Ten Ideas That Would Turn David Rosenberg Bullish on the USA
From today’s Breakfast with Dave research note at Gluskin Sheff (highlighting added):
- An energy policy that truly removes U.S. dependence on foreign oil (shale case, coal, nuclear).
- A complete rewrite of the tax code that promotes savings, investment, and a revamp of the capital stock. Cut tax rates, eliminate loopholes and costly tax breaks. Tax consumption, promote savings and investment. That is crucial. But it will take political courage (ask Brian Mulroney).
- A credible plan that reverses the runup in the debt to GDP ratio. This includes not just on-balance sheet items but new rules governing entitlements too. We need delineation of the future of Fannie and Freddie if there is any … they became wards of the government nearly three years ago and there is still no clarification on this file (slightly more important than these periodic consumer spending gimmicks that have surfaced over the past few years). We need a complete rewrite of social contracts and a reversal in sacred cows that have been created over the years that are completely unaffordable. Plus, people are not going to learn to live within their means if our politicians continue to set a bad example. The act of dipping into Social Security, incentivizing companies who are already cash-rich to spend more on new equipment and extending a Bush tax cut that always had a 10-year expiry date at the expense of the already severely strained public purse was political expediency at its worst.
- A massive mortgage write-down by the banks — a Jubilee of biblical proportions — that provide much-needed equity to upside-down homeowners.
- A creative strategy to put people to work instead of paying them to be idle — having nearly half of the unemployed ranks out of work for over 15 weeks and a 25% youth jobless rate is unacceptable at any level.
- Tort reform. The only way to rationally bring down health care costs to more manageable levels.
- And from six — use whatever proceeds they can save to enhance their education skills, especially in the sciences and mathematics where the U.S.A. is sliding down the global scale.
- Financial sector regulatory reforms that actually have some teeth.
- Change tax policy to free up the hundreds of billions of dollars of corporate cash sitting in reserve in overseas accounts — bring this money home!
- Our Republican friends may not like this too much but in Canada, we understand the importance of immigration inflows and the U.S.A. should be doing more on this front to stimulate its long-run growth potential. This is where Japan’s decade of lost growth became two decades but its decision to resist immigration rule changes is more cultural in nature. The U.S.A., like Canada, is already extremely diverse. But as economists, what goes into economic growth is both simple and complicated. The simple part is merely identifying the two ingredients: growth in the population (more specifically, the part of the population that is working) and productivity (what most of the other nine ideas listed above would attempt to generate). But the dependency ratio is working against the U.S.A. and a smart immigration policy would help at least stem the runup.
I refuse to be labelled a perma-bear even if I have been bearish for a long time. Having been a bull in the 80s and 90s I do know what it feels like to wear rose-coloured glasses. But the reality is that U.S. policy has been adrift for over a decade and it looks like all we have are measures that merely kick the can down the proverbial road. So it looks like 2012 will be the critical inflection point if there is one, not unlike, hopefully, what 1980 ushered in which was a complete about-face from the ruinous policies dating back to the early 1970s. What we have on our hands right now is a recovery built of straw instead of bricks. An economic expansion and bull market built on rampant expansion of the Fed and Federal governments’ balance sheet is neither sustainable nor desirable. I am desperately looking for reasons to turn more optimistic, but to do so, some major policy shifts have to take place, like the ones above.