Main Street Finance

The Politics of the Economy

By Andrew

The hottest topic in politics these days is the economy, for good reason of course. The U.S. is facing a very difficult time. The fast plunge of the economy and hardship of the recession appear to be behind. Companies are making money (take Apple for example, which is experiencing excellent sales), but unemployment remains high. The stock markets have experienced great volatility and are looking at an uncertain future. Let’s take a look at some of the major topics of the upcoming elections:

Jobs, Jobs and more jobs

The biggest and loudest point will be regarding jobs. Obama has recently released his jobs plan, which utilizes tax cuts as an incentive for companies to hire. The idea being that a company can utilize tax savings to pay additional salaries. The recent Republican debates focused largely on who created jobs and when.

This is probably the biggest issue facing the U.S. (and world) right now. A high unemployment rate means that there exist a large number of people unable to find work that would like to find work. The result is greater government expenses (unemployment, medicare, etc.) and less money in the economy (imagine if the 9% unemployment was 4% – that’s 5% of the U.S. workforce able to buy cars, tvs and taking ill-advised trips to Las Vegas).

The hard part is actually figuring out what the government can actually do. Spending money or giving tax credits can create growth, but it also creates deficit spending if other areas of the budget are not scaled back. It’s a tough question to solve. The real answer likely involves time. Time for a better educated work force, time for the economy to continue.

The Federal Reserve

The GOP recently released a letter it sent to the Federal Reserve. The message was simple: no more stimulus. The Federal Reserve, as you might recall, acts somewhat independent of the U.S. government by raising interest rates, selling/buying bonds and printing money. This will actually be a bigger issue than one would think.

In the coming debates, the Federal Reserve will be a defenseless (for the most part) opponent. Candidates will (and have, see: Perry, Rick) attack the Fed’s strategy during the recession and the recovery as proof that current methods are not working and need change.

Again, I don’t agree with everything the Fed has done, but what a tough position to be in. There are still many tough choices to be made going forward and few candidates (with a few exceptions) have great business backgrounds.

Slow and Steady….

The truth, in my opinion….we are in for a long recovery. Think of the recession and market plunge like a knee injury. You’re playing pick-up basketball or going for a run and trip awkwardly. In an instant you go from weekend warrior to knee surgery, rehab and painkillers. The road back to walking normally will take months, let alone hopping back on your mountain bike for the nearest trail. This, sadly, is the economy.

All the problems built up for years came spilling out in an instant and took our running economy from marathon-fit to knee brace/crutches-fit. We need time. We need politicians that show some restraint and understanding. Unemployment cannot be cut away overnight.

Just like knee rehab, we need a plan in place with our sights on eventually walking, then working out and THEN running a marathon.

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About Andrew

Andrew is a corporate finance consultant living in Los Angeles, specializing in distressed and bankrupt consulting. He helps clients review business plans and the general market and decide what steps to take next. He has a masters in finance. Andrew enjoys running and biking in the San Gabriel mountains, cheering for the San Francisco Giants and eating (but trying not to gain weight).