sign key trade agreements.

Recognizing that presidents get too much credit and blame for the economy, they do provide tailwinds or headwinds. So, it should not be ironic that two presidencies where the first and third most jobs were created were under collaborative presidents. Moving forward to today’s time, our current president has also seen success on these fronts with 67 consecutive months of job growth and halving the unemployment rate which is now at 5.1%. When done, his job numbers will rank pretty good among all presidents.

Yet, so much more could have been done if he and Congress worked together more. The opposing party has set out not to collaborate with the president and is on record as such. This president could have done a much better job of reaching out to this Congress, in spite of the negative partisanship. A good example is we have let an ideal time pass (with low interest rates) for investing more in improving and shoring up our outdated infrastructure. Outside of the Stimulus Act which provided funds to infrastructure projects, we have kicked the can down the road. And, these investments are known job creators.

So, as we see the machinations of a small number of folks who want the gears to come to a grinding halt, we need to remember how we got here. Government, of course, could be more efficient, yet it does play a huge role in our economy, safety and well-being. Collaboration and compromise are the keys. Let’s focus on getting things done.

 

Innovation is portable (and attractive)

Innovation is portable. This is a quote from David Smick’s book “The World is Curved.” Who is David Smick, you may be asking? He was an economic advisor to Congressman Jack Kemp, President Ronald Reagan and President Bill Clinton, two Republicans and a Democrat. His comment is telling in that he notes if we do not do our best to keep the innovators here, they will go elsewhere. And, when they go elsewhere, manufacturing from the innovation will be based elsewhere.

The US has the world’s best college and university system and it draws people from around the globe and country. So, we should grease the skids to make it easier for them to stay and innovate here post graduation. It would be a shame for the idea creation to start here and migrate to another country. As that will be where the job creation begins.

So, what do we need to do about it? We need to make sure our immigration laws are improved to make it easier to keep talent. Industry has been crying out for this, yet it is held hostage by a political gamesmanship to speak to a strident base. We need to reform our patent laws to make sure “patent trolls” do not interfere and sabotage the innovators. These trolls are extortionists who will use a key word or phrase in an idea by someone else to state that someone is violating a patent they filed (with no product or development behind it). What the troll wants is “go away money” without a court case.

We need to understand the historical marriage and timing of venture capital, government funding and other investor capital. Our nation has been forged on the interplay between these funding sources, as they are needed to perpetuate ideas and implement the initial manufacturing effort. The money is needed at various times in the process, with the government money sometimes in advance of the venture capital, sometimes in tandem with the venture capital and sometimes following it. The need varies based on the what is needed to get stuff off the ground.

There are numerous examples of joint investment. I spoke of one last night about an offshore wind turbine testing facility in Charleston, South Carolina. It is a joint venture between folks like GE and Siemens who make turbines, Clemson University, the City of Charleston, the US Department of Energy and the SC Department of Energy (although it may have a different name). The idea is to improve the efficacy of these offshore wind turbines making them more economical to use here in the states, as they are done elsewhere.

Another good example in Durham, North Carolina is a company called Semprius, which makes the most elegant solar photo-voltaic panel in the world, where 33% of the sun’s energy is convertible to electricity, a huge leap forward. This is a joint venture between Pratt-Whitney Rocketdyne, Siemens and the US Department of Energy. With solar energy taking off everywhere, but especially in North Carolina with about 23,000 jobs which have been growing at a 25% annual rate the last three years, it shows what innovation means to an area. Nationally, at year-end 2014, there are 174,000 solar jobs which have been growing at a double-digit rate over the last five years per annum.

It should be obvious that I picked two renewable energy examples, as these two sources not only have to be a key part of our future energy mix, but they have and will promote jobs as a result. And, not only is innovation portable – it is attractive to new business. So, this is where we need to fund more of our resources. It is good for our environment and it is good for business. And, per Pope Francis’ encyclical on climate change which is on point, it is good for God’s creation. Given that the Pope is also a trained scientist with a Masters in Chemistry, as well as a humanitarian, I think the world should listen to what he has to say on these issues. Especially, since he is echoing the findings of so many scientific bodies and panels.