If you have picked up a newspaper or watched any sort of news or financial coverage in the last 6 months or so you are assuredly aware of the fact that the U.S. is headed uncontrollably into the worst financial times since the ‘mild recession’ of 1990. My question is, when did speculation start creating reality? Only about half of Wall Street investors can even use speculation to pick a bundle of securities that will beat a basic market index like the S & P. To avoid creating an economic self-fulfilling prophecy Americans need to focus their attention on the positive. A few reasons for optimism are that unemployment is low, interest rates are low, and the dollar is poised for a world market correction. As a provider of high-level services to mid and large cap companies, RLSI’s survival is dependent on the survival of the U.S. economy as a whole. Inspired by Rich Karlgaard, the publisher of Forbes Magazine, I believe that the grim outlook for the economy is oversold at this point, and that there are four main reasons for the unjust pessimism: The president is unpopular, it is an election year, the business press is scared and ineffectual, and the subprime mortgage mess is overstated.
At the moment, George W. Bush’s approval rating is hovering around 30%. In other words, 70% of Americans disapprove of the job the president is doing currently. Not surprisingly, this is the exact same percentage of Americans that report that our country is on the wrong economic track. I wonder if these percentages could be related in some way… On the other hand, half of Americans report that they feel positive about the future, and 84% say that they are satisfied with their lives. This is an example of how confusing statistics can be, and why we have to be very careful not to jump blindly behind the results of the latest empirical study. So, who do you believe? Do you believe the 70% that say that the whole country is on the wrong track, or the 50% who are rosy about their own economic futures and the 84% who are completely satisfied with their lives? My opinion is that the 70% who say that we are on the wrong track are merely expressing their Bush fatigue, not their pessimism about our economic future.
Related, we are wholly engulfed in an extremely compelling election year. One thing that can be guaranteed about all elections is that the out party – this year the Democrats – will always say that the economy is in bad shape. For example, in 1992 Bill Clinton’s slogan was: it’s the economy stupid. In 1980 Ronald Reagan asked Americans if they were better off than they had been four years earlier – These men were on different sides of the aisle, but used the same message to get elected because it works. In our current case, the Democratic primary season has been by far the more dramatic of the two races. Understandably, both Democratic candidates are justifying their positions on the basis of a weak economy. Since the democratic race offers incredible daily drama, it is justifiably getting much more attention in the press, and thus, the negative economic platforms of the candidates are getting lots of air time.
Exacerbating this issue is the fact that, according to Karlgaard (not me), most business journalists are not necessarily the best people in the world to have analyzing complex economic and business topics; most of them are, after all, just failed sports writers. Think about what it takes to be a first-rate business journalist: facile with numbers and financial statements, confidence talking with top executives, board members, etc., deep knowledge of the industry, coherent global economic views and exceptional storytelling ability. Karlgaard argues that the people who actually have these credentials and abilities become Wall Street analysts, Booz Allen consultants, or go into business on their own; they do not become journalists. Another issue with business journalists is that they are in a fearful mood in general due to the fact that journalism itself faces threats of disruption from the Internet. This thin talent pool, combined with the fearful moods of the writers and the fact that the majority of journalists are hostile to business anyway, often is interjected into their stories.
Lastly, as is commonplace in the media, numbers get stated as astronomical, but are not put into proper context. For example, one of biggest issues with the economy today is the subprime mortgage mess. It strikes fear in the hearts and minds of Americans to hear that banks have had to write off $150 billion in bad loans; how could our economy possibly survive this? To put it into perspective, $150 billion is less than 1% of the market capitalization of U.S. stocks, and in a typical trading day U.S. stocks gain and lose $150 billion every hour. The nearest historical comparison we have to our current mortgage situation is the savings-and-loan crisis of 1986-1995. Back then, the S&L crisis saw $700 billion in bad loans – nearly 5 times our current level – and during this period the U.S. economy grew and stocks went up.
All of this to say, maybe we shouldn’t be so doom and gloom about the future of our country. Are the current economic conditions ideal? No, not by any stretch of the imagination; but the economy was due for a correction for the prosperity of the last 10 years. As was the case in the mid-90s, it will be business innovation and consumer confidence that decides our economic fate for the next decade. It is up to us as business owners, executives, strategists, teachers, leaders, professionals and consultants to lead the economy away from the impending downturn and create our own reality – let us not just sit back and allow political speculation and economic pessimism to shape our futures.
‘…by the best cultivation of the physical world, beneath and around us; and the intellectual and moral world within us, we shall secure an individual, social, and political prosperity and happiness, whose course shall be onward and upward, and which, while the earth endures, shall not pass away.’
–Abraham Lincoln (1859)