And I don’t want to demean economists, but presidents and politicians of all stripes tend to choose economists who will tell them what they want to hear. If you feel that a certain policy is needed, you can probably find an economist who will give you a well-thought-out academic justification for what you want to do.
You are going to be faced with problems that are the culmination of hundreds if not thousands of previous decisions by US presidents and governments.
If you choose to listen to economists who tell you that you can continue to run large deficits – and you can find Nobel Prize-level economists who will oblige you – the country will generally continue in the same direction it has been going until the only real choice will be the one faced by Japan a few years ago: they essentially realized they had to monetize their debt, and over time that decision is going to significantly reduce the value of their currency and thus the buying power their citizens depend on.
For some economists, deficits are not a problem. They look at economists who argue for a balanced budget and reduced leverage as antediluvian throwbacks. They seem to feel that a small group of well-educated economists know how to run the world economy better than the market of billions of people working in their own self-interests can run it. They see a market-run economy as messy and inefficient, prone to all sorts of problems.
Sadly, there is no nirvana. Economic policy comes down to philosophical choices. And they are ones you are going to have to make.
Radical monetary policy such as is being applied by developed-world central banks is one of those things that work well in theory but not in practice. In theory, ultra-low rates and quantitative easing are supposed to generate a boom in investment and spending, which in turn will lead to growth and jobs. However, we can look around the world where these solutions are being applied and see that growth is lacking. And as nearly all economists agree, growth is the one thing that can get us through the problems that are coming. There are just some minor quibbles about how that growth should be achieved!
And this is all before we even start talking about the accelerating pace of change in the business and technological worlds, a global network of trade and other interactions among countries that is vastly more complex than it was even a decade ago, and the increasing dissatisfaction of a large group of citizens who feel left out of the new era. As science fiction writer William Gibson said back in 1993, “The future is already here. It’s just not evenly distributed.”
Of course, I’m just focusing on the economic decisions you will have to make. People will be pressing you to somehow solve a myriad of other problems as well.
You are going to get a great deal of advice as to what economic path and solutions you should choose. The choices you make will determine the future of this country and to a great extent the future of the world. That pressure and impact comes with the Oval Office. You have chosen to step into that office at a particularly stressful time in US and world history.
However, the situation is merely hopeless but not critical. There are choices you can make that I believe will reinvigorate the American economy and enable us once again to grow at 3%-plus, deal with the deficits and debt, and as a side benefit solve the problem of how to deliver healthcare. Choosing the right economic team can make that transition doable. And you will actually have the advantage of a potential crisis unfolding in your first term that will force both sides of the political divide to seriously consider and agree on outside-the-box solutions. You just have to come up with those solutions, as very few embroiled in the partisan debate will see past their own time-worn answers to conceive truly unique, workable, and productive policies.
Next week I’m going to outline some of the policies that I think have the potential to do all that. I can guarantee you that there are elements in my proposals that will annoy almost everyone, but that is the nature of a compromise – nobody gets everything they want.
If on the other hand you’re content to go along in the same direction we are today, with only minor course adjustments, I can just about guarantee that we’ll will end up on the shoals, where all of your choices will be bad ones.
Newport Beach, New York, and Abu Dhabi
I fly out on Monday for Rob Arnott’s fabulous annual client conference, where he brings in some of the leading economic thinkers of the world to hash out portfolio construction. The fact that he is one of those leading thinkers helps him attract others. It is one of the few conferences I attend where I sit in the back of the room and take notes and only rarely have the temerity to ask a question. I have learned that you do not go head-to-head with Harry Markowitz unless you are on really solid ground. The last time I was at the gathering, a few years ago, I looked around and saw about $1 trillion of managed capital in the room. And there were only about 50 people. Who take this stuff rather seriously.
Next week I go to New York and Chip Roame’s Tiburon gathering, which is essentially for idea sharing and networking among financial services executives, focused on what’s happening in the industry. I’m really looking forward to it. It looks like a little media time is being slipped in here and there as well, and I will let you know. Then I’m back to Dallas, where I go back to work on my book (like I can ever forget about it – the weight of deadlines hangs heavy) before I head out in the middle of May for Abu Dhabi; work in a quick trip to Raleigh, North Carolina; and then fly home in time for my conference in Dallas.
Now, I’m going to close with a story that I was reminded of as I was writing about Africa earlier. As I said, I’ve been to about 15 African countries, mostly during the ’90s, for a business venture I was pursuing. It was an expensive but interesting pursuit. Back then pretty much every major capital had a few hotels where all the foreign travelers and expatriates gathered. More often than not the hotel was an Intercontinental. I learned that if I went to the bar toward the end of the evening, I could meet old Africa hands who had been banging around the continent for decades, and for the mere price of a drink they would begin to tell me stories. And such marvelous stories. There were a few times when I simply marched up to the bar and loudly announced, “I will buy the drinks for the best Africa story in the room.” Somehow it seemed that the last liar of the evening always won. Those were great times, and if you ever get a chance to do som ething like that you should, though I am sure that Angola and Mozambique and Congo and Côte d’Ivoire have all changed. Given the hellholes that some of them were, that is a good thing.
So let me relate my favorite African story. It was told to me by Pat Mitchell, who had lived all over Africa for 30 years by that time, working as a lawyer after he graduated from Stanford. The story was about his friend Alejandro Beradone, an Argentinian running (I believe it was) a Rayovac battery-manufacturing plant in Kinshasa, Zaire. I later met Alejandro, and we became friends and met on a few occasions in Buenos Aires, where he introduced me to the concept of going out to a steak dinner at 10:30 PM, which is considered normal behavior in Buenos Aires. But then a lot of interesting things are considered normal in Buenos Aires.
It seems that the French Foreign Legion had a small outpost in Kinshasa. They came to Alejandro and asked him if he would sponsor a four-man team to go to Liberia to compete in a parachuting contest. He agreed, with the stipulation that he and his 12-year-old daughter could go along. So a few weeks later they chartered an eight-seat, twin-engine plane and flew to Liberia. It turned out the French team won the contest, so they all went out and partied very hard, along with the pilot (as is the wont in Africa), and then stumbled back onto the plane the next morning. The pilot got them up into the air, set the controls on autopilot, and told everyone to wake him in three hours. At which point everyone promptly went to sleep.
Somewhat more than three hours later, someone woke up and roused the pilot. He looked at his instruments and got quite upset that nobody had awakened him. The plane was running out of fuel. The pilot pulled out his maps and looked for an airfield where he could set the plane down. The only real option was a grass field in the People’s Republic of the Congo, a former French colony that was essentially socialist/communist and really didn’t enjoy warm relations with the French, to say the least. So when the plane landed, it was immediately surrounded by guards who pretty quickly figured out that the French Foreign Legion was aboard. They detained the group, took them to the capital city (Brazzaville), and put them all in jail. The government decided that this was an international incident because the French were clearly invading the country. It was a big deal in the local papers. They put the entire group, including Alejandro’s daughter, into the cell w ith him. Understand, this was an African jail. Not exactly luxurious.
There was basically no food, so the guards would come in and say, “Give us some money, and we’ll go get you some food.” It didn’t take more than a few days before they ran out of cash. They were still hungry, though; and the guard asked, “Don’t you have any other way to pay?”
Alejandro reached into his pocket and pulled out his American Express card. The guards took one look at it and exclaimed, “Why didn’t you tell us about this in the first place?” Then they gathered them all up and installed them in suites at the Meridian Hotel (the finest hotel in the city), where they stayed for the remainder of their “detention,” basking in luxury. (Remember, il est l’Afrique. Different rules.)
That, to me, is the ultimate “The American Express card – don’t leave home without it” story.
You have a great week. Walk into a bar or bang on your glass at a dinner gathering and announce, “Everybody has to tell a story,” and then sit back and enjoy the evening. I have never really found anybody who didn’t have a story. You’ll be glad you asked, and you’ll walk away with a smile.
Your always ready for a great story analyst,
John Mauldin
John Mauldin is editor of Mauldin Economics' Outside The Box.