A recession is technically defined as two consecutive quarters of zero to negative GDP growth. Therefore, in the "ancient" financial history of 2008, it was a year characterized, in our industry, by three great quarters followed by three of the worst months in many of our careers. Technical analysis would suggest that we exited the recession in 2009. I cry BS! If such was the case, then why have headlines proclaimed, and books been written about “The Great Recession?” That Great Recession that they are referring to would be us — those who toil in this industrial sector, providing for the entire infrastructure of the greatest country in the world, or in other words, the greatest show on earth! You certainly know this, as you live this.
Our industry just had the best quarter in the last many years. Combine this with historic highs in the stock market, record earnings and elevated consumer confidence; I suggest to you that it is the Trump Bump! I am not even going to comment again on the election, on the candidates, or the acrimony in Congress, as I have: 1) already addressed such in previous articles, and 2) the discussion itself fatigues me to the point where I want to stick a fork in my neck to stop the pain. Like him or not, this is the first president in a long, long time to lead with an industrial policy. From the podium of his inaugural acceptance, he identified a $1 trillion infrastructure spend, acknowledged the importance of manufacturing and committed to placing our country first.
While many industries justifiably cry foul with foreign goods dumped in our markets, (i.e. chemicals, lumber, fish, pharmaceuticals, paper products, technology and on and on), it is the industrial steel/metals business that will drive trade policy for the next four to eight years. One can easily conclude such with a simple look at those appointed to the commerce department. They are steel people beginning with Wilbur Ross of ISG fame and others. This stacked deck is in our best interest.
In the first 100 days, those that love Trump, love him even more, and those who hate him, hate him even more. Love him or hate him, he is, so far, staying true to his campaign promises. From an observational perspective, his plate has been full in these first 100 days: Infrastructure build, tax reform, the repeal of Affordable Care Act (Obamacare), regulatory mitigation (more to follow), and of course, the incendiary Mexican wall. Let’s also add the not so easy trade, tariffs, and the French election. Further, the unexpected action of Syria chemically poisoning its own citizens, which of course needed our involvement as we are a compassionate nation. Syria’s leadership and other rogue world nations need to know that the world is still watching, including the U.S. Then of course, there is the nut-bag in North Korea with his finger on the trigger. Certainly, it would be nice to have someone else share the heavy lifting. In this case, the expectation is that China might help for once…! In the middle of this Shakespearian tragedy, the repeal of Obamacare fails in the most visible way when House Speaker Ryan couldn’t deliver the votes. Republicans had seven years to develop the replacement program, yet their first launch left much to be desired. The reset, as of this writing, just passed the House, and now moves to the Senate. Furthermore, the Republicans have a monopoly on power: Control of the White House, control of the House, control of the Senate. They have all committee chairs, therefore, all agenda control. Yet they fumble, with a lack of alignment between the Republican Party and the Freedom Caucus. Can they just get their act together and actually lead? The need to find alignment is imperative for as the following exhibit reflects the government is the dominate force of the economy:
So the Infrastructure Bill, $1+ trillion, is alive and well. However, the relaunch of the Affordable Care Act reform will probably temporarily delay the Infrastructure Bill to late 2017-2018. However, rest assured it will be there. If not by inspiration, then by desperation as the nation’s infrastructure is deteriorating.
Now to the most important of all, and of particular appeal to me, is the recognition of the regulatory burden on American industry. As the following exhibit represents, it is a remarkable 12 percent of the world’s largest GDP, or $2.1 trillion!
Here’s the picture: you start a business, take a risk, create employment, and in turn, achieve a profit for your investment in our country. Then, your profits get taxed, or if you will, confiscated. On one hand, I agree that taxation is appropriate as it’s the price we pay for admission to that previously mentioned “greatest show on earth.” Yet, it is somewhat paradoxical that those taxes are then deployed to create and fund additional regulations, staffed with bureaucrats and their obligatory regulatory agencies, which results in rendering us less competitive on a world stage? In effect, adding insult to injury, our own money is used to put us out of business. What doctoral dissertation validated that thesis? In addition, here’s the biggest missed bigger picture: It also renders us less profitable, and therefore, less equipped to create additional jobs and pay additional taxes! Just think the IRS code alone is 74,108 pages, or 187 times more than just a century ago.
In any given year, we create jobs, and we lose jobs. On average, our nation nets three million new jobs a year. Virtually, all new job creation is from employers with less than 500 employees. Small employers are the kings of our economy, yet the regulatory burden on the small company is 38 percent more onerous than a large company. Small companies simply don’t have “the cast of thousands” to navigate the shifting sands of nonsensical, nonproductive, just downright stupid regulations.
In the 1980s, when taxes were lowered during the Reagan era and the regulatory burden on U.S. businesses reduced, 19 million new jobs were created between 1983-1990. The world envied our ability to create jobs. Adam Smith, in his 1776 seminal work, “The Wealth of Nations,” encouraged citizens to pursue their own self-interests, for in the end, the invisible hand of the free market would keep society from being exploited. The free market forces ensure the optimization of a nation’s productivity and thus, our standard of living. Our PVF industry is the poster child for the free markets. It is we, the industrial types, who take risks, create jobs, pay taxes, fund charities, and in turn incurred the indignities of administration after administration who were apathetic to our value. Who are more deserving than us to be allowed to pursue our own capitalistic interests? Have we not paid our dues? We ask simply that the politicians and bureaucrats get out of our way, and let us create the wealth that in turn creates the jobs!
With this Trump Bump, our industry should experience an improved industrial climate with financial returns that will be encouraged and embraced as opposed to vilified.
“I’m not arguing. I’m simply explaining why I’m right.” — Anonymous (but could be my kids!)