I’m a big believer in creating your own reality. Don’t like something? Only YOU have the power to change it for better. When you dig a little deeper, some would call it a belief in self-fulfilling prophecies, though that usually has a negative connotation to it. I have a feeling you share this belief with me . . . most entrepreneurs, as well as their advisors, share this life philosophy. We’ve taken nothing and made it into something. We’ve learned, many times through trial and error, how to make something become reality and how to switch course when needed. (Note: I didn’t say simply think it and it will come true — knowledge and beliefs without action is fairly worthless — as the title of a favorite book of mine suggests, Nothing Happens Without Action). Yet, all around us — in newspapers, on every television — you can cut the thick fog of negativity with a ginzu knife.
The “Impending Recession” may be the most expected in history.
The contrarians among us would think that’s a good thing as economists rarely ever get their predictions correct — you know: get 10 economists in a room and get 23 different predictions, “on the one hand . . . but on the other hand . . . and on another hand” (three-armed economists seem to be common for some reason). But . . .
“THEY want to SELL you on a Recession, so that later you’ll BUY a change of leadership.”
Those were the remarks recently of one of my elite coaching group members. I thought it was rather astute of him, and I fully agree. If we, as consumers and business leaders, buy into that message of the economy going “to Hell in a hand-basket,” then it surely will. If we fight back with the facts, our optimism, and our actions demonstrate confidence in our future, then that has a better shot of becoming reality. It’s really up to us.
Imagine for a moment, if you will:
A country’s GDP grew by 3.9% in the third quarter; it’s worker productivity grew by 4.9% in that same quarter; and this same country added 8.4 million non-farm payroll jobs in the past 4 ½ years, while its GDP is up 18.5% or $1.8 trillion in 7 years. Pretty good, huh? Now, get ready to be knocked-back . . . but that country is the United States.
Here ARE the FACTS:
The GDP grew by 3.9% in the third quarter (“faster than expected,” according to The New York Times). Productivity surged 4.9% in the third quarter, according to the Labor Department, at the fastest rate in four years (“far better than had been expected,” noted AP). According to Investor’s Business Daily (IBD), 8.4 million non-farm payroll jobs have been created since the 2003 Bush tax cuts (1.25 million since this time last year), and GDP is up 18.5% (about $1.8 trillion) since the start of the Bush Presidency. The Wall Street Journal reports: “After the second Bush tax cut of 2003, the budget deficit tumbled to $163 billion in 2007 from $401 billion in 2003.” Record gains in individual tax revenue, tied to income and investment tax cuts, led the deficit lower. Yet, when was the last time you’ve heard ANY of this?!?
Sure, the unemployment rate rose from 4.7% to 5.0% in December, but what all but a few economists have pointed out is that the data was collected during a week where an ice storm hit most of the Midwest. Many of the tens of thousands of workers in that region were unable to get to their jobs due to the storm, and thus were not counted if they didn’t get paid for their missed work (CNNMoney.com). [As I mentioned many months ago in this publication, the unemployment rate estimate is derived from a monthly survey of 60,000 households, while the employment data (from which the job gain numbers come) is derived from a monthly survey or roughly 400,000 medium and large-sized businesses.] The volatile household survey saw an estimated decline of 436,000 employed people, while the estimated labor force rose by 38,000 people to 153,866,000. The estimated number of unemployed therefore rose to 7,655,000 . . . hence the 5.0% jobless rate. I would expect this to move slightly lower in the months ahead (to say nothing of the impending labor crunch we’ll have in this country over the next decade as more Boomers retire and leave the workforce permanently). I’ve often wondered what my Econ 101 professor must think of these supposedly “unrealistic” full employment figures we’ve been below now for several years.
So Who’ll Talk Aspirationally About the Economy?
In this election year, let’s now look at one of the silliest assertions the media and some politicians regularly make: tax cuts don’t stimulate economic growth. Tax cuts, by at least the past four Presidents to enact serious ones, all show the same thing: lower taxes mean faster economic growth AND more revenue in the Treasury’s coffers (which means smaller budget deficits, a stronger currency and a healthier economy). Yet, listening to the recent Democratic Presidential debates (I know, I’m a glutton for punishment), all I heard was variations of the “soak the rich” schemes. Lower taxes stimulate faster economic growth, whether you count them on a nominal basis, an inflation-adjusted basis, or as a share of GDP. It makes no difference. Rebates to pay for higher heating costs won’t do the trick. Forcing the top 20% of achievers in this country to take on more of a tax burden, will only lessen their investments into new enterprises — the very things that create more jobs, generate more GDP and tax revenue, and give our children hope for a brighter future. The top half of taxpayers (where I’d venture to say everyone reading this lies) now pay 96.7% of all taxes, the highest in decades, according to the Wall Street Journal.
Since the last piece of Bush’s tax cuts went into effect in May 2003, real GDP has grown 13% or just over 3.2% per year. Before that, from President Clinton’s final year in office, growth averaged 1.5% — it basically doubled after the tax cuts. From 1921 to 1929, the era of Coolidge’s tax cuts, real GDP rose 59%. It rose 42% from 1961 to 1968, the Kennedy tax-cut era. It added 31% during the Reagan boom, even though Keynesian economists assured us that the U.S. was a “mature” economy and incapable of such growth. So if you want to get things going even faster and grow our way out of the housing mess and $100 oil, cut taxes further and make them permanent so there’s some stability — not some short-term, band-aid attempt like we usually get from the Beltway. That’s a message few on the campaign trail seem to be making.
While I’ve been very critical of politicians in these pages previously, I believe the current Presidential election may be the most important one since 1980. We have much at stake and the sand in the hour-glass that is American Dominance is nearly out unless somewhat radical changes are made quickly. I wonder if we’ll choose the course of a simplified tax code and lower tax rates to stimulate our economy, or higher taxes, perhaps to Old-Europe levels, to solidify dependence on even more social services? I wonder if we’ll get consumer control of health care or choose to enact a de facto socialized system? Will we ever turn Social Security from a liability into an asset by allowing people under the age of 50 to have personal accounts that are owned by them rather than Washington politicians and raise the retirement age to a more appropriate 21st century life expectancy, or will we levy higher payroll taxes and enact lower benefits to salvage what’s left of it? These are just three of the most important domestic issues at stake in this year’s election. Courage on all fronts is called for.
Just remember: nothing is ever nearly as bad as we think it is when in the midst of it. And if you’re a bit contrarian like I think you are, then you’ll realize that with commercial rents rising, commercial property prices coming down (cap rates are rising), and financing at near-historic lows . . . there hasn’t been a better time to buy commercial property. Call us when you’re ready to discuss this. Wealth is made when the Mediocre Majority are screaming about blood being in the streets . . . just ask Warren Buffet.