Economically, is Obama America’s Greatest Modern President?

by | 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:)

Growth of $1,000 ChartSource: Bulls, Bears and the Ballot Box at Facebook.com

Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:

Confidence-Unemployment Chart

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:

  1. a significantly better economy than Obama inherited, even if afflicted by inflation
  2. 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.

 

 

Neil Armstrong’s Legacy – More Important Now Than Ever

by | Aug 29, 2012 | Current Affairs, Innovation, Leadership, Transparency, Travel, Web/Tech

Neil Armstrong, the first man to step on the moon died last Saturday.  Overall, I was surprised at just how little attention this received.  The Republican convention, Hurrican Isaac and many other issues dominated the news, even though Neil Armstrong represents something that had far more impact on our lives than this hurricane, or anyone attending this convention.

Neil Armstrong represents the adventurous spirit of an innovator willing to lead from the front.  The advances in flight, and space travel, might have happened without him – or maybe not.  Neil Armstrong was willing to see what could be done, willing to experiment and take chances, without being overly concerned about failure.  Rather than worrying about what could go wrong, he was willing to see what could go right!

Most of us forget that it has been only 110 years since the Wright brothers made their 12 second, 120 foot flight at Kitty Hawk, North Carolina.  Before that, flight had been impossible.  Now, in such a short time, we have globalized travel.  My father, born in 1912, lived in a world with no planes – or much need for one.  I now live in Chicago largely because of O'Hare airport and its gateway (almost always in one leg) to any city.  Flight has transformed everything about life, and the world owes a lot to Neil Armstrong for that change.

Neil Armstrong became a pilot at 15 and spent a lifetime pushing the envelope of flight.  He not only flew planes, but he obtained an aeronautical engineering degree and used his experiences to help design better, more capable planes.  His history of try, fail, test, improve, try, succeed is an example for all leaders: 

  1. Firstly, know what you are talking about.  Have the right education, obtain data and apply good analysis to everything you do.  Don't operate just "from your gut," or on intuition, but rather know what you're talking about, and lead with knowledge.
  2. Second, don't be afraid to experiment, learn, improve and grow.  Don't rest on what people have done, and proven, before.  Don't accept limits just because that's how it was previously done.  Constantly build upon the past to reach new heights.  Just because it has not been done before does not mean it cannot be done.

Beyond his own leadership, Neil Armstrong is – for much of the world – the face of space travel.  The first man on the moon.  And that was only possible by being part of, and a leader in, NASA.  And we could desperately use NASA today.  It was, without a doubt, the most successful economic stimulus program in American history – even though politicians have been moving in the opposite direction for nearly 2 decades!

NASA offered Americans, and in fact the world, the opportunity to invest in science to see what could be done.  By setting wildly unrealistic goals the organization was forced to constantly innovate.  As a result NASA created and spun off more inventions creating more jobs than Eisenhower's interstate highway program and all other giant government programs combined. 

NASA's heyday was from the John Kennedy challenge of 1961 through the lunar landing in 1969.  Yet since 1976 alone there have been over 1,400 documented NASA inventions benefiting industry!!  Not only did NASA's experiments in flight aid physical globalization, but it was NASA that developed wireless (satellite based) long-distance communications – which now gives us nearly free global voice and data connectivity.  And the need to solve complex engineering problems pushed the computer race exponentially, giving us the digital technology now embedded in almost everything we do. 

Consider these other NASA innovations that have driven economic growth:

  • The microwave oven, and tasty, desirable frozen food used not only in homes but in countless restaurants
  • Water filtration for cities and even your refrigerator reducing disease and illness
  • High powered batteries – for everything from laptops to cordless tools to electric cars
  • Cordless phones, which led to cell phones
  • Ear thermometers (for those of us who remember using anal thermometers on sick babies this is a BIG deal)
  • Non-destructive testing of rockets and other devices led to what are now medical CAT scanners and MRI machines
  • Scratch resistant lenses now used in glasses, and invisible, easy to adjust braces at prices, adjusted for inflation, considered impossible 30 years ago
  • Superior coatings for cookware, paints and just about everything

As the American economy sputters, southern Europe looks to drag down economic growth across the continent, and growth slows in China the need for economic stimulus has never been greater.  But far too often politicians reach for outdated programs like highways, dams or other construction projects.  And monetary stimulus, in the form of lower interest rates and easier money, almost always goes into asset intensive projects like factories – at a time when capacity utilization remains far from any peak.  We keep spending, and making money cheap, but it doesn't matter.

We have transitioned from an industrial to an information economy.  Effective economic stimulus in 2012 cannot happen by creating labor-intensive, or asset-intensive, programs.  Rather it must create jobs built upon the kind of value-added work in today's economy – and that means knowledge-intensive work.  Exactly the kind of work created by NASA, and all the subsidiary businesses born of the NASA innovations.

Nobody seems to care about going to space any more.  And I must admit, it is not my dream.  But in one of his last efforts to help America grow Neil Armstrong told a Congressional committee "It would be as if 16th century Monarchs proclaimed we need not go to the New World, we have already been there." He was so right.  We have barely begun understanding the implications of growth created by exploring space.  Only our imaginations are limited, not the opportunity.

What Neil Armstrong told us all, and practiced with his actions, was to never stop setting crazy goals.  Even when the immediate benefit may be unclear.  The journey of discovery unleashes opportunities which create their own benefits – for society, and for our economy.  Losing Neil Armstrong is an enormous loss, because we need leaders like him now more than ever.