Key economic decisions are now in play
InvestmentInsights BY CAROL M . SCHLEIF
The Pursuit of Happiness
Key economic decisions are now in play
The recent U . S . election cycle , more than any other in recent memory , tapped into deep angst within both major parties and the electorate at large . On the surface , this would seem to be at odds with an economic reality that has an unemployment rate of around 5 percent , wages rising more strongly than they have in a decade , and citizens , on average , in far better shape than they were in 2008 or even 2012 . Even before the election , average household income had climbed back toward all-time highs supported by recovering housing prices and rising stock markets . What gives ?
The knee-jerk presumption points to the gap between the top and bottom tiers of wage earners , and indeed that gap is large relative to any point in recorded history . A host of perceived ills from applied regulation , immigration , globalization , unfair taxation , too many lobbyists , and a host of other culprits have variously been painted as having “ robbed ” us of something we are “ owed .” To hear the popular press and the politicians tell it , it ’ s as if the Declaration of Independence actually promised “ happiness ,” versus the right to pursue it . Note the difference a few words makes ? The original doctrine implied self-rule and self-sufficiency — not an “ everybody gets a trophy ” mentality .
But to create an amenable environment for business and consumption to occur , three important constituencies must work together :
• Government — Provides infrastructure support , fiscal policy , reasonable regulatory oversight , national oversight of borders , treaties , and citizen protection .
• Business — Produces profits that remunerate stakeholders , pays equitable taxes to support resources relied on from government , and partners with educational institutions to create , train , and maintain a leading-edge work force .
• Central bank — Formulates a strong and viable central bank and policy to facilitate reliable money movement , monetary policy , oversight of employment , and inflation targets .
The basics in play Before the election , the popular mood presumed that the central banks were the only piece of the equation that could be counted on . It was as if the other two legs of the stool were too tattered to do their part ( or that a citizenry had forgotten how to hold them accountable ). Nearly a decade of zero interest rates created a global conundrum with $ 13 trillion in government debt priced below zero , bloated central bank balance sheets , and tepid economic growth .
But between the Brexit vote and the outcome of the U . S . presidential election , all of a sudden basic economic philosophies seem to be in play again . What does “ fair ” look like when it comes to regulation , taxation , ownership , security , borders , etc .? It ’ s opened a tiny wedge in a seemingly intractable system , and each of us has an ability to speak up and hold our politicians , business leaders , and government officials accountable for helping to create an environment conducive to selfsufficiency . Granted , the definitions of “ fair ,” “ open ,” and “ equitable ” are thorny . But we ’ ll never get to them if we ’ re all living in and trying to operate from behind barriers , literal or figurative .
Key fundamental decisions will be made in the coming months . Some of the issues in play are :
• tax rates for individuals — the higher they are , the less individuals have in discretionary funds to invest in venture and early stage projects ;
• corporate tax and regulatory environments — and whether or not they encourage companies to stay put , bring cash embedded in foreign subsidiaries home , or build innovation zones ;
• carried interest taxed at capital gains versus ordinary income rates ; and
• tariff decisions which , if increased , could spawn counter-tariff moves by other nations and put a damper on global trade .
Collectively , we can either lean into these discussions — and hold those in high places accountable to do the same — or we can allow media and leading voices to continue to polarize the debate . Despite the fact that some very vocal constituencies have been left behind , putting the globalization genie back in the bottle is essentially impossible , especially in a low-rate environment . Individuals will seek opportunity — it ’ s embedded in our optimistically biased human nature and our desire for a better life for ourselves and our offspring . Companies will seek an amenable environment , which means a well-educated work force , high local standard of living , and fair tax environment . The trick in the next couple years is ensuring a seat at the table and a piece of that global opportunity .
As changing political moors in a variety of countries and blocs are sorted out , the current state of global affairs may well lead to volatile markets in quarters ahead . In environments like these , we continue to advocate global diversification , a steady head , and nimble ( though studied ) dynamic tactical shifts as events unfold .
Capitalism can be a messy , unorganized state of affairs . Innovation typically grows faster than expected and can quickly disrupt or challenge business models and regulatory sensibilities seemingly overnight . Such change and flux can be either frustrating or exciting and opportunity creating . It ’ s up to all of us to decide which — and to hold our politicians and government officials , business leaders , and central bankers to more collaborative and constructive standards . It ’ s up to all of us to help create an environment conducive to the collective pursuit of happiness !
Carol M . Schleif , CFA , is deputy chief investment officer at Abbott Downing , a Wells Fargo business that provides products and services through Wells Fargo Bank and its affiliates and subsidiaries . She welcomes questions and comments at carol . schleif @ abbotdowning . com .
MULTI-UNIT FRANCHISEE ISSUE I , 2017 73