by Jeff Miller
I suspect that my take, as is often the case, will differ from that of both the financial punditry and the political commentators. My grade for the proposals is an “A” and the speech gets an “A-“. My grade for the pundits is a C-.
My perspective is simple. I want the US economy to improve. I want my unemployed friends to find work. I want businesses to succeed. I want investors to achieve their retirement goals — something that will not happen if we stand still. My goals are shared by nearly every American citizen.Since that is true, why do I feel so lonely on the Internet, where cynicism is far more popular?
The Facts
Yesterday I explained the job creation problem. Few are paying attention, including the experts on the Obama team. Their proposal would have been stronger if they had used the data I cited. This would have helped to clarify the task.
We need to increase job creation by 5% and reduce job losses by 5%. That’s it. That would be enough.
The first step is understanding that this can be done. The second step is realizing that the issue is not the 2012 election. Waiting for another eighteen months could be fatal. We need action right now.
What elements should we look for in a jobs proposal?
- Combine a macro economic effect and specific targeting.
- Include direct incentives and tax cuts.
- Have direct help for new businesses.
- Help now, payment later.
The Obama proposals included these elements, so it is a good start.
The Pundit Blunder
As I watched the speech I monitored my twitter feed, a combination of liberals and conservatives. Both groups were critics, and that is the heart of the problem. If you are a pundit, you seem so smart when you are telling the President what he did wrong — criticizing the plan, the speech, the presentation, or whatever.
This was mostly BS. I have been watching Presidential addresses for over 40 years. There is nothing wrong, for example, with including a rhetorical flourish about “pass this bill.” Some pundits who know nothing about rhetoric or speech did not like it. The President addressed both the audience in the room (mostly Republicans) and the nation. He chose the setting. There was a lot for most people to like, and a good challenge for Congress.
Some pundits complained that the costs of the program were delayed. Guess what? They should be delayed. Every economist who does a GDP estimate says that immediate austerity reduces GDP and tax revenues, making matters worse. When Republicans were in office they accepted the same logic (and I agreed with them then).
People should understand both the long-term deficits and also the near-term challenge. It should not be a partisan matter. At “A Dash” I have frequently cited centrists from both parties who understand this point.
Who Should Decide
Here is a theme that deserves more attention. Much more!
A few weeks ago I wrote that the S&P had blundered in their downgrade of US debt. Some readers missed the point, telling me that I was “blaming the messenger.” In fact, everyone already understood the US debt situation without the dubious help of S&P, so the messenger argument was irrelevant.
The point I was making was completely missed: Who should decide US policy?
We live in a pluralistic society. We give exaggerated respect to minority viewpoints and struggle for consensus before reaching decisions. We do not have dictators nor Parliaments with major consensus votes.
This system has worked very well for over 200 years, and most US citizens like it just fine. Meanwhile, the investment world is embracing opinions from a variety of questionable sources, people who should not be involved in dictating US economic or foreign policy.
- A semi-anonymous Bulgarian. Enjoy his conspiracy theories if you get off on that, but why should US policy follow his ideas?
- A French-Egyptian executive for a bond fund. Do we want to emulate those governments? Why should we listen to his advice about US policy?
- A ratings agency catering to European board members. The immediate reaction from the Chinese was that we should be cutting defense spending! Great idea! Let’s curry favor with the S&P and weaken our defenses.
- Assorted sources that are obviously cashing in when most of us lose. Many of the fear peddlers, who bombard my inbox, are selling gold, ammunition, and dubious structured products with a lot of fine print. They are exploiting the distress of many Americans for their own profit.
What people involved in the investment debate do not understand is that this is not just about bulls and bears, although the bearish pundits rate to make serious money from selling fear. This is about how the United States makes decisions. Who makes them. Who gets respect.
It is not a partisan issue, it is an issue of patriotism.
If Congress passes some portion of the Obama proposal, it will be a good start on the jobs problem. My initial take is that there are enough GOP tax-oriented incentives to get the job done. I hope that there are enough centrists from both parties to make progress.
UPDATE: I see a WSJ report where Mark Zandi, chief economist at Moody’s, estimates that the plan would add 2 percentage points to real GDP growth and 1.9 million payroll jobs, while reducing the unemployment rate by a percentage point.
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About the Author
Jeff Miller has been a partner in New Arc Investments since 1997, managing investment partnerships and individual accounts. He has worked for market makers at the Chicago Board Options Exchange, where he found anomalies in the standard option pricing models and developed new forecasting techniques. Jeff is a Public Policy analyst and formerly taught advanced research methods at the University of Wisconsin. He analyzed many issues related to state tax policy and provided quantitative modeling which helped inform state and local officials in Wisconsin for more than a decade. Jeff writes at his blog, A Dash of Insight.
