TSC: It's OK Again To See the Glass as Half Full
By Jim Griffin
12/08/2002 13:45
As I think back on a week loaded with promising topics -- the O'Neill and Lindsey resignations, the 6% unemployment rate, the early days of inspections in Iraq and anticipation of Saddam's declaration on his WMD stockpiles, and a fascinating interview on PBS by former GE CEO Jack Welch -- I find the Welch viewpoints most appealing for comment.
Don't get me wrong; I'm not saying it's the most important topic. That would have to be Saddam's declaration because on it may turn the lives or deaths of perhaps thousands of people. But at this stage there is not much I am able or entitled to say, other than, "Here's hoping." President Bush has got himself painted now into the same small corner as the Iraqi dictator; it's difficult to imagine that warfare can be avoided if Saddam attempts to finesse the requirements laid down for him in the Bush/Powell-propelled U.N. Security Council resolutions.
The departure of Treasury Secretary Paul O'Neill and economic adviser Larry Lindsey was a dramatic signaling by the Bush White House that it will not be satisfied with the gentleman's C grade it gets on its handling of the economy. That grade contrasts poorly with the solid A that seems to be the public assessment of its performance on counterterrorism and homeland security. Now that the GOP doesn't have Tom Daschle to kick around anymore, the ownership of economic results will be monopolized by the Republicans, for better or worse, when Campaign 2004 rolls around. By then, the Iraq issue will be much lower in profile (inshallah, as they say in that part of the world) and Republican candidates, the sitting president prominently among them, will not be happy to hear Democrats ask if you're better off now than you were four, or two, years ago. The memory is still vivid of a war hero President Bush, socks in hand, brought low by a checkout counter bar code scanner. Fool me twice, shame on me.
That 6% November unemployment rate print isn't much to get worked up about -- for now. But if it is still loitering in that neighborhood in 2004, well, that's what the O'Neill and Lindsey replacements will be charged with ensuring against. O'Neill came off too often as a pre-Reagan Republican -- remember the old budget-balance-and-castor-oil-are-good-for-you Eastern Establishment? -- and Lindsey has not been an articulate public spokesman for the Bush economic team. Look for true believer supply-side types to fill those positions.
But good old demand side tax cuts may constitute much of the medicine the new doctors will prescribe. Charles Schwab's ideas of a holiday for payroll taxes and surgical excision of the double taxation of dividends, in combination, may make sense. FICA payroll taxes hit low-income earners harder than income taxes do, so such a tax holiday might have significant stimulus effects. It will also partially offset the impression of favoritism for the rich that exempting dividend income from taxation might leave.
Accelerating the tax rate cuts scheduled for 2004 and 2006 will bring those already-legislated changes usefully back into the present day, rather than leaving them to languish out beyond the 2004 election. Ditto for acceleration of child care tax credits. There may be new ideas put forward by a new team, but more likely, in my view, will be a more aggressive salesmanship of the plans that have already been vetted. Which brings me to Jack Welch.
The archetypical corporate CEO confronted the issue of "Executive Excess" head-on in a PBS interview last Thursday (see the "News Hour" index on PBS.org for audio replay). He started off playing defense, stumbling into nearly admitting that his compensation was excessive, but then recovering to classify it as merely "a lot." Before he was through, he had taken over the interview, going on offense to score points for capitalism, free markets, corporate integrity, visionary leadership and the challenges of dealing with the future.
Corporate malfeasance? "There are, what, 17,000 publicly traded companies and I think so far there are 11 -- is that right? OK, let's go 20 ... It's awful. It's bad. But, in general, there are millions of good people out there working day and night to do their jobs right."
His point, I took it, was that to focus on the 11, or the 20, malfeasors, and overlook the 17,000 companies or the millions of good people, is to see the glass as half empty. Half empty glasses are what characterizes bear market moods, but Welch made an effective case that we should be seeing today's circumstances differently. He contrasted today's inflation and unemployment rates with those of the early 1980s and made the case that "these are good basic numbers -- we don't have a total disaster here."
Welch claimed that he has spoken to tens of thousands of people around the country lately and "they're down, their 401(k)s are down, they're not in a buoyant feeling of going forward, and we need CEOs out there taking risks, doing things, so that we can win again." He ticked off a list of overhanging problems -- "the malaise, the scandals, Congressional battles, SEC issues" -- and said "every one of these things is fundamentally an opportunity!"
Problems are fundamentally opportunities? Now that's certainly not bear market thinking. I suppose the reason that Welch's interview struck me so was that it crystallized an emerging feeling I have had over the past four or five weeks, which is that something has changed in the underlying mood. It is no longer impolite or impolitic or foolish to consider the upside, to look at the future, if not the present, with a sense of optimism. That would be a big change from the bear market malaise that has dominated the world's markets for the past three years.
That is not to say that the problems have gone away. Hardly. Welch argues that the challenges ahead for American business from China will make Japan's ascendancy in the 1980s "look like a water pistol." (Unusual imagery, although I think I take his point.) But if problems can be seen once again as highlighting opportunities for improvement -- that's a sea change in attitude that, if it takes over and persists, has big implications for how markets are likely to trade in 2003. The new century is overdue for an up year.
While the Democrats wander in their wilderness, scouting for a candidate who can connect with the electorate in 2004, they should check on Jack Welch's affiliation. He grew up in a union household, it turns out, but he nevertheless makes a heck of a case for markets and capitalism. And if he were to end up as president, he'll surely get that excessive compensation albatross off his neck. |
