A new president should bring hope for a better economic future, but the Dow Jones average has been dropping steadily since the day after Barack Obama‘s election in November. On November 5, a day when the excitement of a new administration coming to Washington should have given the market a big boost, the average fell from 9,616 to 9,139. On inauguration day, January 20, the Dow took a dive from 8,279 to 7,949. From Monday, February 17, the first day the markets were open after the passage of the stimulus package, through the closing bell on March 4, the Dow fell from 7845 to 6875.In the three months since the election, investors are scared and the market has lost 29% of its value. That’s a clear vote of no confidence in the new administration’s economic policies and an indication that those policies may be making the downturn worse and longer than it would naturally be.
The inherent flaw in the current stimulus package is that government’s job is to be the oil that lubricates the economy, not the gasoline that powers it. Government is not a job creator or a wealth builder. Government should be paving roads, creating a businesses-friendly atmosphere, and throwing thieves, like the ones from AIG, in jail.
The stimulus package has failed to stimulate investors, and the Dow is hardly the only depressing economic report that we’ve seen recently. Overall economic output is dropping much faster than previous reports stated, and no one sees things improving any time soon.
Other economic numbers are just as pathetic. The Consumer Confidence Index reached an all-time low in February, showing that Americans are extremely pessimistic about the future of the economy and their standard of living. When consumers are worried about losing their jobs, they stop spending, and even more workers lose their jobs. That’s a major reason why job losses in February were even worse than economists had expected.
Add to all of that the mortgage banking debacle, the collapse of AIG, major unemployment, the housing market upside down and we have a perfect economic storm.
What is obvious is that we need an immediate and powerful jolt to the economy. We need action that will restore consumer and business confidence, put people to work, and lift the feeling of gloom that’s hanging over the country. The answer is jobs.
Now is the time to pull out the stops and crank up demand for all products with 100% depreciation in 2009 for all capital assets purchases by businesses; reduce it to 70% in 2010 and then back to regular depreciation schedules. Small business, which employ 90%of Americans will jump at the opportunity to buy new equipment, cars, trucks and to expand. That, in turn, will increase manufacturing jobs, and the overall effect will have a multiplier effect for the economy.
The multiplier effect for 100% depreciation in 2009 would be substantial, so revenues lost from business will be regained from jobs created by this timely, targeted and temporary stimulus. Besides, businesses have little motivation to expand right now, and this will give them a great incentive.
Plenty of people who understand economics and business have good ideas for reviving our economy, but none of those people are working in government.
Michael Malone, an insightful business writer, has called attention to the damage that Washington is doing to our sense of entrepreneurship and to job creation with its stifling laws, regulations, and taxes. No place in the world has done more than Silicon Valley to create ideas and jobs that improve the quality of life for millions, but as Malone points out, Washington Is Killing Silicon Valley. We’d all benefit if our government would listen to people who know how business actually works in the real world.
Reid Hoffman, the founder of LinkedIn and a man who knows how to start and grow a business published his plan, following Mike Malone’s lead on the topic in the San Jose Mercury, that makes great sense. It recognizes the importance of small businesses and startups in building our economy. It also recognizes the value that foreign workers bring to the United States.
Killing any source of innovation is terrible because our economy relies heavily on a steady flow of new products and new ideas. For example, the iPod is now such an integral part of life in America that no teenager would dare to leave home without one, but 10 years ago it didn’t exist. Apple introduced the iPod in 2001, and by 2008, it had sold more than 150 million units, generating many billions of dollars in economic activity that wouldn’t otherwise have occurred. We need to create an economic climate that encourages the people who create iPods and other great new products.
2009 is the 150th anniversary of the discovery that made our entire modern way of life possible, and it should be a year of prosperity and a time to celebrate the spirit of the American inventor and entrepreneur. On August 27, 1859, Colonel Edwin Drake sank the world’s first oil well near Titusville, Pennsylvania. He wasn’t afraid of risk or failure, and his discovery is largely responsible for our cars, planes, plastics, and thousands of other products that bring comfort and enjoyment to our lives.
Looking to government to create jobs is not what made America great. Another iPod and another oil industry are certainly awaiting our discovery and invention, so we must encourage the people who have the vision to bring them to market. We must encourage all the people who have the talents to create jobs and build wealth.
Supporting creative people is the American way of creating prosperity. As The Kingston Trio sang, “You’ve got to prime the pump before you’re worthy to receive.”
Now is the time to prime the pump.