The economy is in bad shape. Technically, the recession
ended in June 2009, and since then the economy has been recovering. But
it doesn’t feel that way to many Americans. Things have stopped getting
worse, but they have not gotten much better. The recovery has been so
meager that unemployment lingers at historically high levels.
But one of his final observations is the key:
Economists often rely on the convenient shortcut of separating long-run
and short-run issues. Recessions are then viewed as short-run problems
that require short-run solutions. That approach, however, may be
simplistic. Lack of investment spending is a large part of the economy’s
current difficulties, but capital investments are always made with an
eye toward the future.
First, "bad shape" is an understatement. Second, the short term and long term is truly a key factor. From an investment perspective, we on the investment side, especially the high risk tech entrepreneur side, look long term. We fortunately do not have to worry about the quarter to quarter issue, albeit it counts. Yet, we look say at a discounted cash flow, DCF, for say five years. Then we add a terminal value to see what happens. We always have the entrepreneur see it as a higher number than we do, but the point being we look at revenue, expenses and a discount factor plus a terminal value. Unlike economists we have our capital at risk.
Thus not knowing the revenue, the buying propensity, not truly knowing true costs, taxes and health care plus regulations, not knowing how to discount the risk, cost of capital plus risk factor, and finally not knowing how to determine a terminal value, even if there will be one, and of course if we lose capital gains then the deal changes totally, that is why the investors are wary to say the least.
This is not a macroeconomist's issue. It is a rational investors issue, and there currently is no rational place out there. Is Mankiw correct, in part yes, as an economist yes, but I believe there is more to this issue, or perhaps I may be just reciting a corollary to his proposal. We have been frozen in place from uncertainty, uncertainty in all elements of what goes into our decision process.
But as an adjunct, I read a piece in the Washington Post analyzing the current President as "covert commander in chief". The author states:
This is a president, too, who prizes his authority to conduct covert action. Clapper’s predecessor, Adm. Dennis Blair,
lost favor in part because he sought to interpose himself in the chain
of covert action. That encroached on (the current President), who aides say sees it as a
unique partnership with the CIA.
This may explain some of the focus. On one hand George H W Bush was head of the CIA before he became President so he had the opportunity to play spy. It can be a heady game, but we really need a leader in chief, for better or worse an FDR character, not that he was the greatest, but he was the cheerleader in chief.
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