December 2016

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The interplay between politics and the macro economy has shaped our business environment since 2008, often in adverse ways, and will continue to do so.

The last eight years have been marked by a toxic partisan divide between Congress and the president. This adversity often resulted in politicians engaging in last-minute brinksmanship — threatening to default on debt or shut down the government — to extract concessions in an ongoing ideological battle.

Heading into the new legislative session, many have already suggested that it is now the Senate Democrats’ turn to use the tactic most recently employed by Republicans to inhibit presidential action: the filibuster. The parties have flipped, but the gridlock that has prevailed will remain.

Americans are frustrated with the brinkmanship, and this electoral cycle reflects that, according to polls. Some figure the solution is now simple: take away the filibuster through a change in Senate rules, and allow a simple Senate majority to govern all decisions. When coupled with a Republican president and congressional majority, this would break the ongoing deadlock.

The financial markets are clearly expecting this to be the case, anticipating significant tax cuts, healthcare changes, lax regulation and higher inflation. They are counting on Republicans’ expressed policy intentions. And markets don’t care about ideology, they care about predictability.

The question now is: Will calls to eliminate the filibuster be successful? I have sincere doubts. There are a number of long-term Republican senators who respect the customary practices of government, and recall the filibuster’s usefulness when they were in the majority. It’s unlikely they will vote to change a tool that has been a long-standing protection against simple majority rule.

So the threat of gridlock remains — not necessarily along Democrat/Republican ideological differences, but along those developed within the Republican party between Tea Party conservatives and establishment Republicans.

It will become apparent in 2017 that Tea Party conservatives’ expectations will not be met. For example, establishment Republicans will be less willing to take health care benefits away from working Americans, cut social security or turn Medicare into a voucher program. Look closely for conversations that have already begun in the Republican Party for how to deal with the Affordable Care Act or the funding of Planned Parenthood, for early indications of this coming ideological divide.

Meanwhile, Democrats will have little interest in crossing the aisle to work with establishment Republicans, choosing instead to watch further fractures within the GOP.

My prediction is that the resulting dysfunction may at first appear to be along party lines, but that by the middle of next year, the more profound split will be within the Republican party itself. How that split is addressed will be the largest factor shaping our country’s prospects for 2017. Anyone hoping for a quiet year will be disappointed.

The discord will make investing in the stock market next year riskier and the federal government’s borrowing costs jump.

Next week, I’ll offer my reasons for these conclusions and other likely trends in the financial markets for the coming year. Some of them will be due to government dysfunction — but not all of them.

Column originally posted in

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Russian hacking. Did it affect our election? Did it happen at all?

The use of force by a nation is an extension of political policies. For millennia, nations have engaged in war as a tool to achieve national ends, or sometimes as an end in itself — waging war to create a national political consensus or to deflect attention from ineffective domestic policies.

Until World War I, wars were fought between military forces. Populations were largely not active participants. However, starting in World War I, direct attacks on citizens became part of warfare with the bombing of London by Germans.

This addition of civilians as a direct target underpinned war strategies in World War II and beyond. Now, the balance of terror — the possibility of a direct and enormous attack on a nation’s citizens — is the basis of war and its deterrence.

There have always been rules for how nations engage in war through international treaties and customary practice. As the calculus changed and force projected onto civilians became an accepted practice, a global consensus emerged for how and when this would occur.

There was an expectation of proportionality: conventional force was to be met with conventional force and nuclear weapons with nuclear weapons. National security — the process of protecting American citizens — functioned within these clearly described expectations. War was to be waged by nations through their militaries.

However, over the last 15 years, we have seen this international consensus erode significantly. For example, we struggled with the correct military response to the September 11 attack on the World Trade Center carried out not by a nation, but by a terrorist group. More recently, Americans were unsure how to react when the North Korean government cyber attacked the servers of Sony, a private company.

Enter cyber warfare. Each day we are more reliant on software and the Internet as the backbone of our economy, and that leaves us vulnerable. Consider the chaos that would be caused by a widespread outage of power that lasted weeks. Or, the incalculable cost of a widespread disruption of our financial markets or records. Imagine the cost to our national discourse if the information we rely on is tainted by intentional misinformation fostered by a national adversary. Each of these harms could occur through nothing more than the use of software and computing power.

We have grown up with the expectation that America’s most existential threats would come from other countries using physical force against us. We are armed and have adopted policies for how our military would retaliate if attacked. We have a plan for how to react if another country dropped a nuclear bomb on Washington, or if it sent paratroopers to capture an oil pipeline in Saudi Arabia. This is the basis of our national security — because our adversaries know in advance how we would react, they are deterred from attacking us through use of force.

But, what’s our plan if the use of force isn’t physical force at all, but the use of software and hacking skills? Do we have a plan when the attackers themselves might be acting on their own and not part of a country’s military plan against America? What is our plan if the attack is on our businesses and citizens directly?

Deterrence — the promise that force will be met with force — is the backbone of our national security. Clarity on what constitutes warfare in the 21st century must be determined, and expectations of our likely response to a cyber attack must be clearly described to both friend and foe. Failure to do this will only embolden those who wish to do us harm.



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It was recently argued that as a nation we have lost our ability to create new industries out of big ideas, meaning fewer high-paying jobs and weak economic growth. As someone who converts ideas in actions for a living, who is working to make sure the region does not lose its innovative edge, I find it is not our failure to have big ideas that threatens us, it’s that we don’t capitalize on our big ideas.

We tend to think that our national economy is best left to the free market. Many of us equate regulation and government intervention as inhibiting the free movement of ideas, capital and labor. Stock market values of companies in regulated industries have increased dramatically over the last month as it becomes clearer that President-elect Donald Trump is committed to lessening government involvement. Some predict accelerating economic growth and job creation.
However, a blanket reticence to regulate may impede our ability to convert new ideas into industry. When it comes to creating conditions for new industries, the government has a huge role to play.

Our economy does not grow at a consistent rate. Its growth rate expands most dramatically during an industrial wave — meaning a period where a new technology is broadly adopted, changing the fundamental underpinnings of employment, entrepreneurship and capital. Consider intercontinental railroads, automobiles, electrification, radio, television, semiconductors, software, the Internet, wireless communication and mapping the human genome and the effect each had on the creation of commercial opportunities. Each of these technologies fostered industrial waves.

The federal government’s role in creating the conditions for industrial waves is demonstrable.

For example, the adoption of the intercontinental railroads was driven by a desire for a mechanism to transport federal troops around the nation. The government ensured that standardization of trackbeds occurred, created time zones to keep trains on schedule and adjusted freight rates so they wouldn’t choke farmers and businesses relying on railroads to transport their goods.

We can thank the federal government’s breaking up AT&T’s longstanding monopoly in telephony for our rapid adoption of new telecommunications technologies, the growth in consumer alternatives for long distance, and wireless. In fact, the underpinnings of the Internet and mobile that have driven these new alternatives were funded and fostered by research and development from our Department of Defense.

Ideas becoming industries are at the heart of disrupting the status quo. Just like an old tree must fall for the sapling to find the sun, incumbent companies must step back so others can rise. However, large companies will not simply cede so others can succeed, and those profiting from the status quo will not merely stand aside to allow the future to emerge. Interestingly, the federal government is often the woodcutter clearing that forest, or the gardener protecting the saplings.

Look at current technological ideas that that could emerge as new industrial waves: artificial intelligence, alternative energy and conservation, artificial life or proteomic medicine and see also large established businesses happy with the status quo which are often standing in the way.

Sure, we want a market free of government intervention, but we might be creating conditions that inhibit our growth. Sometimes government intervention is both necessary and desirable, and it is our duty to remind the incoming administration of that distinction.

Column originally posted at

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Since the financial crisis of 2008, a recurring theme in our national debate over the role of government spending has been the imminence of currency devaluation and inflation due to chronic budget deficits.

Suddenly, as President-elect Donald Trump prepares to work with Congress to cut taxes and dramatically increase the federal budget deficit these same voices are muted.

Shouldn’t we be hearing those same shrill voices now?

They warned us that inflation was unavoidable if government spent money to reinforce an economy that was on the ropes after a financial calamity. They predicted that inflation was inevitable if we invested in infrastructure. They portrayed the Obama Administration as profligate.

The cudgel used to support their message was that financial markets would punish the United States through higher interest rates and a lessening of investment activity. That message clearly carried weight. The federal budget deficit fell consistently during the Obama Administration. Federal employment grew at rates below any Republican administration in modern times.

Through it all, inflation stayed muted and interest rates rested at historically low levels. Statistics proving these assertions are there for all to see; the inflationary crisis simply didn’t occur.

Those who had loudly lobbied for fiscal restraint claimed credit.

But there is a counter argument. The global economy is in a deflationary state — not inflationary. Subdued economic conditions around the world provided a ready buffer against any inflationary pressure that might have been created by a larger federal budget deficit. These conditions exist to this day.

Even skeptics agree that free markets don’t lie. Financial markets — buyers and sellers of the lifeblood of commerce — provide a real-time dispassionate view of expectations for inflation and future growth. In this, the deficit scolds are correct.

The punishment of the financial markets that has been threatened for the last eight years may now be closer than ever. Interest rates on mortgages for homeowners, bank loans for small businesses and personal revolving debt are increasing. Nothing suggests this is a short-term phenomenon.

Meanwhile, the stock market has gotten a boost of adrenaline, as regulated industries such as financial services appear likely to benefit from a period of lower government oversight. However, interestingly, technology companies — the source of substantially all our net economic gains over the last eight years — have lagged.

Financial markets are telling us to expect more inflation and less economic growth.

Where are those voices that so loudly reminded us to limit our federal spending? Some remain, but many have changed their tune.

Now these voices state that a growing federal budget deficit will not be a problem. They make a distinction between deficits due to higher government spending and deficits resulting from tax cuts. They argue that tax cuts will pay for themselves in growth and subsequent deficit reduction. This is not an assertion supported by historical economic data; neither the Reagan nor Bush tax cuts paid for themselves. More importantly, the financial markets don’t appear to agree.

As someone who works with small businesses, I can attest that rising interest rates and inflation would be a big problem for business owners. They are also the enemy of those on a fixed income or with minimum wage jobs.

The markets just might be telling us that the incoming administration is creating conditions for an economy that will harm ordinary Americans. Markets don’t lie. Shame on us if we don’t pay attention.

This column was originally posted at


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