Five Economic Wishes for the Rest of 2010
(Note: The list below assumes that rationality will prevail in Europe, with European Union and International Monetary Fund officials quickly agreeing on a suitable package to assist Greece's transition to fiscal solvency.)
5. 1,000 New Merchant Banks
Unfortunately, the U.S. economy in the spring 2010 remains "A Tale of Two Commercial Environments." Large, well-capitalized corporations are, for the most part, getting the credit they need. However, many small businesses are not. (Being able to finance new machines or equipment at 21% on an American Express (AXP) card doesn't count as having access to affordable credit.)
That's why Congress should charter and partially fund 1,000 new, small merchant banks, like Boston's Next Street. These community-oriented banks would lend to small businesses and fill in the gaps left by big banks that won't lend to them, either because the loan fees involved are insufficient to cover the big banks' overhead or because they're too focused on repairing their balance sheets. The new merchant banks should also have the ability to provide fairly sophisticated financial advice, if requested -- giving small businesses access to the same sort of expertise available to large corporations. Over the next decade, community banks should rightfully assume a larger place in U.S. commerce.
4. A Continued U.S. Export Uptrend
U.S. exports, aided by the weak dollar, have been trending higher for about a year, rising to $143.2 billion in February. This trend has helped the nation narrow its trade deficit to about $40 billion, and it's also creating jobs. It's vital that exports continue to grow, as the current data suggests that in the years ahead, domestic consumption will account for a smaller portion of U.S. GDP than it has over the past few decades. In order to compensate for that decline in U.S. consumer spending, the nation will need to sell more goods and services to international customers. I picture a two-pronged attack: First, the U.S. will need to increase exports directly by developing more of the next-generation products and technologies our trading partners desire -- such as Boeing's (BA) 787 Dreamliner. Second, some indirect actions would make U.S. products more competitive -- getting China to free its currency (the yuan) to appreciate toward its natural value, for example.
3. "Preemptive" Hiring
You've heard of preemptive military strikes? Well, say hello to preemptive hiring. The U.S. economy could really use a batch of it right now. Here's how it would work: All businesses and organizations, large and small, that are thinking of adding employees in 2010, should initiate that hiring now, ahead of schedule. The process would include bringing part-time employees up to full-time status. Just think of preemptive hiring as a private sector-based stimulus package: The rise in employment will increase income and probably consumer spending, as well, priming the economic pump for further growth, and helping the nation achieve a self-sustaining expansion.
2. Oil Under $50 Per Barrel
Admittedly, this wish is largely beyond the control of U.S. officials and business executives, but an oil price under $50 per barrel would do wonders for the domestic and global economies. In the U.S., with its high per capita transportation fuel use, a lower oil price would increase disposable income, and also reduce business costs. Globally, it would grease the wheels of commerce.
Some say an $80 oil price is fair, but for whom? Perhaps OPEC. Oil priced at $80 or $90 a barrel is a commerce reducer for just about everyone else. Crude at $50 a barrel would mean substantially lower transportation costs for everyone, but would still be profitable enough to support oil companies' exploration and development projects.
1. U.S. Budget Deficit Reduction
Finally, the 800-pound gorilla in the room. No, make that the $1.4 trillion gorilla in the room, which is why dealing with it is obviously the most important economic wish for 2010. The nation needs a plan that reduces, then eliminates, the federal budget deficit.
Let's be clear: The U.S. has the resources to eliminate its deficit, and the gap does not have to eliminated overnight. Even so, achieving a balanced budget will involve heavy lifting: cuts in entitlement programs, a large decrease in defense spending, and tax increases (including an income tax hike, a new value-added tax, or both). Everything should be on the table, which is what President Obama says he has told his new deficit reduction commission, co-chaired by former Sen. Alan Simpson (R-Wyo.), and former Clinton White House Chief of Staff Erskine Bowles.
Deficit reduction combined with an ironclad, 10-year plan to balance the budget will take pressure off interest rates, free capital for private investment, calm institutional investors' concerns about the national debt, decrease U.S. debt-service payments as the national debt is paid down, and ultimately help maintain Americans' standard of living, among other benefits.
Each of the above wishes would strengthen the U.S. economy and help it arrive at self-sustaining growth.
But if I had to choose only one, I'd wish for U.S. budget deficit reduction: You'd be amazed what the $14.4 trillion U.S. economy can achieve when the government has its fiscal house in order.