by Adam Hartung | May 16, 2013 | Current Affairs, General, Leadership
With the stock market hitting new highs, some people have
already forgotten about the Great Recession. If you recall 2009, things looked pretty bleak
economically. But the outlook has changed dramatically in just 4 years. And it has been a boon for investors, as even the safest indices have yielded a 250% return (>25% annualized compound return:)
Source: Bulls, Bears and the Ballot Box at Facebook.com
Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:
Source: Bulls, Bears and the Ballot Box at Facebook.com
Since this coincides with President Obama’s first term, I asked the authors of “Bulls, Bears and the Ballot Box,” (available on Amazon.com) which I reviewed in my October 11, 2012 column, to capture their opinions on how much Americans should attribute the equity
upturn, and improved economic prospects, to the President as we enter his second term.
Interview with Bob
Deitrick, co-Author "Bulls, Bears and the Ballot Box" (BBBB):
Q– Bob, how much credit should Americans give President
Obama for today’s improved equity values?
BBBB – Our research reviewed American economic performance
since President Roosevelt installed the first Federal Reserve Board
Chairman – Republican Marriner Eccles. We observed that even
though there are multiple impacts on the economy, it was clear that policy
decisions within each administration, from FDR forward, made a clear difference on performance. And
relatively quickly.
Presidents universally take credit when the economy does
well (such as Reagan,) and choose to blame other factors when the economy does
poorly (such as Carter.) But there
was a clear pattern, and link, between policy and financial market performance.
Although we hear almost no one in the Obama administration
taking credit for record index highs, they should. Because the President deserves
significant credit for how well this economy has done during his leadership.
The auto rescue plan has worked. American car manufacturers are still dominant and employing millions directly and in supplier companies. Wall Street reform
has been painful but it has re-instated faith amongst investors.
The markets are far more predictable than they were four years ago, as VIX numbers demonstrate greater faith and less risk.
Even for small investors, such as thoughs limited to their 401(k) or IRA investments, the average annual compound
return on stocks under President Obama has been more than
24% since the lows of March, 2009.
This is a better result than either Clinton, Reagan or FDR who were the
prior winners in our book.
Q– Bob, what policies do you think were most important
toward achieving today’s new highs?
BBBB – Firstly, let’s review just how bad things were in
2009. In 2000 America was completing the longest
bull market in history. But by
the end of President Bush's tenure the country had witnessed 2 stock market crashes, and the DJIA had fallen 58%. This was the second worst market decline in history (exceeded
only by the Great Depression,) and hence the term “Great Recession” was born.
In 2000, at the end of Clinton’s administration, the
Consumer Confidence Index was at a record high 140.
By January, 2009 this index had fallen to an historic low of 25.3. Comparatively, when Reagan took office
at the end of the economically weak Carter years the Confidence Index
was still at 74.4! Today this
measure of how people feel about the country is still nowhere near 2000 levels,
but it is almost 3 times better than 4 years ago.
Significantly, in 2000 America had a budget surplus. By 2009 surpluses were long gone and the
country was racking up historic deficits as taxes were cut while simultaneously
outlays for defense skyrocketed to cover costs of wars in Iraq and
Afghanistan. Additionally, banks
were on the edge of failing due to unregulated real estate speculation and massive derivative losses.
Today the Congressional Budget Office is reporting a $200B decrease in the deficit almost entirely due to increased revenue from a growing economy and higher taxes on the wealthiest Americans. The deficit is now only 4% of the GDP, down from over 10% at the end of Bush's administration – and projections are for it to be only 2% by 2015 (before Obama leaves office.) America's "debt problem" seems largely solved, and almost all due to growth rather than austerity.
We can largely thank a fairer tax code, improved regulation and consistent SEC enforcement. Also, major strides in health care reform – something no other President has accomplished – has given American's more faith in their future, and an increased willingness to invest.
Q– To which President would you compare Obama’s economic
performance?
BBBB– By all measures, President Obama has outperformed
every modern President.
The easiest comparison would be to President Reagan, who’s
economic performance was superb. Even though Obama's performance is better.
Reagan had the enormous benefit of two major factors:
- a significantly better economy than Obama inherited, even if afflicted by inflation
- and his two terms coincided with the highest performing
demographic years of the Baby Boomer generation.
Today's demographics have shifted dramatically. The country is much older, with fewer
young people supporting a much larger near-retirement age group. This inherent demographic fact makes
creating economic growth monumentally harder than it was 30 years ago.
Few people think of Reagan as a stimulus addict. Yet, his administration’s military
build-up added $1trillion of stimulus to the national debt ($2.3trillion adjusted for
inflation) – the opposite of what is happening during the Obama years. Many like to think
that it was tax cutting which grew the economy, but undoubtedly we now know
that this dramatic defense and infrastructure (highways, etc.) stimulus had more to do with igniting economic growth. Reagan's spending looked far more like FDR than Herbert Hoover!
Ronald Reagan tripled the national debt during his tenure, creating what today's Congressional austerity advocates might have called "a legacy of unpayable debt for our grandchildren.” But, as we saw, later growth (during Clinton) resolved that debt and created a budget surplus by 2000.
Q– Bob, President’s Obama detractors liken the Affordable
Care Act (i.e. Obamacare) to an Armageddon on business, sure to kill economic
growth and plunge the country back into recession. Do you agree?
BBBB– To the contrary, ACA levels the playing field and will
be good for economic growth. Where
previously only large corporations could afford employee health care plans, in
the future far more employees will have far more equitable coverage. Further, today employees frequently are unable to leave a
company to start a new business because they would lose health care, which in
the future will not be true.
One leading indicator of the benefits of ACA might be the performance of healthcare and biotech stocks, which are up 20-30% and leaders in the current market rally.
Q– What policies would you recommend the Obama
administration follow in order to promote economic growth, more jobs and
greater returns for investors during the second term?
BBBB- Obama needs to make the cornerstone of his second term creating new job growth. That was the primary platform of his candidacy, and it is a platform long successful for the Democratic party. If President Obama can do this and govern effectively, this could be his real legacy.
by Adam Hartung | Jun 18, 2009 | Uncategorized
Yesterday we heard announcements about reforming the federal regulators and the systems they use to manage money and banking, and now the Treasury Secretary is out selling the program to Congress "Geithner Fields Revamp Queries" Marketwatch.com. It's touched off a big debate, as some people think the project has gone too far – and others think it hasn't gone far enough. That's interesting, because most people think something needs to be done so the events of last summer — a near melt-down in the banking system and a near collapse of the monetary system — are not repeated. So we might want to think about what was announced through the lens of The Phoenix Principle to see if we can expect much change.
Bruce Nussbaum is billed as "the innovation guru" on Businessweek.com. He reports "President Obama Failed At Redesigning the Financial System." Interestingly, his biggest complaint is that the President "didn't do what FDR did in the 1930s" and then attributes FDR with significantly Disrupting the government apparatus at the time.
I would agree with that assessment. FDR attacked a bevy of Lock-ins currently then in place. His attacks caused people to reconsider the approach then being used, which had remarkably high unemployment and long bread lines, and opened White Space to try all kinds of programs broadly referred to as "The New Deal." Ronald Reagan 50 years later was similar. He attacked what had become the conventional wisdom of the time, and his Disruption opened White Space which led to the greatest tax code reform ever, as well as significant changes in labor relations and government deregulation of industry. Both are examples of Presidents that first Disrupted, and then used White Space to develop new solutions.
President Obama has not Disrupted. He's definitely whacked the chicken coop a bit, ruffling a lot of feathers, by doing things such as pushing for the firing of GM's Chairman/CEO. But so far, even though he espouses change, his administration hasn't attacked any old Lock-ins. He keeps talking about changes "within the system." As The Phoenix Principle would predict, this sort of approach to change usually aggravates everybody – even your own supporters – and results in little significant change. Perhaps some marginal adjustments, but since the underlying Success Formula is not attacked all the recommendations lie within it – and the Status Quo is largely preserved.
Mr. Nussbaum, in an interview on BusinessWeek.com entitled "What Should A.G. Lafley Do Next?", recommends the President appoint the former head of Proctor & Gamble to be the nations Chief Innovation Officer. Although a novel idea, it won't make any difference. Mr. Nussbaum's consultant-style recommendation is the kind that gets a lot of executives in trouble who end up with lofty goals, but no chance of success. Such a move would put an embarrassing end on Mr. Lafley's career, and be an embarrassment for the President.
The federal government is a series of silo fiefdoms controlled by individual secretaries. Mr. Nussbaum would like Mr. Lafley to use "design theory" to cut across fiefdoms in order to innovate. Mr. Nussbaum gives Mr. Lafley credit for reorganizing P&G this way to success. But, how exactly is someone who works for the President supposed to re-organize the administrative branch of the federal government? Fiefdoms with their own individual mandates, leaders, staff and budgets. Especially without a dramatic Disruption that forces everyone to agree on such a massive reorganization. No commitment from the President will matter when the silo kings are allowed their silos. Probably a lot of recommendations – long the domain of Presidential commissions – that say there should be more cross-departmental work. But without a Disruption, something that rocks the apparatus to its core, there's no hope of this happening.
Despite the President's lofty goals and ambitions, he risks becoming somebody who talks about change – but doesn't accomplish much. This may upset you, or you may be happy, depending upon your point of view. But as a practical matter, should we expect that health care reform will be something radical – like social security and medicare were – or something much less dramatic? The answer is now clear. Lacking Disruptions, and when we look at the financial services reform proposed yesterday, we should expect something that will be an extension of the current system. A bit of tweaking to how things are currently done, but largely the same. Financial system reform left 95% of the players and their products untouched – and focused on small changes to a few institutions and a few products that are identified as central to the problems last summer. We should expect that health care reform would leave 95% of the system and products unchanged as well. Despite whatever rhetoric is extolled from politicians and pundits of either party.
This is not to say that the federal government does not adapt. When attempting to do more of what it has always done better, faster, or cheaper we regularly see that such sustaining innovations are picked up quickly and used effectively. And this was demonstrated this week when we learned that the State Department and other federal agencies were relying substantially on Twitter to receive information from Iran, and communicate with people in Iran.
For years the government apparatus relied on journalists for lots of two-way international communications. This often created a somewhat cozy relationship between very large newspapers with feet on the street in remote and unfriendly locations with people in government. This coziness had the really bad side effect of causing America's enemies to think most journalists were American spies working for the CIA, etc. So what worked for journalists all too often got them jailed and sometimes killed. But this system completely broke down the last 2 years as traditional journalism, and the newspapers, started going broke. The journalists were laid off in droves, and the government lost its primary info feed from offshore.
What's replaced journalists for readers has been a market shift to the internet. People have turned to bloggers, media sites and social networking for information. This dramatic shift has wiped out the profits at newspapers, and shut down a lot of properties. For media companies this represents wholesale change.
But government users quickly adapted. In their effort to Defend & Extend their roles, they became quick users of these sites as well. And when Iran refused to allow traditional journalists outdoors – or even to report on uprisings – the government officials turned to Twitter. And, just like the government used to ask the newspapers for help, they had no trouble asking Twitter – as reported in "U.S. asks Twitter to stay on line because of Iran vote" on MSN.com. And, much like how The Washington Post or The New York Times responded in the past, Twitter obliged. It was a remarkable example of "business as usual" for the government agencies – just done a little faster, better and probably cheaper. And this, of course, reinforced to international leaders their claims that Twitter and social media sites are "tools of the U.S. governement." In what appears "the more things change the more they stay the same" we see how easily the status quo can be reinforced, even amidst a dramatic change for the participants.
There can be reform in any government. There even can be innovation. But obtaining that reform requires
- Someone develop very clear scenarios about the future that describe the need for change
- A recognition that competitors will do better and we'll do worse if we don't change
- A Disruption – an attack on Lock-ins that support the Status Quo
- Using White Space to test new solutions toward which the organization can migrate as pieces are demonstrated successful.
It works. We see it work for individuals, work teams, functional groups, businesses, industries and even for governments – like exemplified by Franklin Roosevelt and Ronald Reagan. FDR did a marvelous job of describing a future at risk if America didn't start working again, otherwise international competitors would take over the country. And Ronald Reagan similarly described a future that would be entirely different (free of inflation and stagnation) if changes were made – and one at risk of its long-term enemy the USSR if changes weren't made. But if you try to shortcut these steps you get only marginal change.
