The Skeptical Optimist

My priorities, and my hope for our Talker-In-Chief

My priorities have changed, suddenly and unexpectedly. (You may have inferred that already from the recent lack of activity at this blog.) Posting here needs to drop down on my priority list for a while.

Remaining high on my list, however, will be paying attention as the presidency of our Talker-In-Chief unfolds. I hope to begin seeing some substance developing in the wake of all the eloquent talk, specifically regarding his unarguable statement about the topic that is my hot-button issue:

If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes.

President Obama is eloquent, no doubt about that. What's scary to me is the increasing evidence that maybe that's all there is: eloquent talk. In my mind, that nagging possibility started becoming a probability when I read what a few people close to him had to say about his eloquence, and matched that with what's been happening so far in his presidency. Here are a few excerpts from Dan Heninger's article (WSJ, 4/30/09):

Harvard Law Prof. Charles Ogletree told how Mr. Obama spoke on one contentious issue at the law school, and each side thought he was endorsing their view. Mr. Ogletree said: "Everyone was nodding, Oh, he agrees with me."

The reason I have never forgotten this article is its last sentence, in which Al Gore's former chief of staff Ron Klain, also of Harvard Law, reflects on the Obama sensation: "The interesting caveat is that is a style of leadership more effective running a law review than running a country."

Obama, of course, has known about his biggest asset for a long time:

Senate Majority Leader Harry Reid... tells of congratulating freshman Sen. Obama on a phenomenal speech. Without a hint of conceit, Mr. Obama replied, "Harry, I have a gift."

I hope to see some follow-through on his eloquent "robust growth" statement — such as raising the effect-on-growth question for key policy proposals. I hope to see the executive branch begin defining policy specifics, instead of outsourcing them to the legislative branch; after all, the voters chose President Obama, not President Pelosi. I hope to see the ongoing campaign rhetoric come to an end, because talk is cheap. I hope to see governing begin, because policymaking is supposedly what the campaign rhetoric was all about. I hope Obama starts getting up the learning curve more quickly.

I have hoped for a lot of things from politicians... but (with the exception of the interval from 1981-1989) have almost always been disappointed. If disappointment is once again the result, then all we'll have at the helm for the next three-plus years is a Talker-In-Chief.

Not a pleasant prospect.

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End notes:

1. For what it's worth, I'll also be keeping my eye on a promising young guy from Wisconsin: Paul Ryan. Not only is he sharp on the key economic issues, he's demonstrating some excellent communication skills. For example, here's a clip in which he politely handles two hostile MSNBC interviewers. (I strongly suspect I'll be sending him a campaign contribution or two as time unfolds.)

2. As I said, posting will be less frequent for a while, so I decided to reprint one post from the past that pretty much summarizes my major theme for this blog. See the article immediately below: Grow or Die.

Grow or Die

[President Obama correctly says that robust growth is the only way to fix our current situation without raising taxes. That's what he says, anyway. Below is a condensed version of what my career taught me about growth, followed by how that microeconomic truth applies to our macro economy.]

There are only two kinds of problems in business: (1) growth problems; and (2) liquidation problems.  I read that a quarter century ago, and ever since then, I’ve never found a single exception to that truism. Every problem I’ve encountered in business falls under one of those two headings. And I can now add another tidbit of wisdom: Without exception, solving the growth problems is a lot more fun. 

Grow or die.  Expand or liquidate.  Or, as Red reminded himself (after leaving Shawshank):

Get busy livin’—or get busy dyin’.

Early in my career, I was extremely fortunate to have joined a company that, as the leader in its industry, was growing its market share in a market that was growing rapidly.  A growing share of a growing market; you know, it doesn’t get much better than that.  We had growth problems galore; we were profitable, we were working hard to keep up with the growth, and we were having hectic fun. 

Costs were growing rapidly—but that was good news, because revenues were growing even more rapidly — and it takes money to make money.  Sure, we found ways to improve the cost structure, but that, too, was a lot more fun because of the growth problem.  Bottom line: The stockholders loved the revenue-driven profit growth we delivered, year in and year out. 

There’s one thing about stockholders, though: they keep demanding profit growth, whether or not revenue is growing.  Stockholders have a funny thing about that.  And guess how profit growth is delivered when revenue is stagnant (or worse, shrinking): cost-cutting, that’s how.  In a no-growth environment, cost-cutting problems tend to become more than “productivity” programs; they tend to be liquidation problems.  Cutting fat is always a good idea; cutting meat and bone is hardly ever a good idea.  In a no-growth environment, though, it’s easy for management to mistake investments in the future for discretionary costs—and sometimes the "solution" to the liquidation problem only accelerates the downward spiral.  Liquidation problems must be solved, but that doesn’t make them as fun as growth problems.

In any case, stockholders demand growing profits no matter what; it’s management’s job to deliver it; and, of the two ways to deliver profit growth—growing revenues or cutting costs—the only sustainable strategy in the long run is to grow revenues.  Here are two charts that illustrate the difference.  Profit growth through revenue growth is open-ended; profit growth through cost-cutting eventually runs into a dead end.  (That’s why most successful companies place significant emphasis on developing new products and services.)

I hope those are self-explanatory. They are my condensed summary of hundreds of individual experiences on both the “growth problem” and “liquidation problem” sides of the business management coin.  They are the microeconomic examples illustrating the principle of “Grow or Die.”

I have one last chart depicting how the “growth problem” scenario works for our economy as a whole.  As I’ve said before, a growing economy causes federal tax revenues to grow; the green and blue lines below show that relationship.  Another thing I’ve said before is that a measured, prudently managed deficit is also sustainable indefinitely.  (See this article, in which I suggest how to define “fiscal responsibility”—something the doom peddlers consistently shy away from doing.) 

Growth solves a lot of problems.  Not only is it the seldom-mentioned third alternative to the false-dilemma of cutting spending or raising tax rates, growth is an imperative for our macroeconomy, too. 

Wouldn't it be nice to hear some growth ideas from our politicians and doom peddlers for once? Wouldn't it be nice if the need for "robust growth" turned out to be more than just eloquent talk from President Obama?  

Red said it best: Get busy livin’—or get busy dyin’.

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