Category Archives: Sustainable Prosperity

Larry Summers On Growth – March 13 2009 Speech

Here is one more excerpt from Larry Summers’ speech of March 13.  I find this excerpt to be of particular significance with regard to the concept of Sustainable Prosperity:

“Of fundamental importance is ensuring that we do not exchange a painful recession for another unsustainable expansion. That would not only be irresponsible – it would be counterproductive. We have seen what happens when we pursue policies that produce short-term, instead of durable and sustainable growth.”

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SPX at 1127.78 as this post is written

Larry Summers On Bubbles – March 13 2009 Speech

As I, as well as others, have been frequently mentioning bubbles, I thought it would be interesting to post a few comments (excerpts) that Larry Summers made concerning their effects during his March 13, 2009 speech.  I found these comments to be very interesting, especially in light of our current economic condition and prospects for Sustainable Prosperity.

Here is a link to that speech, which was made to The Brookings Institution:


“Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it’s predecessors, is fundamentally sound and not driven by financial excess.
This is essential. Without robust and sustained economic expansion, we will not achieve any other national goal. We will not be able to project strength globally or reduce poverty locally. We will not be able to expand access to higher education or affordable health care. We will not be able to raise incomes for middle class families or create opportunities for new small businesses to thrive.”
“We have seen housing prices reach unsustainably high levels and credit spreads reach unsustainably low levels in the middle of this decade. And we saw bubbles in technology in the late 1990s.
Bubble driven economic growth is problematic because of disruption and dislocation – affecting those who took part in the bubble’s excesses and those who did not. And, it is not entirely healthy even while it lasts.” 
“If growth in the coming years is not to be driven by asset price inflation-induced consumption, other engines of growth must be identified. These forms of growth should be sustainable and shared by the majority of American households.” 
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SPX at 1117.83 as this post is written

New Article: “America’s Trojan Horse”

I just posted a new article titled “America’s Trojan Horse.”  The subtitle is “A Different Look At The National Debt.”  It can be found under the “Pages” section along the right-hand side, as well as at this link:

The article goes well with many of the themes presented on this blog, including Sustainable Prosperity, America’s Economic Future, and the overall quality of decision making in policy.

Please let me know of any comments.

SPX at 1002.26 as this post is written

Bank Bonuses and Broader Implications

I’d like to make a brief comment about the “bank bonus” story that came out a few days ago.  Here is one article on it, titled “Bank Bonus Tab: $33 Billion” from The Wall Street Journal on 7-31-09:

Needless to say, it seems outrageous that such bonuses, in said amounts, were paid out so broadly in 2008 given the overall situation – especially for those banks that would have otherwise collapsed absent tremendous levels of government intervention.  Of course, there may be some mitigating factors or legitimate reasons for at least some of these bonuses, but I have yet to read or hear of any.

It seems as if this bonus issue should have been adequately addressed before any intervention funds were allotted to the various banks.

Overall, I think the two major issues concerning these bonuses are Fairness, as well as the impact on Moral Hazard.

As I have alluded to previously (on a 6/21/09 post) the Moral Hazard environment that has been created and perpetuated over the last few years is truly epic and mind-boggling.  It appears as if this Moral Hazard situation has only been exacerbated with the Bank Bailouts that have occurred during The Financial Crisis.

Moral Hazard implications are very important, even if (seemingly) few people really want to think about them.  Moral Hazard has many types of direct and indirect effects ranging from our potential National Debt to issues regarding Sustainable Prosperity to issues concerning Fiduciary Responsibility.  Part of the challenge, and importance, of crafting appropriate national policy is to consider, in totality, how the economic environment will be impacted by various government actions.  To ignore, or downplay, Moral Hazard implications is a serious mistake.

SPX at 1002.63 as this post is written

“Why Aren’t Companies Hiring?” Part V

Businesses have reacted to the tumultuous economic conditions in many ways.  A logical action has been to reduce cash outlays to a level appropriate to what the new economic conditions seemingly warrant. 

Along these lines, expenses have undergone scrutiny and in many cases have been cut, in order to preserve cash as well as improve profitability (or limit losses).  Labor costs are notable expenses because of their size.

Many firms have incurred double-digit (percentage) revenue losses over the last few quarters.  This can create a rather alarming atmosphere, especially in light of the tremendous overall uncertainty going forward, as discussed in the last post.  In this type of fast-moving, uncertain environment where revenues, and losses, can accrue quickly, many businesses have felt they have had to move fast in order to contain potential damage.   

Large-scale layoffs have occurred for a number of reasons.   Under such uncertain, and unpleasant economic conditions, layoffs represent a quick means by which to bring down total costs and preserve cash.  Layoffs have, over the years, become a type of “standard operating procedure” in business, i.e. they are viewed as a rational decision during tough times and are not stigmatized like they may have been a few decades ago.  While there are of course many arguments that can be made with regard to the worth of an employee, as well as viewing employees as assets as opposed to expenses, in reality it is very difficult to quantify how one, or a number of, employees’ dismissals will negatively impact a firm in the future.  In other words, quantifying an employee’s value is very difficult.  However, determining each employee’s total cost is rather straightforward.

Furthermore, there are other factors at play.  Employee “turnover” costs are difficult to measure.  This refers to how expensive it is for a firm to have high employee turnover, as opposed to low turnover.  It is easy to neglect this, and other issues, in difficult economic times.

Another factor that comes into play is executive compensation issues as well as stock market pressures.  How are the major executives getting paid and influenced, and how does this directly and indirectly impact hiring and employee costs?  Since the highest executives are (likely) getting paid and otherwise motivated to produce profitability, this may well serve as a major influence when viewing employee expense levels.   The executive compensation agreements and stock market pressures can create a relatively “short-term” outlook with regard to profitability and a resultant bias against “expenses.”

One also has to wonder as to whether employees are at least partially “bearing the brunt of”  poor operating practices that have exacerbated adversity at firms during this period of economic weakness.    There are many potential areas within any firm that may be better managed even given the complicated and unpredictable nature of this economic weakness.  This “inefficiency” may be compounded should greater economic weakness develop.  If a firm is unaware of these “inefficiencies”, it may neglect them, thereby causing greater losses, which in turn produces greater pressure to reduce expenses and therefore employees.  These “inefficiencies” may be large, given the complicated nature of our current economic environment.  Also, the previously mentioned issue that most firms don’t have operating experience in pronounced economic downturns also plays a role in exacerbating this issue.  

As seen by these past five posts, the question “Why Aren’t Companies Hiring?” has a complex answer that encompasses many different factors.  Given the severity of the problem, as well as its adverse impact on the economy, the natural question becomes what can be done to encourage, or cause hiring to happen?  This question, again, has a very complex answer, especially in light of issues regarding Sustainable Prosperity.

As I started this series of posts with a quote, I will end it with one as well.  This quote underscores the severity of the unemployment situation, and is from Mortimer Zuckerman discussing the unemployment levels. It can be found in his recent Wall Street Journal editorial found here:

“The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.”

SPX at 975.15 as this post is written

“Why Aren’t Companies Hiring?” Part IV

In addition to the adversity and financial strains suffered by firms during this period of economic weakness, there exists significant uncertainty on many fronts.  As mentioned in the last post, many businesses would find any further economic weakness to pose a formidable challenge.  Although economist forecasts are predicting a weak economic recovery from here, economic forecasts have proven less than accurate the last couple of years.  Furthermore, it could prove especially difficult to predict how any one company’s demand would be specifically impacted by further economic weakness. 

In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty.  Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts.  All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in “the ways things are done.”

In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming.  Again, both the financial impact as well as the inherent change create uncertainty.

Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs.  Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired. 

This uncertainty factor is highly significant with regard to companies’ hiring, or lack thereof, as further discussed in the next post.

Part V to follow…

SPX at 979.62 as this post is written

“Why Aren’t Companies Hiring?” Part III

The economic weakness that has occurred has caused a significant amount of financial damage.  This can be seen in a variety of indicators and statistics, such as widening credit spreads, defaults, credit downgrades, etc.  These worsening conditions have been accompanied by a curtailed (in many cases severely) access to credit.  Whereas credit and other types of funding were abundantly plentiful (and in many cases cheap) into 2007, that level of credit and financing availability has since undergone a dramatic reversal.

An array of adverse business conditions have added to the misery.  These have taken various forms, from very high excess manufacturing capacity to low capital investment.

In addition to these adverse conditions and financial strains, a major factor going forward will be consumer spending.  As I discussed in a June 18 post, the ability for the consumer to keep spending may well be constrained going forward due to a variety of factors.  This will be one more “headwind” that businesses will likely encounter.

Should further significant economic weakness occur, there is another major concern relating to businesses – their ability to successfully manage through severe economic weakness.   Most businesses have not been exposed to the severity, both in length and extent, of economic weakness that further economic weakness would entail.  This lack of operating experience could pose significant challenges and hurdles to businesses that have already been adversely impacted.

Part IV to follow…

SPX at 977.57 as this post is written

“Why Aren’t Companies Hiring?” Part II

The economic weakness that accelerated in the latter months of 2008 and into 2009 played out in a very “tricky” fashion.

Very few mainstream economists foresaw what would happen.  A testament to the complexity of the situation as 2008 progressed was the business shows airing arguments during the summer as to whether the economy was even in a recession.

Needless to say, that argument was answered by the 4th quarter.  The list of rather unbelievable economic occurrences in 2008, and into 2009, is very extensive. 

Given the “trickiness” in which the economic weakness has played out, one question that may be asked is “How well have businesses reacted?”  As well, another major question becomes, “Given how businesses have reacted so far, how are they positioned for the future?”

Both of these questions are very difficult to answer.  With regard to the first, there really is no established “scorecard” with which to grade businesses’ response to the events of 2008 and 2009.  As aforementioned, the way the economic weakness played out was “tricky” and certainly highly unexpected.  While one may argue, in hindsight, that corporate forecasting might have been better, or any number of corporate actions, from cash management to inventory control, could have been more effective, those arguments certainly make more sense “after the fact.”  Sure, things may have been handled better, but most businesses won’t, and can’t, be effectively run if they seek to plan for contingencies that, at the time, seem very unlikely, if not unimaginable.  

Perhaps even more important is the second question, “Given how businesses have reacted so far, how are they positioned for the future?”  If one believes the current consensus among professional economists, that the worst (as far as economic weakness) is behind us, and that a steady, if not weak, economic recovery will continue through 2010, then the answer appears to be that businesses, as a whole, will continue to face a challenging environment, but in most cases will be able to survive.   

However, if the economy defies consensus expecations, and materially weakens (a view I hold, as previously mentioned in this blog), it is much harder to generalize how adversely businesses would be impacted. 

In the next post, I will discuss some issues that bear significance should this more adverse economic scenario occur.  

Part III to follow…

SPX at 977.68 as this post is written

“Why Aren’t Companies Hiring?” Part I

“As unemployment approaches 10%, what is less well publicized is that the number of “underutilized” workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering.”

-Bill Gross, from the July 2009 Pimco Investment Outlook


The unemployment issue currently facing the country is severe and complex.  Although this unemployment problem is to various extents recognized, there seems to be little discussion around the question “Why aren’t companies hiring?”  The  simple, and perhaps indirect answer, is “because the economy is bad.”

The next few posts will explore this question “Why aren’t companies hiring?”

A few disclaimers with regard to this series of posts:

First, this unemployment/hiring aspect of our current economic situation is very complex.  This series of posts will present a simplified approach to the question, as to avoid excessive complexity and length.

Second, as with any discussion of our current economic situation, it is of course impossible, and unwise, to characterize all businesses as if they currently are in the same situation.  Obviously, they are all unique; however, there is enough commonality as to be able to generalize to some extent, especially among those businesses that suffer when the economy is weak.

Third, I have many theories as to why companies aren’t hiring; this series of posts will explain some of them.  The remainder will go undiscussed, at least for now, due to a variety of reasons.

Part II to follow…


SPX at 976.29 as this post is written

Copyright 2009 by Ted Kavadas

America’s Economic Future

A little while ago I wrote an article titled, “America’s Economic Future – ‘Greenfield’ or ‘Brownfield'”.  For those interested, it is the first article listed here:

I would like to make a couple of additional comments with regard to this article.

First, in my opinion the topic of America’s Economic Future is not one that receives adequate attention.  At this point, the topic is of the utmost importance. 

Furthermore, the ‘greenfield’ vs. ‘brownfield’ classification is not well understood.  The underlying dynamics are exceedingly complex; yet if we are to have Sustainable Prosperity it is imperative that we enact policies and actions in line with the ‘greenfield’ concept. 

Second, there are no sirens or alarms that sound when a country or region slips from ‘greenfield’ to ‘brownfield.’  It often is  a process that  can go undetected.  Yet, once a ‘brownfield’ condition is attained, it can be difficult, if not very so, to reverse.  As mentioned in the article, the ‘greenfield’ vs. ‘brownfield’ should not be viewed in terms of one country’s (or region’s) condition, but in terms of one country’s condition relative to that of other countries, especially those that might be competitors.  

SPX at 888.98 as this post is written


Copyright 2009 by Ted Kavadas