04 Jan 2002 HAPPY NEW YEAR?

It’s 18 degrees outside with more than a foot of snow on the ground, but news of Washington politics, worse than usual, still manages to make my blood boil.  I know it’s 2002 and control of the Senate and House are up for grabs by Republicans or Democrats.  But, I still manage to allow my optimistic nature the latitude to expect that, occasionally and for longer than a few days, congressmen and women could place concerns of our economy and our national well being above political point making.  Tom Daschle, Senate Majority Leader, in a noon speech today, will call for a tax credit for companies that create jobs as part of an economic policy highlighting the differences between President George W. Bush and Democrats.  The “job creation tax credit” would be packaged with depreciation bonuses for capital investments and tax benefits for business losses in previous years under the plan.  These measures are essentially Trojan horse with tax increases lurking inside.  In his speech, Daschle, will attack Bush’s $1.35 trillion, 10-year tax cut enacted last year and call for budget discipline. He’ll argue that a return to government surpluses will help keep interest rates low and that this is the best way to spur growth.  “The most important thing we should do is restore long-term fiscal integrity to our budget so we can bring long-term interest rates down,” Daschle will say, “the tax cut has taken away our flexibility and left us with only two choices, both of them bad.”  Those choices include shortchanging needs such as homeland security or raiding the Social Security surplus, he says. 

IN OTHER WORDS

Daschle and the Government know more about what is best for us than we do for ourselves and money in the government’s coffers is better than money in ours.  I will try to be as objective with my remarks as I possibly can so as not to offend, but these issues are of absolute and paramount importance to investors.  They represent ideological differences that will shape the future vitality and competitiveness of business and our economy.  The differences between the two parties’ positions are so wide and the intransigence between the parties so great, that gridlock is certain in the coming months.  But, as the November elections approach, the real issues must be made clear to voters if positive change is to occur.  In this age of information, our politicians should rise above the tired old clichés of ‘tax-and-spend’ or the class distinctions of ‘serve-the-rich’ or ‘bailing out the corporations.  The Democrats think they get the most political traction by using scare tactics such as in Daschle’s remarks today, [Mr. Bush’s tax plan] “shortchang[es] needs such as homeland security or raid[es] the Social Security surplus.”  I understand that his remarks are designed to efficiently encapsulate ideas in as few words as possible and to make them stick by evoking emotional responses in their listeners.  But I’m more than a little tired of the tactics of appealing to the lowest and most basic of human emotions – fear and greed.

It’s time our politicians debate these critical economic issues in the public forum on their merits and with facts with logic and creativity.  A number of popular talk shows do just this while the web offers limitless opportunities to express opinions and hear those of others.  Do these guys really get it?  Have today’s politicians gotten even a hint of what the New Economy is about?  It’s about INFORMATION.  True, there are still many voters who do not have access to or do not avail themselves of alternative points of view out there, but the numbers are increasing.  More and more Americans are becoming educated about our economy as investors.  They want to hear their representatives more intelligently address economic issues, rather than enduring the endless drone of politics as usual.

This recession was caused by a severe slowdown in investment spending.  Granted, there was excessive investment in telecom and information technology, but just how much is debatable.  Blaming the ‘Internet Bubble’ for all our woes misses the larger point.  The government sustained the longest expansionary period in American history by allowing private enterprise greater flexibility, but it also ended it with more restrictive policies, implied and direct.  You have heard me say many times before that the beginnings of the slowdown can be traced back to the virulent and aggressive government attacks on Microsoft in February and March of 2000, both in the courts and in the media.  The result was an increased caution and concern on the part of investors and business leaders that the government appeared to be moving toward restrictions and regulations rather than the other direction.  Look at the turmoil in the utility industry caused by California and our congress over the past few months to see what a dramatic impact a change in policy can have on the market values of companies and the investments their management teams are willing to make or not.  Throughout the year 2000 the Federal Reserve maintained an overly restrictive monetary policy because it doubted our economy could grow at 4.5% – 5% without inflation breaking out.  They trusted their old Industrial Revolution models based on the economics of diminishing returns over what their actual experience was telling them.  The economy WAS growing at faster rates than previously experienced without inflation.  Greenspan had been a believer in the power of American productivity growth, but in 1999 he began loosing his majority among his academic, ivory tower, ‘never-made-a-payroll’ economist colleagues.  The increases in productivity in the private sector were not to be trusted like their old tried and true models.  The idea that businesses could create more product with fewer resources doesn’t fit into their paradigm.

The reality of politics as usual could not come at a worse time for this country.  The Europeans have just rolled out their new ‘national’ currency, the Euro.  They hope that a uniform currency will make Europe more competitive in the global economy.  It is certainly a good start.  Taiwan and Korea are giants in the very important area of semiconductor and communications equipment manufacturing.  China, representing one quarter of the world’s population, recently admitted to the World Trade Organization, is steadily making economic progress, and one day will be a force with which to reckon.  If the US economy is going to maintain its leadership role in global markets and politics, it must be ENABLED not shackled by policies at home and abroad.

Businesses, not governments, create jobs and improve productivity.  The best way for a forward-looking government to serve the needs of the unemployed is to embrace policies that stimulate businesses to create more jobs.  Small businesses create the majority of new jobs in this country.  Innovators, entrepreneurs, and risk-takers –people, run small businesses, not the monolithic corporate institutions the politicians so often deride.  A sure way to get people to invest more in their business and themselves, is to free more capital for them to invest – LOWER THEIR TAXES.  A favorite argument is that the rich get the majority of tax cut benefits.  Well duh, they pay the majority of the taxes, by a huge margin, and guess what, they create the majority of the country’s jobs.  Cut their taxes, get more jobs.  Too simple?; it seems so.  Democrats get votes by passing out government benefits to voters.  Republicans get votes by raising lots of money from big corporations and wealthy individuals.  There’s nothing wrong with representing the needs of the ‘disenfranchised’.  But, an education and a job create a better member of society than does a handout.  There’s nothing wrong with representing the needs of corporate America, but benefits should not accrue to one corporation or industry simply because it bought the most influence.  Somewhere between these two ideologies lies our salvation.  It’s not the ‘middle class’ (where all the votes are), but the where the productive, innovative, creative, risk-taking people of America are, there’s the future for our economy.  Enable them to innovate, build, and sell their ideas freely and our economy will continue to be the envy of the world.  The Internet was funded and started by the government for its own reasons.  Not until Marvold, Jobs, Gates, and other innovators came along was its true power unleashed on the world.

Government serves a vital role in a vibrant economy, but it is truly effective when it works in partnership and cooperation with private enterprise.  Lincoln, a former Republican focused on the Constitution’s protection of inventions and writing through patents and copyrights.  He said that the “fuel of interest” added to the “fire of genius.”   In other words profits accrue to those who innovate and manage risk better than their competitors.  Foster an environment that “fuels interest” (lower taxes and regulations), and individuals will employ their “genius” to the betterment of our economy.  Let’s hope our politicians gain economic enlightenment at Internet speed and we truly have a happy New Year.  You can surely bet the markets are watching and listening.