On my third election forecast I was finally correct in anticipating the Republicans taking control of the Senate. The Republicans were more successful across the board than anticipated by taking at least 7 Senate seats (this could increase to as many as 11), 12 additional seats in the House of Representatives and 3 governorships. I interpret these election results as a voter denunciation of the anti-growth policies of the past 6 - 10 years (yes, I think George W. Bush’s administration was responsible for many anti-growth policies also) and not an indication that the voters favor other Republican policies.
I recommend you read Brian Westbury’s commentary on the election.
There are five philosophies or directions that produce increased economic growth:
- Moderate tax rates across a broad base
- Spending controls limiting government spending to receipts
- Sound monetary policy–a strong dollar
- Minimum impediments to free trade (trade with everyone)
- Regulatory reform to have only required, necessary regulations, e.g. driving on the right; a pull back from regulatory overreach
Economic growth benefits everyone. For example, with higher growth we can have the same level of government funding for a lower percentage of overall GDP, leaving more wealth available to individuals and families. As Milton Friedman said, "All government spending is taxation." Economic growth doesn’t benefit everyone equally, and that seems to me to often cause wrong-headed policies in an attempt at “fairness” that results is everyone being somewhat worse off.
“The government that is big enough to provide you with everything you’ll ever want is also big enough to take everything you’ll ever have.” Ronald Reagan
I anticipate that we will continue to move towards pro-growth policies at an increased rate. I also anticipate President Obama will continue to promote policies that are anti-growth, and will resist any rapid or dramatic shift towards pro-growth policies. What I see as possible in the next two years includes:
- Corporate tax reform – there is broad bipartisan support for reform that lowers the highest marginal income tax rate from 35%, and eliminates a number of exemptions, exclusions, deductions and tax expenditures. Art Laffer anticipates corporate tax reform that lowers the rate and broadens the base, bringing the U.S. rate in line with the OECD average, thereby reducing or zeroing out any excess taxes owed upon repatriations. This single policy change would encourage economic growth providing incentives for multi-national companies to increase investments in the U.S. Decreased corporate tax rates will also increase the value of the companies that benefit (by increasing earnings).
- Increased defense spending.
- Additional Free Trade Agreements – there are two large free trade agreements presently being negotiated: the Trans-Pacific Partnership (TPP), a regional free trade agreement with Asian and North and South American countries around the Pacific Ocean; and the Transatlantic Trade and Investment Partnership (TTIP), a free trade agreement between the European Union and the United States.
- Repeal of the Medical Device Tax.
- A go-ahead for the Keystone XL Pipeline.
As you plan for 2015
Focus on the fundamentals:
- Produce positive cash flow every month or quarter
- Accumulate and maintain surplus capital for a sufficient margin of safety
- Maintain or constitute practices of competitive learning throughout your organization
- Maintain and expand your networks of strategic and tactical help
“Without discipline, there’s no life at all.” Katherine Hepburn
- Get and keep expenses below revenues on a monthly basis
- If you wish to invest beyond the capital produced from profits, raise additional financial capital, including a margin of safety, before beginning to spend
- Commit and organize to grow faster than your market
- Refresh your marketplace analysis to think through what current economic drifts mean to your customers, to your firm, and what strategies this make attractive
- Deconstruct the offers and sales strategy of successful competitors; understand their marginal utilities and how they produce transactions
- Redesign your sales strategy to lower costs and increase results
- Reassess your capital structures and take action appropriate to a changing economic environment
Hear the words of prudence, and store them in thine heart; her maxims are universal, and all virtues lean upon her; she is the guide and the mistress of human life. Akhenaton
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