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vol. XVII no. 1
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Q&A Continued
Outsourcing gets undue blame for lack of job growth. It is partly responsible, but the biggest factor is business process management - eliminating labor with the help of technology.
What bright spots lie ahead this year?
The mood of the people is very good, and that will lead to more retail spending. And some companies are beginning to open their wallets, so capital spending will pick up. Housing will remain pretty strong. On the export side, with the dollar getting weaker, there will be boosts to exports.
What concerns you the most about the economy?
My concern is that there is always a spending boom in an election year. The bill comes due later. I still am worried about random factors, like SARS, that can shut down a country or a trading system. I'm also worried that if job growth doesn't come around this year, then it can impact the housing market as well as state tax revenues. And if for some reason the traders in the bond market overreact about the trade deficits and fiscal deficits and the 10-year bond rate goes up very quickly, that is going to cause a debt problem all over. Then the cost of servicing the debt will go up, the market refinancing boom will go away and housing starts will dry up, and that can take away a lot from growth in 2004. So the random factor is: "How will the bond traders react to these growing deficits?"
What do you predict for the stock market in 2004?
I cannot forecast where the S&P and Dow will be. But I can give you a general idea of the direction. Barring some unseen catastrophes, this market will again finish on a positive note this year.
What effect have the Bush administration's tax cuts had on the economy?
The effect has been positive, as we saw from the growth rates in the third quarter of last year. And the coming quarter is also looking pretty good. My view is that tax cuts are always good for long-term growth. However, if you get immediate benefits, they are usually not long lasting.
Do you see any signs of deflation in the economy?
The traditional definition of deflation is a falling consumer price index. Well, that's great for the economists to talk about. The companies don't live with the indexes; they live with the hard-core revenues generated on the spot. To me, deflation is when the revenues of companies are not growing or are even falling. Look at Cisco and GE. Their revenues have been flat or falling for the last three years. That is deflation because it boils down to the system. Lack of revenue growth for a company is my new metric of deflation. Show me the money, as Cuba Gooding Jr. said.
What will be the impact of the Bush administration's immigration proposal?
The idea of the immigration reform is sound in theory but I think it is going to run into trouble in practice. If a current illegal becomes a legal, you have to pay him a higher wage and higher benefits. Which means, who is going to do his job? The new incoming illegal is a perfect substitute for the current illegal. If you can't stop the future wave of illegal immigrants, this new plan just adds fuel to the fire.
In the U.S. economy, what industries hold the most promise?
Any industry that is related to health, to business process management and to technology or biotechnology will do very well. Everything else will play a supporting role. Manufacturing won't have too many jobs created, but the value of the output will keep on growing. And in the services sector, you may have to start wondering about the quality of those jobs.
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