Debunking a Few Business Myths

by Rob Spiegel

Without a score card, we experience the current economic news as an onslaught of sky-is-falling doom and impending catastrophe. Yet much of the disturbing news may actually represent positive trends, and some of the encouraging developments may hold dark linings.

Was the Internet bubble a destructive force in our economy? Dumb question, right? Is the Bush administration pro-trade? Must be – it’s Republican. Are we in a jobless recovery? We’ve lost 3 million jobs – what do you think? Is the growing deficit a looming horror that should be quashed by responsible politicians? Of course. We don’t want to leave this horrible mess to our children and grandchildren.

Just read the papers and watch the television commentators. They all agree the answer to each of these questions is a clear and simple yes. There is a ton of economic and business information that comes flooding out to us readers and viewers without context or explanation. Or, it comes with inaccurate context and mistaken explanations.

In actuality, most of the recent economic news is good news, a small amount is bad, and some is mixed. Without a score card, we experience the economic news as an onslaught of sky-is-falling doom and impending catastrophe. Yet much of the disturbing news may actually represent positive trends, and some of the encouraging developments may hold dark linings.

The jobless recovery. What good is a recovery if it doesn’t produce jobs? That’s a legitimate question. But let’s hold off a bit before we stamp this recovery as jobless. One of the pesky qualities of recessions is that when they end, the jobless rate tends to take its good time before responding to up-ticks in economic growth. Anybody remember 1982? We were a full year into a recovery and the unemployment rate kept rising. It hit 10.2 percent in October, a post-Depression high. Most journalists thought we had stumbled into a some new twisted voodoo economic warp crafted by that nasty bunch in Reagan’s White House. Nope, just a lagging indicator. By the 1984 year of Reagan’s re-election, it was “morning in America.” The “jobless” recovery of the early 1980s was follow by a neat 20-year job boom that was interrupted only briefly by George Bush I’s “jobless” recovery.



The Internet bust. Yes, there was a bubble. Yes, stock prices were inflated unrealistically by “irrational exuberance.” Yes, many of the wild IPO’s of the late 1990s involved business ideas crafted in dorm-rooms and sold to venture capitalists who were punch-drunk with the flood of easy capital. And yes, most of those stupid ideas were based on Internet connectivity. But meanwhile, Internet technology developed by responsible, knowledgeable and seasoned business professionals has revamped companies worldwide. Thanks to Internet technology, a procurement professional at a global enterprise can actually see that the company is buying copy paper from 70,000 different suppliers, each selling a ream for $15 a pop. A couple thousand adjustments here and there, and these massive companies are saving ga-zillions.

We have a trade-friendly administration. Aren’t all Republications trade-friendly? Of course they are, unless you want to buy something that contains steel or something to eat. Politics tend to take priority over principle, especially in an election-close state like Pennsylvania (the big steel producer) and in the Republican red states across the farm belt. We tend to think of Europe and Japan as protectionist states. But when it comes to steel producers and corporate farming, the Republican administration has been surprisingly anti-trade with its subsidies. Conservatives don’t like to talk about trade, but it’s their one huge disappointment with Bush.

The dangerous deficit. Gosh that deficit looks ugly these days. And though I believe deficit spending is wise during a recession, sometimes even I lose my nerve. Adding $87 billion to it for Iraq kinda takes it over the top. But the alternative would likely be uglier. Remember it was the combination of falling revenues and sharply increased taxes that turned the stock market crash of 1929 into the decade-long Great Depression? The deficit will need some attention once the job market improves, but an improved job market will do wonders toward reducing the deficit just as it did in the late 1990s. Until then, we need the simulative spending.

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur’s Guide to Internet Start-ups (St. Martin's Press). You can reach Rob at robspiegel@comcast.net

 
Free small business newsletter
 
Get great business ideas and advice like this sent to you in email twice a week.
 
Subscribe to the free Business Know-How newsletter. 
 
Enter your primary email address below

 

Follow Us and Share