My Presidential Nominee…

Albert Einstein has been credited with saying that insanity is doing the same thing over and over again and expecting different results.  So my question is why we keep electing career politicians and expecting that they will solve our fiscal crisis.  I also wonder why we have this insane political process where the cast of candidates each swears that they will maintain the party line that is established by the party extremists (and this is true for both Democrats and Republicans).  Just as long as they commit to these ideas rather than doing what they think is right, we should be fine…

If I could select our next leader, I’d want someone who understands the economy, is clearly willing to say what he believes is true and has a record of insulting both Democrats and Republicans.  (No, I’m not throwing my hat in the ring – while I’ll admit that my ability to insult both parties is pretty strong, I’m not an economist.)  I’ll take Richard Fisher (the Dallas Fed President).   Take the time to read his most recent speech.  Here’s the link.  Don’t just read my excerpts.  See what you think.

Here’s another important idea.  I don’t agree with everything he says.  But, I’m not looking for someone who will pander to me.  I’m not an extremist and I’m not someone who is 100% sure that I’m right on all issues (other than college football).  I believe that he’s smart, understands the economy and speaks the truth.  That’s what I’m looking for in a leader.  We don’t have to be on the same page about everything.

Before I summarize some of President Fisher’s comments (and you’ve got to admit…President Fisher has a nice ring to it, doesn’t it?), I’ll mention one of the places that I struggle with what he says.  He complains about all of the regulation we have today.  There is no question in my mind that regulation has huge costs and can put us at a competitive disadvantage – there are obvious financial costs to complying, there are legal costs to understanding regulation, there are business costs that we incur and our foreign competitors don’t, there’s the reality that we don’t pursue business opportunities because of regulation, etc.  We could describe many more problems.

But, if we want to reduce regulation, I need to know that people are going to do the right thing on their own (without regulation).  I need to know that they want to do the right thing.  I need to know that they are not going to enrich themselves and inflict the cost on me.  In my house, there are regulations that we impose on the kids because we’re not sure that they will always do the right thing yet.  (Jenny also has imposed some regulations on me, but I’ll have to save that for another blog.  I don’t complain about the regulation – I’m proud that I need to be regulated.)   Regulation is costly and hurts our economy.  But what really hurts us is the fact that we have too many people who don’t do what’s right and force us to create rules.   As an aside, you should read this story about Rudy (of Notre Dame fame)…if you can’t even trust Rudy, who can you trust?

Here are a few key points from President Fisher’s comments on Friday.  He was speaking in Austin at the 2012 Economic Forecast Luncheon.  For all of the McCombs (Texas Business School) alumni, note that President Fisher started his speech by recognizing Tom Gilligan (our Dean) for his “spot-on forecast for the prime rate” that was made at last year’s forecasting meeting.  Now, on to some of the other ideas:

1. Fisher spoke about the cost-push pressures in 2008 that led to companies trying to cut costs by lowering head count.  I thought that this was REALLY interesting.  I tend to only remember back to subprime and the financial crisis.  But, with $147 oil, there were other things going on that had a huge impact on our employment situation.

2. Today, businesses still have this same focus on cost control (limiting employment).  Liquidity won’t change this.

3. Further Fed accommodation “might even prove counterproductive should it give rise to fears the Fed is so hidebound by academic theory as to be blind to the practical consequences of harboring an ever-expanding balance sheet.”  He discussed the possibility that we’re distorting our fixed income markets and we could be seen as monetizing our debt.  (Does anyone not believe that?)

4. Our domestic economy is recovering.  But, there’s little we can do about (a) Europe; (b) the possibility that China will not be able “to contain the pricking of their real estate bubble or the shadow banking industry that enabled it”; or (C) a possible slowdown in Brazil.

5. Corporate liquidity and low interest rates will not encourage a company to expand or invest if they don’t know how much it will cost to run their business.  In addition to his comments against regulation, he said that we must be “reassured that the sinkhole of unfunded liabilities like Medicare and Social Security that Republican – and Democrat-led congresses and presidents alike have dug will be repaired so that our successor generations of Americans will prosper rather than drown in dark, deep waters of debt.”

6. He used a great analogy (crediting Fed Governor Sarah Bloom Raskin) concerning our fiscal and economic problems.  He described a situation in which you have food, coffee grinds and a bit of hair clogging your sink.  You could do the unpleasant task of reaching down and scooping up the gunk.  Or, you could turn the water on full blast, providing immediate relief, but knowing that you might be destroying the entire plumbing.  (We’re just blasting liquidity into our plumbing system.)

7. “All I know is that the “honorable” members of Congress and presidents past, Republicans and Democrats alike, have conspired over time, however unwittingly, to drive fiscal policy into the ditch.  They purchased their elections and reelections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children.”

8. “Like all of you here, I am sickened by our politicians’ tendency to kick the can down the road, even when it is starkly clear that doing so jeopardizes America’s well-being.”

I realize that we’re not going to draft someone like this.  I also realize that having a great leader would still leave us with a black hole known as Congress.  But, I also know that if we keep electing career politicians and expecting different results, it’s simply evidence that we’re insane.

Have a great Holiday season.

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