3 Things the Economy Needs to Recover
Oct 18th 2011 6:00PM
Updated Oct 19th 2011 10:16AM
What's going to fix the economy? An entrepreneurial spirit, free market structure, and the infrastructure to bring them together to bear fruit will help the U.S. pull through. But we've already got those things.
With anemic GDP growth, elevated unemployment, and extreme deficits slowing an already weak recovery, what we really need are three things that on the surface seem less concrete than new tax laws and regulatory changes. What we need is certainty, innovation, and, most importantly, time.
We Need To Provide Businesses Some Certainty
Success is never guaranteed. But past results, peer performance, and common sense combine to make a pretty good guide for most business owners. Now imagine trying to thrive in an environment where even the standard operating procedures are up in the air.
Companies today are operating in just such a place, frozen by a heightened level of uncertainty. Unpredictability abounds -- from regulatory changes to macroeconomic growth rates to politics -- making it a volatile environment for even the most established businesses.
- If a product developer or manufacturing engineer doesn't know how regulations will affect the products they're trying to make, it's harder to plan finances and production.
- When financial managers build projections about a project, they must make assumptions about growth rates and other factors, but when the tax rate is uncertain, it throws another wrench in the equation.
- If the U.S. passes some sort of punishment for currency manipulators (that is, China), as we saw the Senate vote in favor of this week, it could throw plans for multinational companies up in the air.
When a multinational like General Electric (GE), 3M (MMM), or Johnson & Johnson (JNJ) makes decisions, any uncertainty can lead to millions of dollars for or against a project. They will almost always err on the cautious side if a project is in question.
The only way to reverse this giant roadblock is to give businesses some certainty around regulations, taxes, and tariffs that affect them.
We Need To Foster Innovation and Support Novel Ideas
Innovative revolutions drove the economy for decades and improved our standard of living:
- The industrial revolution fueled economic growth in the 18th and 19th centuries.
- At the turn of the 20th century, the automobile and mass production were starting to change the way we moved and produced products.
- As recently as the '80s and '90s, the personal computer and Internet changed the way we work, communicate, and transfer information.
Existing products and industries rarely drive growth in the economy; it's the new companies that will drive us forward. It's Facebook, Google (GOOG), First Solar (FSLR), and Netflix (NFLX) upending existing industries that will help the economy grow.
Counting on big businesses to hire back workers is a pipe dream that will lead us nowhere. The country needs the companies that will make current businesses obsolete.
What we need is more innovation -- more small businesses starting in garages, the next Silicon Valley to emerge and get the economy moving.
We Need Patience To Let Time Help Heal Us
Finally, perhaps the most important thing the economy needs to fully recover is time.
It's hard to accept that time will heal our wounds instead of tax reform, stimulus, or regulatory changes, but that's what the history of debt and financial driven recessions tells us.
Recessions like Japan's "lost decade," which started in the 1990s, and our Great Depression weren't like other recessions. They took longer to emerge from, and they came with extended periods of pain for those who were affected most. And so, too, will this one.
We couldn't sustain the debt-ridden path we were on, and our financial system had become too large and too complex to sustain. Those challenges aren't fixed overnight, and it will take time for our massive economy to adjust.
It may take five years -- maybe longer -- but the U.S. economy will get back on its feet again. Banks like JPMorgan Chase (JPM) and Wells Fargo (WFC) are already on stronger footing than they were four years ago, and slowly, they're starting to lend again.
With time, a little certainty from our leaders, and a little innovative magic, the U.S. economy will get moving in the right direction again.
Motley Fool contributor Travis Hoium owns shares of First Solar. You can follow Travis on Twitter at @FlushDrawFool and check out his personal stock holdings. The Motley Fool owns shares of Johnson & Johnson, First Solar, Google, JPMorgan Chase, and Wells Fargo. Motley Fool newsletter services have recommended buying shares of First Solar, Google, Johnson & Johnson, 3M, and Netflix, as well as creating a bear put spread position in Netflix and a diagonal call position in Johnson & Johnson.