A few painful truths

We are overlooking some very painful truths primarily for short term gain. As I chatted with staff members for several US Senators, I found myself saying “you sound like a young person; you do realize we are leaving this problem for you?” I hope they start thinking more about what I said because of what we are ignoring.

The reason for my question is Congress has passed one Tax bill and is debating another that will increase our $20.5 trillion debt by at least $1.5 trillion. Yet, not only are we ignoring the $20.5 trillion debt, we are ignoring that the Congressional Budget Office projects that figure to grow by $10 trillion without the Tax bill impact. So, in 2027, the debt could be $32 trillion if the Tax bill is signed into law. This is beyond poor stewardship – it is malfeasance. We would be screwing those young staffers I spoke with.

Unfortunately, there is more. Our leadership has decided to make the US the only country in the world to not support the Paris Climate Change Accord. Not only are we denying hard truths and overwhelming scientific evidence, we are shooting ourselves and planet in the foot. Renewable energy is passed the tipping point and we risk getting left behind as other nations invest in Innovation for the new economy. Fortunately, cities, states and businesses are carrying the banner dropped by our leadership, who is being relegated to the kids table at Thanksgiving. At the next post-Paris event, the US may not be invited at all. If we don’t deal more decisively with climate change, we will be screwing those young staffers and their children.

A final issue to mention, but not the final problem we are ignoring, is the US is retrenching from our global leadership role to the delight of China and Russia and chagrin of our western allies. The President gave a speech in Vietnam this month similar to the one made in Davos earlier in the year. America will retrench to a nationalistic country seeking bilateral agreements. On each occasion, his speech was followed by Xi Jingping who gave the global leadership speech the US normally gives. What our President fails to understand is globalization lifts all boats and our economy benefits more than if we look to maximize only our share. This concept has been called the “Nash Equilibrium” in honor of the Nobel Economics prize winner who developed it, John Nash. If we retrench, we will be harming our future growth and screwing those young staffers.

As I mention, these are not the only things we are ignoring – poverty, job losses due to technology advances, healthcare costs, environmental degradation, infrastructure, better gun control, etc. Yet, should we not alter our path set by these leaders, this path will be defined in the future as the period when the US gave up its global leadership role. And, the world will be a lesser place because of it. Sadly, I have witnessed these words spoken by more than a few global financial and security experts.

 

 

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Try building your cars in the US – what a great idea

During his visit to Japan, the US President came upon a sudden revelation. He said “Try building your cars in the United States instead of shipping them over.” What a great idea! The nice part is Japan automakers are already building cars in Tennessee (Nissan), Ohio (Honda) and Kentucky (Toyota). Last time I checked, those three states are part of the US.

What sometimes gets lost in his bluster, demonization and excessive tweeting is a man who is not steeped in history, geography or current events. Nor, as folks who work with him have said, does he shows much interest in learning or doing homework to make himself more aware. So, we must live with John Belushi’s less-studious character in the movie “Animal House,” when he spoke of the “Germans bombing Pearl Harbor,” as our President.

How should Japan Prime Minister Shinzo Abe react to such an uninformed statement by our President? I wonder if he looked at an adviser and nonverbally conveyed “really?” Does the US President know BMWs are made in South Carolina, Volkswagens are made in Tennessee and Mercedes and Hyundais are made in Alabama, e.g.?

When we talk about global trade and jobs, we cannot overlook what these foreign companies and many others are doing here. They are employing American workers. The focus tends to look only at jobs lost and not jobs gained by global trade. That inappropriately simplifies the issue and leads to wrong conclusions.

Global trade increases the economic pie, especially when the global needs are nurtured. That is a key premise of the Nash Equilibrium which won a Nobel Prize for its creator John Nash. Yes, we need to be mindful of jobs lost and provide restorative action. This could range from retraining to recruiting new businesses or looking for trade-offs. The same strategy holds true with the more significant culprit in job loss, technology advances.

Initially, I thought the now President was over-simplifying things to sell his messiah-like message. Only I can solve your problems, believe me, he has said in numbers of ways. As award winning author Thomas Friedman said about the President, “He has no second paragraph.” The sad truth is the President has no second paragraph because he may not know what comes next.

A President does not need to know everything – that person cannot possibly fulfill that mission. But, we must have one that knows more things than this one does and who does not lie or bluff when he does not. And, if does not know, he need not be afraid of learning.

You cannot shrink to greatness

I often borrow the phrase “you cannot shrink to greatness,” which I first heard when companies downsized to make their numbers. When leaders don’t know how to grow revenue or if market conditions do not support revenue growth, they cut staff. Lately, I have been using it to define the goal of nationalist thinkers who believe by restricting global trade, they can make things great.

On the whole, global trade is accretive to growth. Yes, we need to constantly review trade agreements to protect workers, but even trade agreements like NAFTA add value and jobs. If NAFTA were done away with, the state of Texas and the US would suffer, as would our key trading partners on our continent.

A venture capitalist said it succinctly. “Do you know what creates jobs? Customers.” The more trade, the more customers. It is that simple. As for the job losses which subtract from trade related gains, we do need to review the causes and effects. Many jobs have been lost dating back to the 1980s. Companies chase cheap labor, always have. So regardless of trade agreements, the companies were offshoring just as our President has done with his clothing lines and ball caps.

Also, where we are losing more jobs is to technology gains. We do much more manufacturing here, but with far fewer workers, than we did in the 1980s. These technology improvements will continue. So, before we blame trade agreements and throw the baby out with the bath water, we need to understand the metrics. What jobs are created, which ones are lost and why?

The other factor that does not get enough airplay is just as US companies are building products closer to customers, so are foreign companies here. Think of all the foreign cars and trucks made here in Tennessee, Kentucky, South Carolina, Alabama, etc. and think of foreign companies like Doosan, Mitsubishi, Michelin, Husqvarna, to name only a few, who have facilities here in the states. These are additive jobs to our economy.

Reducing trade is not conducive to growth. If you recall the movie “A Beautiful Mind,” about the schizophrenic John Nash, who won the Nobel Prize for Economics, ask yourself why he won? His theory called the Nash Equilibrium proved very useful in global deals in growing the pie bigger. The Nash Equilibrium says if we look to maximize only our own gain, while others do the same, the competition squashes trade. Yet, if we work together to make everyone benefit, the economic pie gets larger.

Reducing trade is also not conducive to greater security. The more commerce you do with countries that may not be an ally, the more you both will work to keep the commerce successful. So, military interventions would be harmful to that trade.

So, retrenching from the global markets, would not only be dilutive to growth, it would make us less secure. This is the argument that should be very visibly discussed as we look to improve agreements. Because no agreement is not a good course as it will cause a shrinking effect. And, you cannot shrink to greatness.

 

A Beautiful Mind Had it Right – Nash’s Theory still applies today

One of my favorite Russell Crowe movies is “A Beautiful Mind” directed by Ron Howard about the schizophrenic Ph.D. in economics, John Nash. If you saw the movie, you know that Nash won the Nobel Prize in Economic Science for his theory which became known as “Nash Equilibrium” that was used in game theory, economic development and other areas. In short it was all about maximizing everyone’s gain. From Wikipedia, this example might help define what Nash’s theory was all about:

“Stated simply, Amy and Will are in Nash equilibrium if Amy is making the best decision she can, taking into account Will’s decision, and Will is making the best decision he can, taking into account Amy’s decision. Likewise, a group of players are in Nash equilibrium if each one is making the best decision that he or she can, taking into account the decisions of the others in the game.”

The reason I raise is this is that we can all benefit more if we work with each other rather than against. If we all try to win the game, whatever that is, we will actually end up in a collective lesser state. This is a key reason why collaboration is vital to the success of most endeavors, including and especially politics. But, let me use a real example of how a region can benefit more economically through collective partnering under Nash Equilibrium.

In Charlotte, North Carolina, we have a terrific new “transmodal distribution facility” that is near the airport. The facility is adjacent to and incorporates railroad train tracks in the distribution process. It is also very conveniently located to three interstates (I-85, I-77 and I-485) and a fourth four lane highway (US 321) which connects to I-40 about forty miles away. If you know your North Carolina geography, you will know that Charlotte is right on the border with South Carolina and several towns in SC are actually included in the Metro Charlotte area.

A key reason for its success is more than the rail, highway and air access. Charlotte is also a convenient driving distance from ports in Charleston, South Carolina, Wilmington, North Carolina, Savannah, Georgia and Jacksonville, Florida. With the deepening of the Panama Canal set to be complete in 2015, bigger ships can sail from Asia-Pacific (China, Vietnam, Indonesia, Japan, etc.). Yet, unless these ports are dredged to become deeper, the bigger ships cannot enter the harbors there and will sail past. Activity has begun in various stages, but here is where Nash Equilibrium should come to fruition.

The states of North and South Carolina (and Florida and Georgia) should work collectively along with business and the Federal government to deepen all ports noted above. We will all benefit more greatly if we invest together. This would be true on other economic investments where we should work less at cross purposes and compete as a region. I recognize there have been pockets of success where this has been done, but to me, with the significant cost of dredging these harbors and the stalemate in fighting in Washington where Congress is moving money around to fund a very limited transportation budget for infrastructure, this a keen example of why we must work together to benefit more.

Former Transportation Secretary Ray LaHood and Former Pennsylvania Governor Ed Rendell have been promoting a bipartisan investment in our infrastructure, each representing the major political parties. LaHood said this is the best jobs program we could possibly have. And, as I have said before, borrowing money to invest in assets, is different from borrowing money for operations. This is where we need to spend our money as the collective return on investment is huge.

So, to the state legislatures and Congress, let’s get with it and work to invest in America’s ports and roads. As Rendell said, if we don’t deepen our ports, the ships will sail right by us to Canada. John Nash indeed had a beautiful mind. We should follow his direction to maximize our collective gain.