Strategic Market Leadership

Preparation and the US Economy

Wed, 2015-09-16 09:31 -- tomjonez

 

For the past few weeks I have been exploring the role that leaders play in looking ahead and preparing for what might be looming on the horizon.  This discussion has come to the forefront of my thinking because the month of September is National Preparedness Month in the United States.

One of the attributes regarding leadership that I have stressed from time to time is the willingness to admit when we are out of our depth with a particular subject area.  For me, one of those (many) areas is the topic of macroeconomics. I simply do not have the experience, education, or any practical working knowledge in this area - and therefore tend not to be as alert as I could otherwise be.

That said, a friend of mine is an expert on this topic. And recently, he sent me an email that I found quite interesting. This friend, Dr. Mark Skidmore, was a Fulbright Scholar in the late 1990’s, and since 2007 has been (and remains) Professor and Morris Chair in State and Local Government Finance and Policy at Michigan State University.  Needless to say, he is what I am not – an expert in macroeconomics.  Here is a small portion of what Dr. Skidmore wrote to me…

[What] …I share below is based on an e-mail conversation I had with… [someone] …who was asking me about the growing [United States] government debt and unfunded liabilities: 

Dr. Skidmore continues:

Since we went off the gold standard (a constraint on the expansion of debt/credit), we as a country have been expanding credit (debt) exponentially, but GDP has been growing linearly.  I think there are good reasons to borrow, but at some point borrowing too much leads to a saturation point…I think we are near it.  We’ve suppressed interest rates for lots of reasons, but one is to keep interest payments of government way down.  If interest rates were ever to normalize, our federal budget just couldn’t handle it.  So for many years we’ve been borrowing from the future for growth and prosperity today.

What happens to our system when we simply can’t expand credit at this pace any longer?  We’ve used the credit/debt expansion to replace lost income and jobs resulting from deindustrialization, which was facilitated by free trade and globalization, which wasn’t really free.  This is so because the artificial strength of the dollar (held up by the reserve currency status of the dollar) put American workers at a great disadvantage in the global market place.  We’ve lost a massive number of jobs over the last 25 years.  What is going to generate economic activity once we can no longer borrow our way to prosperity?  And who is going to pay off all this debt? 

As I stated at the beginning of this blog, I do not have any expertise in this topic area.  As a reader, you are strongly encouraged to do your own research and develop your own perspectives.  That is what I am doing myself.  And that is why I must rely on those who have expertise in these areas.

And I also believe it is a positive trait to openly admit when we do not have the skill or background to handle a content area.  This is particularly important when looking down the road, seeking wisdom for what is headed our way.

Undoubtedly, one of the topics for leaders to be watchful - and to prepare - relates directly to the area of unfolding financial trends.  For this topic in particular, I will continue to rely on those who have the background to address the subject with expertise.

As we continue to focus this month on the topic of “preparation," next week I will provide additional details from Dr. Skidmore (I am doing so with his permission).