Can Anyone Steer This Economy?

Business Week‘s Michael Mandel asks this question in the cover story.  It says, in a nutshell, that Democrat victory in the election won’t change much about the economy.  He’s kind of right, but with entirely the wrong tone.

He’s right to downplay the role of policy.  The American economy determines who to produce, how to produce it, and who to sell the output to by the independent action of 300 million consumers, plus a bunch of foreigners.  We are not centrally planned.  (Repeat that regularly until it becomes second nature.)  That’s the key point that Mandel misses.

He’s wrong in one important element.  Mandel says that Federal Reserve policy is not as effective as it once was.  In truth, the Fed has as much power as it ever did.  True, the Fed may now have to push the lever farther to get a given level of response, but they can still get pretty much any response they want.  What they can do is to stimulate the economy or slow it down, within a wide range.  They can’t double economic output overnight, but they can certainly goose nominal (not adjusted for inflation) spending in short order.

However, the tools to do much of anything else are weak.  Can we help the middle class earn more? Interesting question.  Most of the forces at work are pretty big and not controlled by the government.  Technological progress, poverty, and the BCS are all very complicated issues, not easily addressed by policy.  Yet policy influences them, somehow.  But nowhere in Washington DC is there a lever that says, "Push right to increase poverty, push left to reduce poverty."  And certainly many of the time that we’ve tried to reduce poverty, we’d actually made it worse.

Business Strategy Implications:  If you do business with the government, you need to study how the election will impact you.  The rest of us should go forward concentrating on our clients and how to serve them.  Don’t expect big changes from the government sector to impact your business.