Recoveries Aren't for Wimps

Recoveries aren't for wimps, and this is a recovery from the worst recession since the Great Depression.

It isn't as if anyone knows exactly what economic actions will work the best since we've never really faced anything quite like this. Even though the Great Depression was a more serious financially distressed situation, it was for very different reasons. We have had a collapsed bubble of real estate, with a lot of collateral housing/mortgage damage still dangling in the system. We had a total pull-back of the lending system which is still being historically tight. Companies pulled back substantially on investment in equipment, technology and people and are still squeezing ever ounce of productivity out of their existing assets before they hire and make capital expenditures.

You may also hear that companies are holding back because of uncertainty of increased taxes and/or health care costs. Any business owner who says this is either pulling your leg, looking for an excuse, or doesn't really understand business and is lucky to still be in it. There is never certainty on any of these things. There are congressional elections every 2 years and presidential elections every 4 years. Health insurance companies have been raising rates an average of 7% per year for the last 2 decades and that is just the average. It is not unusual for small companies especially to get a 20-30% increase in one year which is why they usually find themselves shopping around for a new insurer every 2-3 years. Businesses hire if that next employee has a better than even chance to bring in more revenue directly or indirectly than it will cost to employ them (salary, benefits, taxes, office space, etc.). The so called 'uncertainty of taxes and health insurance costs' are just a fraction of the total costs to employ an individual for a year. So estimate a bit high and see if that person will still bring in more revenue for the company. Besides, the only taxes seriously being discussed recently are the marginal tax rates for individuals and couples who have more than a quarter of a million in taxable income. I have previously posted a more detailed analysis, but basically, for a family who have an income of about $400,000, this amounts to perhaps as much as an additional $3,000 per year in federal income tax. If that $3,000 stops a small business owner from hiring an otherwise profitable new employee, they don't deserve to be in business very much longer.

This recovery won't be quick, steady or painless and nobody, absolutely nobody is able to implement plans that would make it so. There aren't people sitting on the sidelines with all the answers. There are some very intelligent, experienced people discussing options at great length with one another. There are differences of opinion. Good! This isn't a simple problem and only by discussing all possibilities will we have the best shot at coming up with plans that are more likely to produce the desired results. Even with this process, there are still no guarantees that the chosen options will work. Nor is there even a guarantee that there are any options that will produce the desired results. It isn't easy to live comfortably with this ambiguity, but that is how you get through tough times.

It is OK to be unhappy that it is taking so long to get back to 'normal', but claiming the recovery should be faster just because you want it so isn't based on any economic reality. This recovery would be very difficult regardless of what party is in the White House or leading Congress. Given statements that were made during the 2008 campaign, it is unlikely that we would be in a better place if John McCain and Sarah Palin were now in the White House. The House of Representatives is now run by the Republican party for 6 months and it does not appear that any steps have been taken during that time that have brought us closer to a full recovery.

This recovery isn't easy and it will take smart, courageous people not afraid to make mistakes and be blamed for trying what they think is best and possibly losing their jobs in the process.

Recoveries aren't for wimps.

Unemployment Issues for President Obama in Key States?

In a recent Wall Street Journal article, it is pointed out that some state-specific unemployment numbers could cause particular problems for the Obama 2012 campaign:

In four states that may prove key to the Obama re-election strategy -- Florida, Nevada, North Carolina and Michigan -- the jobless picture is bleak. In three of the four, the rate tops 10%.

This is a great example of statistics that don't tell much of any story. There are different stories in each of these four states.

Many in Michigan know that unemployment could be far worse were it not for the auto bailout. Whereas most of the other 49 states is split on whether or not the Obama Administration should have propped up GM and Chrysler residents of Michigan know that it had a big impact on their employment reality. So even though many are unhappy about the current absolute level of unemployment in the state, it is unlikely many will blame that on President Obama.

Nevada has been trending more blue recently, even as unemployment has risen. The Reid campaign machine showed last year that they have some impressive power in Nevada. Although the 2012 Republican Presidential Nominee is unlikely to be as soft an opponent as Sharron Angle, it will take more than an elevated unemployment rate in Nevada to turn it back to "R".

Unemployment in Florida is a legitimate problem for the Obama 2012 Campaign. However, thanks to Governor Rick Scott, Republicans aren't too popular in Florida now either. I think Florida will be closer than in 2008 and could easily turn Red, but it will take more than the unemployment rate for the Republican nominee to win there. Florida has one of the highest concentrations of people on Medicare and the Ryan Budget Plan will affect more Floridians than the unemployment rate.

If North Carolina is even in the discussion of voting for President Obama again, the Republican candidate, whoever they are, has no chance of keeping President Obama under 300 Electoral Votes. If North Carolina is in play, then as Bill Murray famously said in the forgettable movie "Meatballs", "It Just Doesn't Matter":

One No Trump

This should have surprised precisely nobody, but I am sure that there were some puzzled, disappointed and relieved people Monday when Donald Trump announced that running for President wasn't worth giving up saying "You're Fired!" each week on national television.

The title of this post is a bridge term and Donald Trump is a bridge to very few things other than perhaps turning the 2012 Republican Nomination race into the ultimate Reality TV Series. I would have paid very good money to see a debate between Trump, Sarah Palin, Newt Gingrich and Michelle Bachmann. Nobody else, they would just get in the way of the insanity. Newt still provides the possibility of some amazing debate banter, but other than lying and changing his political position, he does have a verbal filter that slows down and sometimes stops his brain from saying things that are insulting and hair-brained when the cameras are rolling. Donald Trump has no such filter to stop him from saying things that even a comedy writer couldn't come up with.

Don't get me wrong, I love Donald Trump and I am a regular viewing of whatever flavor of The Apprentice he is unleashing on the viewing public. But my love of watching Trump is similar to watching an impending train wreck. It's sick, I know, but I...just...can't...turn...away.

Mainstream Republicans (I know, there is an entire article waiting to be written on whether that term is an oxymoron) probably breathed a sigh of relief when Trump announced his decision not to run for the Presidential nomination. However, they really need to be thankful for Trump. Here is a list of his accomplishments:

1) Trump made it clear that Birthers are unstable and should not see the light of day. His craziness did force President Obama to publicly show that yes, they were all crazy. This will stop being an issue for the Republican party to defend itself against.

2) Trump showed that Obama can take out anyone. Heck, in one long weekend, he wiped out Bin Laden and Trump. Each got 2 bullets. OBL got the traditional type and Trump got a Long Form Birth Certificate and a Comedy Roast. Other potential Presidential candidates with the potential to damage the reputation of the entire Republican party may look at this and decide not to run. Sarah Palin and Michelle Bachmann have to be realizing that if they ever went one-on-one with Obama, they may wind up not even being employable by Fox.

3) The Republican Presidential Race was becoming an episode of a Looney Tunes cartoon. The best way to make sure everyone realizes that certain people are crazy is to put someone even more crazy next to them. I am reminded of a wonderful episode of the TV series "Ed" when John Slattery as Dennis Martino, the school principal, ran for Student Council President from the "Jackass Party" to show how useless the leading candidate was running for the "Party Party". In a very perverse and occasionally disturbing way, Donald Trump returned the Republican Presidential Race to sanity by taking all the craziness with him.

The biggest losers from The Donald's announcement, in fact, perhaps, the only losers are late night show comedians and Saturday Night Live. But I have no doubt they will come up with something.

Will Osama Help Obama?

Even now a week and a half removed from the announcement that the combination of CIA and Navy intelligence combined with the resourcefulness of a Navy Seal team, took out Osama Bin Laden after almost 10 years of searching, there is still a buzz in the air. People seem to be walking with a little more jazz in their steps, almost as if silently and perhaps unknowingly people are thinking, "That's right, don't mess with the US, we're tireless and eventually we'll find you."

President Barack Obama does seem to have received an 'Osama Bounce' in public opinion polls, although it is somewhat more muted that many expected, perhaps only 4-6 points. Will that be enough to guarantee him re-election in 2012?

If you have read even a few of my previous posts, you know I firmly believe in the James Carville 1992 mantra of "It's The Economy, Stupid" as the most supreme prognosticator of Presidential Election outcomes. So if the economy tanks or even if gas prices are in the $4.00 plus range at election time 2012, it might not matter if President Obama took out every past, current or future terrorist, he would have difficulty winning re-election.

So, for argument's sake, let's assume the economy is OK but not great. Unemployment is in the 8% range, but not rising, gas is in the $3.75 to $4.25 range but holding steady or dropping slightly, the markets are steady or slightly rising and inflation hasn't reared its big, ugly head yet. What impact will the extinguishing of Osama Bin Laden have on the 2012 Presidential Election?

The glow from Osama being laterized will most certainly be gone. We, the American public, have an amazingly short attention span and no matter how big a deal it is now, we just do not have the ability to keep something like this actively on our minds for the 16 months between now and Election Day 2012.

However, there are some impacts that will make the road much easier for President Obama to not need a moving company in 2013. Most notably is the ability to keep some potentially powerful Republican Presidential candidates on the sidelines. It has become very clear that in most likelihood, the entire outcome of the 2012 Presidential Election will turn on the state of the economy. International Affairs will not be a battleground where a Republican candidate can make any ground. In fact, Republicans will probably focus solely on domestic affairs out of fear that spending much time on foreign affairs may remind voters how Presidential Barack Obama has acted in his first term. Basing your chances just on the economy is a real crap-shoot that nobody has much control over. Any candidate with very solid general election potential (read Hunstman and Daniels) has to be wondering seriously if they want to go belly to belly with Obama on something which the laws of economic gravity indicate are more likely to improve than worsen in the next year.

Huntsman and Daniels each have the potential to make a run at Obama in 2012 EVEN if the economy is good. No other potential Republican candidate has the ability to overcome an incumbent Obama in a good economy. But that window of opportunity for Huntsman and Daniels has just gotten narrower and they each have to decide if their Presidential aspirations are better served by waiting until 2016. They may decide that 2012 is the time to get better known nationally but they don't have much of a chance to win the nomination in the current Republican climate. It is difficult if not impossible for someone to be their party's candidate and lose a general election and then get nominated again in a future election. Everyone has at best one shot at it, so Republican candidates have to decide if it is better to let a patsy take the fall in 2012 and help their chances to win the nomination in 2016 or if they have a really good shot now and only now.

Stan Hunstman Will Be President...Someday.

The more I learn about Stan Huntsman, the more I like him. He is the kind of Republican a moderate Democrat like me could seriously consider voting for. He is smart, affable and has leadership and diplomatic experience. He has been taking positions currently unpopular within his party, but in the areas where public opinion is moving to (gay rights, climate control and market-based health care reform). He is young (turns 51 this month) and having been ambassador to China and being a fluent speaker of Mandarin, he is ready for the future as it evolves toward a point where someone like Huntsman would have a significant advantage in dealing with the realities of international politics.

But 2012 may not be the time.

If somehow he was able to get the Republican nod, he would be as formidable a challenger as the Republicans can put forward against a strong candidacy by President Obama. If the economy stagnates or falters again, Huntsman would have an outstanding chance to collect enough independent votes to win the electoral college.

However, winning the Republican nomination in the current climate is quite a challenge. He is sooo moderate (almost liberal in fact), that it is difficult to imagine him being in the top 3 vote-getters in Iowa, South Carolina, Nevada and other early, particularly conservative Republican state primaries/caucuses. He has a somewhat more amenable voter climate in New Hampshire, but 1 spot is already reserved at the top for Mitt Romney and another will be taken by whatever conservative candidate ran strongest in Iowa. If he can hang in for a while (and his family financial resources may allow that to happen), he might be able to win some of the middle and later races and become the party favorite.

But make no mistake about it, there is a better than even chance that at some point in time, there will be a President Huntsman. He may just need to wait until the Republican Party decides they want to put forward the candidate with the best chance to win the general election.

When in Doubt, Revisit James Carville

The most spot-on and eternally accurate statement ever made in Presidential politics:

"It's the Economy, Stupid"

The rallying cry of Bill Clinton's 1992 Presidential Campaign made popular by his campaign strategist, James Carville, was initially just one of 3 campaign mantras and was intended for internal use only (without the leading "It's"). It helped galvanize public opinion in favor of Clinton and turned George H. W. Bush's popularity upside down from a Gulf War high of 90% down into the 30s. As much as we pride ourselves in being part of a nation that fights for world peace and democracy, most of the time, what is in our pockets is our greatest motivator.

With this in mind, the prognosis by many economists of the next 2 years does not bode well for Republican Presidential hopefuls. While many economists are calling for GDP growth in 2011 & 2012 to be in the mid 3% range, Mark Zandi of Moody's Analytics is calling for 4.4% GDP growth in 2011.

Perhaps more importantly, as there are an increasing number of signs that the economy is recovering and a double-dip is unlikely (5% increase in holiday sales, 10%+ increase in December auto & truck sales over previous year, factory output increases, etc.) has seemed to create a more positive economic outlook on the minds of business owners and consumers. In economics as in many things in life, perception of reality creates reality. There is a lot of cash on the sidelines and businesses and consumers have been holding off buying things and hiring more until they were more confident about the future. The pressure of delayed purchases has built to a level that it will not take very much good news for a spending wave to be unleashed. As a positive reinforcing cycle, the news that others are spending will make businesses and consumers even more willing to spend and all these injections into the economy will produce GDP growth numbers and employment numbers that make everyone more confident in the economy.

This trend started to late and slowly to help Democrats in the mid-term elections, but the delayed impact is likely to make it almost impossible to unseat President Obama. The economy will be the biggest issue in the 2012 elections. The improving economy will still be a new enough story that the public won't discount it and move on to non-economic issues. Health Care either will not be a determining issue or will turn against Republicans slightly as they will be continuing to oppose and attempting to overturn/defund a law that will continue to slowly grow in popularity. International Affairs either positive or negative are not likely to overwhelm the impact of the state of the economy. Social issues only take center stage in times of steady prosperity and it is unlikely we will already feel steady in just 22 months.

Nope, James Carville got it right and before anyone spends too much time over-thinking how the 2012 elections will turn out, they best return to that phrase made popular almost 20 years ago.