Businesses need predictability to plan, invest and expand. Is this a theoretical understanding of how businesses work? No -- it comes from the reality of practice.
While earning an MBA in finance and the Chartered Financial Analyst designation, I learned the theories of corporate finance and investing. With this solid foundation, I worked for more than a decade in operational, corporate finance, deciding when to hire, when to fire, when to invest in additional capital equipment and when to sever financial obligations due to uncertainty.
From my first job during business school valuing businesses to my most recent financial position heading up corporate financial planning for a $3 billion business, I learned that there is one thing that corporate finance likes: stability. This allows businesses to plan, to hire and to create contracts.
We're all looking for economic growth, especially the 14.8 million people currently unemployed (according to Bureau of Labor Statistics, Nov. 5 release). In addition, 9.2 million part-time workers would prefer to have full-time jobs. Another 2.6 million people are not counted among the unemployed because they have given up looking.
Add up the unemployed, the part-time who would like to be full-time and the discouraged workers, and you find 26.6 million people are either unemployed or underemployed.
This is an enormous national resource that is being wasted. The vast majorities of these people want to work but cannot find jobs. There is ample supply but little demand.
The Obama administration attempted to solve this unemployment problem by passing stimulus spending, projecting that the injection of $787 billion of government spending (from borrowed funds) would prevent the unemployment rate from exceeding 8 percent.
We're at almost 10 percent.
So much for government micromanagement.
If government can't create jobs, who can?
Businesses. Businesses that create products and services that provide value to consumers produce revenue. They, in turn, hire new employees to produce more products and services for their customers, producing more and more revenue.
That takes us back to where we started. What do businesses think about when hiring? Stability, certainty, the ability to plan for costs and benefits of hiring.
What do businesses hate? Uncertainty.
Today, with the Obama tax hikes in play (these were the Bush tax cuts), a possible repeal of Obamacare (and if it is not repealed, uncertainly of what it means to businesses when phased in) and the recent Federal Reserve injection of monetary stimulus to the tune of $600 billion, the business climate is anything but certain.
In these uncertain times, it helps to remember what stability looks like.
Calvin Coolidge, who became president after Warren G. Harding's sudden death in 1923, is an often-overlooked president. He provided a steady, stable foundation for business, however -- one that allowed the American people to succeed. Coolidge is one of the patriots described in my most recent book, "The Essential American: 25 Documents and Speeches that Every American Should Own" (Regnery), which will be released next week. In my chapter on Coolidge, I wrote:
"Calvin Coolidge was a champion of freedom, liberty, hard work, thrift, economy and perseverance. He believed that the people, not the government, are the basis for our success as a nation. His belief in people was grounded in his faith in God.
"'I favor the policy of economy,' he said in his Inaugural Address, March 4, 1925. 'Not because I wish to save money, but because I wish to save people. The men and women of this country who toil are the ones who bear the cost of the government. Every dollar we carelessly waste means that their life will be so much the more meager.'
"While in office, Coolidge ran a budget surplus every year (the last president to do so), the average unemployment figure was about 3.3 percent, and the inflation rate was 1 percent. He accomplished this while cutting top tax rates from 73 percent when Harding took office to 25 percent. The national debt was one-third less at the end of Coolidge's term than it had been prior to him becoming president. As he put it simply, 'I want taxes to be less so that the people may have more.'"
Coolidge believed government could help by providing stable, unobtrusive policies; by encouraging, not encroaching and clearing a path rather than dictating a process. What Coolidge provided was consistency, a value particularly important for businesses, which need predictability to plan, invest and expand. He had an incredible record of performance, one that is in need of an encore today.
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