Here's an interesting statement from Microsoft boss Steve Ballmer that has had my mind reeling a bit since I heard it Tuesday from, of all places, ESPN talker Collin Cowherd.
Ballmer may well be right; I was kicking this idea around with my Portfolio Analysis class last night, and it seems to make sense. Our financial system has got the jitters if not the DTs, used to using easy credit and free-wheeling derivatives and is now having to function without those financial greenies. The auto industry is undergoing an overhaul, as both Chrysler and GM go through government-shepherded Chapter 11s.
If we look to Washington, we shouldn't see too much help on the fiscal policy front. The massive stimulus package didn't do the trick and the Obama team is likely to move towards higher taxes in order to pay down the budget deficit; that might be good for long-term financial stability, but it won't be overly good for GDP growth
That's doubly true when you couple that with reforms that are likely to come out of Washington. Financial reform will likely lead to more expensive capital and more expensive credit for small businesses, as increased capital requirements for banks will likely lead to higher interest rates on bank loans; if banks need to have more equity on hand, they'll need to have a higher return on assets to offset the reduced leverage. Also, any unfunded mandates for health insurance put on businesses will lower profitability and economic growth.
So, Wall Street is looking for the Betty Ford Clinic (as one student put it last night) and Washington is doing stuff that, while helpful for the little guy, will slow the economy to a crawl.
That is, unless innovation paves the way for growth despite those downsides. Computers seem to have maxed out on their productivity-producing, but every time we think we've seen everything, we get a new ap that changes the game some more; Facebook and Twitter are two areas that have changed things as of late.
Nanotech seems to be just around the corner, but I'm not sure if the pure research we've seen to date is going to turn into real products anytime soon; if it does, it could offset the contractionary nature of our current situation much as improved logistics, the birth of the Web and other computer-generated productivity in the 1990 helped offset the Clinton tax increases and saw a growing economy despite higher taxes.
We may be in for a rather stagnant economy, where the 3% growth that we're used to might not be there until either the next big tech item comes along to boost the economy or our system digests all the financial and regulatory changes coming down the pike.
That's not all that encouraging, but that what we seem to be looking at for the near term.
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