Productivity and Modern-Day Horse Manure
By John Mauldin
Jul 17, 2015
- the number of workers, and/or
- the number of hours they work, and/or
- the amount they can produce in an hour.
- Companies that “get it” succeed by creating entirely new markets, as Apple did with the iPhone. They can also disrupt old ones, as Uber is doing to the taxi companies.
- At the same time, it will still be possible to have a good business without disrupting anyone. If the economy is growing and/or you serve a growing demographic niche, you can do quite well.
- With central banks driving down interest rates, savers and investors saw their incomes reduced. The losses they incurred limited their ability to invest in business startups. While we all celebrate Silicon Valley and the venture capital business, the reality is that most small businesses are not started with venture capital but with personal savings and investments or loans from friends and family. When you reduce the amount of money available on Main Street, it should be no surprise that you get fewer new business startups. In fact, for the first time in the history of this country, we are seeing more businesses close than are started. The Federal Reserve would contend that low rates make the cost of money lower, but very few new businesses get started with just bank loans from a small community bank.
- Instead of going to the people and businesses who could have made best use of it, all that money simply drove asset prices higher – mainly stocks and real estate.
- Financial engineering became the mantra of the day. It is now cheaper to buy your competition than it is to actually invest in equipment or people and compete with rivals. Or you can borrow money cheaply to buy back your own stock, thus engineering increased profits per share and bonuses for management all around.
- Meanwhile, the Obama administration and Congress gave us financial regulations (Dodd-Frank) that drove a lot of innovation out of public markets and into Silicon Valley’s private ventures. This is certainly spurring innovation – but innovative people elsewhere still struggle to raise capital.
That was “normal” just 20–30 years ago. Now it is just a dream.