As we are all aware, the United States is stuck in a slow growth recovery from the Great Recession of 2008 and 2009. And while there have been some encouraging signs in the job market lately, it’s no wonder that neither consumers nor investors are jumping up and down to spend their money
When the best thing you can say about the U.S. economy is that it isn’t as bad as Europe’s, it doesn’t take a genius to know that we’re in trouble.
But have Americans buried their heads so far into the sand as to not see what the real problem is with our economy?
Although many of the challenges facing Europe and America are similar, they aren’t the same.
In my humble opinion, the problem begins and ends with Washington. The refusal to do anything that might help the economy in the short-term is because of this Republican extreme focus on cutting the deficit and protecting wealthy Americans is not only pandering of the highest order, it’s creating confusion and hurting consumers.
The worst consequence is the extent to which it’s changing the way Americans feel about other Americans. The only major difference between Europe’s economic problems and America’s is that instead of disparate sovereign nations bickering about debt, you have partisan politicians bickering about debt. European nations have animus towards one another due to heritage and historical reasons, but with the Civil War barely visible in the rear-view mirror or American history, one would think that Americans could coalesce to a high degree. Unfortunately, neither political parties nor “news” organizations that need the conflict for promoting viewership feel the need to promote unity. Quite the contrary.
If that doesn’t change, the United States will become as fractured as Europe.
Over the past two years in America, many economists have taken shots at cash-rich companies for not hiring more aggressively. But to be fair, the onus can’t be just on Corporate America.
Alexander Cutler, the CEO of Cleveland-based manufacturer Eaton has made many a compelling case for why many U.S. companies are lacking the necessary confidence to go out and hire more.
Naturally, Eaton is not facing much pressure to hire in the United States due to the combination of productivity gains and lackluster economic growth here. Eaton does, however, have ambitious plans to increase its presence in emerging markets, with doubling its annual sales in China by 2015.
Hyper-partisanship is money and time wasted
Interestingly, Cutler said that the problems in Europe, while severe, may be getting blown out of proportion in the markets. Eaton generates about a quarter of its total sales from Europe.
“It’s more volatile in the markets than what you see on the ground,” he said.
So what’s wrong with America?
For starters, Cutler thinks that Washington did not do enough in 2009 and 2010 to get the economy back on track. He said that there needed to be swifter action to encourage trade with emerging markets. But long-delayed trade deals with South Korea, Colombia and Panama were finally passed this October.
“The U.S. blew that,” Cutler said.
And he said that not enough was done to encourage companies like his to invest more in capital.
One of the few things that the White House and Congress were able to agree on was a tax break for accelerated depreciation that allowed companies to write off certain capital expenditures immediately, but that was simply not sufficient.
“We want to get people back to work in this country,” Cutler said. “You do that through capital investment.”
Training and Education is the Key–Not Taxes
Finally, Cutler said that perhaps the biggest problem is that the United States is not doing enough to train people who are out of work to get the necessary skills for the new types of jobs that are being created. He said that there needs to be more, not less, government funding for vocational schools.
“You can’t have a workforce without current skills. That’s dangerous,” he said.
Cutler is just one of many business leaders who is dissatisfied with Washington. Two dozen CEOs surveyed back in May, said that the federal government needed to focus more on job creation than the deficit.
Unemployment is breaking the bank
Large companies do need to take advantage of their strong balance sheets and hire more so they can do what the government seems unwilling or unable to do. But America needs to give them EXTRA incentives to do so, now more than ever. Any loss of corporate income taxes would be more than made up in less spending in unemployment taxes, not to mention the increase in individual income tax and payroll tax collections from working Americans.
It’s also clear that all the political haranguing is doing nobody any good. It’s understandable that companies feel like their needs are being ignored as much as ordinary citizens. When Republicans harp on the amount of budget increase that has taken place under President Obama, they conveniently ignore the reason for the increase. Unemployment has skyrocketed as outlays and tax collections from workers has dropped like the Hindenburg for the same reason. That’s not frivolous spending.
“Policy uncertainty makes the American people cautious about how to proceed; which makes companies cautious because they do not know what the demand will be for their products and services. It’s hard for business leaders to get excited even if the economy is going in the right direction,” said John Derrick, director of research with U.S. Global Investors in San Antonio. So it’s entirely expected for business leaders to be reticent to expand or hire under the current conditions.
What it boils down to is just how badly Americans want their side to “win”. It appears to me that winning is everything…even if it destroys the stadium and the game.