Ponies Everywhere

I’m descended from dour Scots Presbyterians, the sort for whom ten days of constant rain constituted a lovely spring.  As such, I’m inclined toward a melancholy view of the world. One of our long-time clients, a smart and successful guy who is a vocal fan of our firm and a source of frequent referrals, commented recently that he no longer forwards our publications to friends and colleagues.  “They are too depressing.  Nobody who reads them would want to work with you guys.”

One of the things I learned from Ronald Reagan is that you can’t get much done if you are pessimistic.  At the end of the day, the United States is an optimistic, forward-looking country, and gloomy viewpoints tend to fall on unsympathetic ears.

President Reagan was always a great storyteller.  One of my favorites was his story of the two boys, one an optimist and the other a pessimist, whose parents gave them very different Christmas gifts, in an attempt to moderate each child’s excess of emotion.  The pessimist got a roomful of toys. The optimist got a pile of horse manure.

On Christmas morning, the parents found the pessimist crying, surrounded by new toys.  “I’m afraid I’ll break them,” he wailed.

The optimist was out in the barn, cheerfully shoveling the horse leavings, smiling and singing. Seeing his parents, he cried out, “Mommy!  Daddy!  There’s got to be a pony in here somewhere!”

So here are just a few of my reasons for optimism:

1) The economy is cyclical.  Just as booms and bubbles create excess debt and misallocation of capital, so do recessions prepare the ground for future expansion.

2) U. S. households have significantly paid down debt, and are in a position to increase spending once confidence returns.

3) The current Administration has put in place a variety of policies that have increased costs to business, bred uncertainty, and sapped confidence.  A new Administration will take office in a bit more than three years, with an opportunity to change the policy mix.

4) A single technical innovation, fracking, is in the process of increasing domestic oil and gas production so much that by 2025 the United States will be a net energy exporter, for the first time since 1949.  A switch from coal to natural gas is also significantly reducing our carbon footprint per unit of GDP.

5) The United states is now the second most competitive manufacturing economy in the OECD, behind only China.  We are far cheaper than any of our rich European competitors.  Further, much of this advantage is structural and promises to be durable. In part due to fracking, our combined energy and electricity prices are half those of China, one-third those of Germany or Japan, even less compared to Italy and France. Our labor costs are up to 40% lower than those in Europe, and our work rules are more flexible.

Once the world economy begins to gather steam, our manufacturing economy will be in its best relative position since the late 1980s.  In other words, once we finish digging through the…stuff, we’ll probably find more than one pony.


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