http://www.latimes.com/news/nationworld/nation/la-na-obama-drilling31-2010mar31,0,4617559.story
Creating a “jobs boom” is within the power of the government if the legislators and president are ready to create confidence in the government and economy, incentivize job creation and business investments, make a long-term commitment to transportation/energy and stimulate the government and not-for-profit sector.
Confidence in the Future.
1 Start the process to set a constitution maximum marginal tax rate at 50% of income.
2. Start the process to set a constitutional maximum spending limit for all government budgets at 30% of GDP.
3. Drastically simplify the federal tax for incomes below $200,000, maintaining the current level of progresseness and number of tiers.
4. Eliminate the corporate income tax, replacing lost revenues with personal income tax rate increases at higher incomes.
5. Complete a health care cost reduction bill, based upon cross-state insurance competition and limits on lawsuits.
Direct Job Incentives.
6. Move the full benefits social security retirement and medicare age up 2 years for 2010-2011.
7. Allow direct tax expensing of all capital investments for 2010-2012.
8. Provide firms with 50% tax credits for hiring college graduates in minimum wage, full-time internships.
9. Provide a $10,000 tax credit to firms for hiring engineers and IT professionals in project positions.
10. Sign the country to country free trade agreements that are ready.
Investment Incentives
11. Increase the life of patents and trademarks by 5 years.
12. Allow direct tax expensing of all capital investments for 2010-2012.
13. Cancel 25% of federal regulations within 90 days and 50% within 6 months.
14. Improve the value of tax loss carryforward benefits from business losses.
15. Fund the property acquisition in 10 cities to stimulate blighted area development.
Long-term Transportation/Energy Direction
16. Make a 3 year commitment to continue the stimulus level of funding.
17. Loosen the energy regulations for offshore drilling and nuclear power.
18. Select one national highway project, such as I-69, and commit to 7 year completion.
19. Make a 10 year finding commitment to the high-speed rail network.
20. Create a carbon tax scheme for the next 2 decades with a 10% per year transition to full effectiveness.
Government and Not-for-Profit Effectiveness
21. Loan states the money to start independent board governed rainy day funds.
22. Privatize Fannie Mae and Freddie Mac quickly.
23. Privatize large state and federal agencies: post office, licenses, air traffic control, and community colleges.
24. Allow first $10,000 of charitable donations as 50% tax credits.
25. Tighten inheritance tax limits, but allow doubled charitable deductions.
Any ten of these easily understood policy changes would jump start the economy, benefiting everyone.
Adam Smith started a conversation in 1776 about the economic and moral benefits of the “invisible hand” in the marketplace – making society better off, in spite of there being no coordinated plan. Karl Marx argued that the unstoppable workings of history would inevitably lead to a socialist utopia. In 1976, the sociologist Daniel Bell wrote of the “Cultural Contradictions of Capitalism”, whereby the underlying Protestant Work Ethic is corroded because of the hedonistic consumerism in a capitalist society. Marx was wrong. Bell was wrong about the end of capitalism, even if his critique of an aimless society still stings. Where do we stand today on Smith’s breakthrough claims regarding the moral and economic superiority of the “free market”?
Support for the most simplified view of markets being truly perfect reached its peak following the Reagan/Thatcher years when the totalitarian communist alternative collapsed and the Atlantic version of a mixed economy demonstrated significant ongoing advantages compared with the Nordic version with greater state involvement. Events of the last two decades – rise of China/emerging markets and fall of US/UK from the Great Recession – have undercut the plausibility of an extreme market solution being the best, only or final answer.
It is obvious in hindsight that the business cycle has not been tamed, that financial markets are inherently unstable and subject to “animal spirits”, that markets are not perfect and that greed will continue to drive many market participants. In spite of the positive societal benefits of financial innovations such as options, mutual funds, checkable deposits, portfolios and securitized assets, the broad financial sector seems to be an ongoing source of the greatest failures in capitalism. The formal definition of “perfect market theory” has not reduced volatility, but it has led to a finance sector where every possible trick is used to generate “wealth”: Ponzi schemes, the carrying trade in foreign investing, borrowing short and lending long, off-balance sheet vehicles, hedge funds and extreme leverage to name a few.
A visible part of the general business sector appears to be equally enamored of finding every possible way to create financial wealth beyond “the old fashioned way, we earn it”. Mergers and acquisitions continue because they can reduce competition, leverage overvalued stock prices and employ low-cost borrowing, even though on average they do not provide a net return to stockholders. Corporations manage reported earnings, producing smooth growth for quarters until the next recession provides an opportunity to report losses due to extraordinary items and business conditions. Executive pay increases as a share of revenues, as stockholders find themselves unable to solve “the agency problem”. Corporations promote legal and public relations executives to the highest levels because the opportunities to create incremental wealth through influencing public policy are greater than investing in new products or markets.
On the other hand, it remains clear that capitalism remains a tremendous value creating mechanism for society, with productivity growth, innovation and personal incomes rising at strong rates without any long-term end in sight. The system’s incentives do focus resources on innovation and dynamic value creation. In spite of John Kenneth Galbraith’s old claims in “The Affluent Society”, there appears to be no limit to the demand for personal consumption at any income levels in society. The recent work “Richistan” notes that individuals with $5M of annual income feel they would be secure if they only earned 50% more!
In a fundamental way, we’ve come back to the basic framework and issues of economics raised in the post-war period. What is the right role for government in a mixed economy?
We have learned some things in the last 50 years and the consensus view is more to the right than it was in 1950 or 1970. The dynamic long-run wealth creating role of capitalism is better appreciated, including its role as a poverty and inequality reducing strategy. Most agree that monetary policy matters, expectations about government behavior matter and “fine tuning” is only a theory. Market competitors are the best anti-monopoly force, so regulation should be light and focus on anti-competitive actions rather than narrowly defined market shares. Ongoing growth of real incomes in the bottom third of society can offset rising dollar inequality. John Rawls’ philosophical justification for some income redistribution resonates for many moderates and liberals, but Robert Nozik’s emphasis on “fair rules” alone provides conservatives with a deeply felt alternative view. Government actors are as subject to self-interest as consumers and capitalists, especially with regard to being “captured” by those they aim to regulate. Countervailing forces such as labor unions are blunt instruments, which may not even benefit the groups they aim to support.
Many economists would like to see the public policy debates return to the post-war topics, with the two political parties sliding from left to right within the informed framework of current economic knowledge. Capitalism provides great value as Adam Smith demonstrated. There are inherent risks due to relying on self-interest (as Smith also noted). There is a role for government in counterbalancing the business cycle, maintaining fair markets, managing the self-interest of government actors and ensuring public support for capitalism in spite of the unequal distribution of benefits. The political parties exist to find a “happy medium” on these issues.
The current political climate does not readily support this possibility. The Republican Party has become increasingly consistent, philosophical, libertarian and monetarist in its views. Its leaders increasingly define a single economic viewpoint: minimal government, no taxes, minimal economic regulations, rules based monetarism, minimal anti-competitive policy or enforcement, zero income redistribution, etc. While each of these views has philosophical and substantive research support, the combination of doctrinaire views leaves no room for a sliding scale in public policy, for the only preferred solution is “zero”.
The Democratic Party has not lost its preference for “redistributing the pie” versus “growing the pie”. It has not helped its union supporters to evolve into a German or Japanese style alternative way. It has championed continued protection of its public sector employee supporters from accountability or competition. It has reached the goal of universal social welfare coverage for health care. In spite of some tactical moves to the center on economic issues (welfare reform, the means of health care reform, international trade), the Democratic Party continues to emphasize those policy areas that increase the role of the state versus the individual, rather than identifying ways to better leverage the value creating potential of markets.
It seems that it will take more than President Obama’s slogans of “hope and change” to get our political parties and politicians to focus on the potential for increased economic growth and pragmatically justified economic roles for the government. Perhaps, we need another “political economist” to develop a breakthrough theory of the political sector as insightful and valuable as Smith’s view of the market.
At the start of 2010, I put a positive spin on the nascent economic and psychological recovery with blogs on “The Sky Has Stopped Falling”, “Good Riddance to Utopian Views of 2000” and “Self-Improving Systems”. Today, I want to promote the broader subject of “Infinite Progress”.
Economics has earned its label as “the dismal science”. It has been serious, analytical, realistic, short-term and marginal. Imitating calculus and physics, it has sought to optimize production functions and maximize results subject to multiple linear constraints. Like other academic disciplines, economics has been shaped by the dominant culture. Economics has progressed through the Physiocrats, Marxists and Marginalists who in turn proclaimed that land, labor and capital each held the key to economic value. Even Paul Samuelson’s neoclassical synthesis focused on these three “factors of production”, while mentioning that there was some remaining role for “technology” and “entrepreneurship”.
The “law” of diminishing marginal returns emphasizes that in the short-run, with given technology, additional inputs eventually yield lower incremental results. This is certainly true, but development and growth economists focusing on the international and business sectors have demonstrated that this fourth factor (technology/entrepreneurship) is the primary driver of progress. In fact, rather than being subject to diminishing returns, knowledge is the one factor that is subject to increasing returns through time!
In spite of the slow recovery in the current economic cycle, I believe that we are only 50 years into the greatest productivity expansion in history. Annual labor or multi-factor productivity growth of 2-4% has become commonplace. Even in the recession, we experienced 6-8% productivity growth. Productivity growth will accelerate in the coming years to a minimum of 5% annually, in spite of our various challenges (aging population, protectionism, extremism, political polarization, religious stagnation, terrorism, global warming, limited natural resources, multi-polar international powers).
In no particular order, knowledge and practice has expanded and will continue to expand in all of these fields:
Knowledge will continue to increase in every discipline. Market pressures will ensure rapid adoption, expansion and innovation. The work world in 2010 could not be seen in 1980. The work world in 2040 will exhibit the same degree of discontinuous change from a much higher base.
The 2010 election campaign is about to begin in earnest. The events of the last three months have certainly swung the Republicans’ way. Even the “health reform” victory is likely to have a mostly negative impact on short-run Democratic prospects. Opposing parties always make progress in midterm elections. The real question is “how much?” Eight months from the elections, I give a strong edge to the Republicans, but believe that the “Tea Party” movement may backfire on the right.
Politicians are experts at getting elected and re-elected. They know that winners occupy enough of the middle to attract swing voters and enough of their edge to motivate the party faithful. In the 1968 election, George Wallace highlighted the role that socially conservative and economically moderate voters could play. Richard Nixon and Spiro Agnew capitalized on the interests of the silent and moral majority, realigning politics for two generations. Ronald Reagan clarified the pitch and a more coherent philosophy, solidifying the right-wing strategy. Subsequent moderate Republicans like the Bushes proclaimed the new message, adopted the tax cut strategy, courted the religious right and increased expectations of their new supporters.
During this time the Republican Party has successfully shifted the definition of left and right on the critical economic scale, forcing Clinton and Obama to adopt economically conservative means, programs and terminology, while continuing to pursue their leftward goals. The Republicans have also undercut the Democrats’ classic appeal to the economic interests of the working and middle classes by touting growth, entrepreneurship and economic freedom as higher ideals. They have increased the weight of social issues and courted a populist libertarian strain in America through fringe candidates such as Ron Paul and Sara Palin. The Republicans have mastered the tactical dimensions of politics, beating the Dem’s at fundraising, participation, communications and media influence. Although taunted as “the party of ‘no’”, the Republicans have effectively avoided major responsibility for the weak economy, ongoing terrorist threats, the banking meltdown, immigration gridlock, increasing healthcare costs, wider income distribution and the coming retirement cliff. Now that Obama has a year under his belt, they are effectively painting him with responsibility for these and other situations.
The Democrats have responded to this shift in the playing field by sending three southerners to the White House (Johnson, Carter and Clinton) positioned as moderates. The Democrats have maintained their hold on a growing minority and shrinking union base. They have improved their posturing skills and election tactics, especially in social media. They have adopted some centrist programs and begun to fight for key terms such as “accountability” and “economic progress”. The Democrats have taken care of their base through laws and funding. President Obama has provided a message of bipartisanship, hope and change which deflects attention from controversial specific programs. He and his colleagues have not hesitated to blame George Bush and the Republicans for a variety of “messes” and dodged their responsibility.
It is no surprise that a weak economy (it’s the economy stupid) would catch up with Obama, especially given his pursuit of so many distracting goals. However, the impact of “Tea Party” is something of a surprise. Sara Palin was clearly chosen as a VP candidate by John McCain to appeal to part of the party faithful. Her candidacy, the stirrings of Ron Paul, the unfulfilled promises to social conservatives by the Bushes and the demonization of national Democratic leaders and programs for two decades have crystallized into a true populist backlash against the evils of “big government” and its mostly Democratic supporters.
Will the “Tea Party” help or harm the Republicans? In the short-run, it has clearly scared moderate Democrats, especially those in conservative districts. On the other hand, it has also scared moderate Republicans, including John McCain. In some cases, the more conservative primary winners will be defeated due to their extreme positions.
I think that there is an even greater risk that the Republican Party has unintentionally moved so far right in its rhetoric, positions, legislation and new affiliation with the “Tea Party” that it will lose touch with classic moderates and swing voters. In 1968, Hubert Humphrey wanted nothing more than growth of New Deal and Great Society programs. He was not seeking a social revolution or a counterculture. However, the activists painted a picture of revolution that frightened most of the country to embrace the solid posture of twice-defeated Richard Nixon as the safest choice in an emotional time.
If the “Tea Party” continues to gain publicity and become affiliated with the Republican Party, the same kind of social distancing may take place in 2010 or 2012. By belief or by framing, the ”Tea Party” appears to hold extremist views on the economy (radical self-sufficiency), the role of government (none, including popular entitlement programs), banking (gold standard), religion (one fundamentalist, end of times, withdrawal from society) and security (gun rights and military adventurism). The “true believer” statements are passionate, direct and uncompromising. They may provide the Democrats with an “extremist” straw man to replace the current “banker” straw man.
We certainly live in interesting times.
As firms return to a normal economy where success is determined by the ability to set and implement a distinctive strategy, develop new products, processes and customers, and align functional resources in a project based matrix structure, it is time one again to screen for leadership in the hiring process. For the last 2 years, with an abundance of candidates and a preference for risk aversion, hiring managers, human resources and recruiters have laser focused on finding the very best match between a candidate’s industry, functional and positional experience for an open position, without regard to long-term considerations. Hiring managers should insert more behavioral interview questions about leadership into the process and they should screen for evidence of leadership success in the resume review and screening interview process.
Ask ten experts to define “leadership” and you’ll get ten different answers and lists of competencies, but they’ll cluster into a few areas such as building teams, being self-aware, growing personally and professionally, displaying trust and integrity, communicating effectively, motivating/influencing/persuading, helping others to succeed, setting and sharing a strategic vision, taking risks, innovating, being responsible, making tough decisions, showing tenacity and taking a long-run view of what is best for the organization as a whole. A simple leadership checklist can be used to identify candidates who have the leadership experience needed to succeed.
Leadership Screening Checklist
1. Positional responsibility, staff count, manager count, functional variety.
2. Cross-team member, positional leadership, selection by others, larger projects.
3. Non-work leadership roles, professional and civic groups.
4. Progressively responsible roles and promotions across career.
5. Professional mastery/certification and CPE in one or more areas.
6. Five year tenure at most employers.
7. Variety of recommendations available/given in 360 degree fashion.
8. Internal or external teaching, training and documentation experience.
9. Projects/assignments in new, challenging or unpopular business areas.
10. Projects/assignments in high value, visibility or risk business areas.
11. Matrix experience in product development, IT, M&A, national account management.
12. Formal mentoring, association or accountability partner experience.
13. Strategic, product, marketing, financial or operational planning leadership role.
14. Top-level responsibility for a function or business unit of any size.
15. Variety of headquarters/field, line/staff and domestic/international experience.
16. Variety of industry, function and organization size experience.
17. Change management experience through start-ups, rapid growth, turnarounds, recessions, acquisitions or reorganization.
18. Implementation of new professional methods and technologies.
19. Human resources recruiting, retention, promotions, transfers and morale.
20. Responsibility for new products, sales, suppliers and negotiations.
Organizational success today requires leaders who are experienced and confident in challenging and ambiguous environments. Screening for this broader experience and capacity may be more important than hiring someone who has done exactly the required role at the closest competitor for the last five years.
Good News 