Friday, December 26, 2008


I share at at least one common experience with all my friends and colleagues in the Peace Corps Community, we have all had active roles in the global economy, some for just that two year period of service, for others, including myself, it has been a lifetime occupation.

As a US Government official I promoted American trade and investment with the world, negotiated and some times even wrote treaties and agreements to facilitate trade and investment, wrote investment climate statements for several countries that provided guidance for American investors, resolved trade disputes, provided US Government financing and other support for major exports, wrote the documents that allowed US banks and insurance companies to operate in other countries, and organized and conducted trade and investment missions and trade shows. I also wrote, negotiated, and implemented instruments to control exports to and imports from other countries, as well as controls over American investments in other countries and their investments in the USA.

In private business I established a new joint venture between an American and foreign firm. I reorganized and got formal operating permission for a new US company in a foreign country. I ran the US operation of a foreign firm. I reorganized a foreign company to outsource production to another country. I had my own company in the USA importing from abroad. I still sell US real estate to foreign buyers. I advise companies on international trade and investment. I have even been perhaps that quintessential operator in the global economy, a foreign currency trader.

No wonder I am a unabashed proponent of globalization and the global economy. It is in my blood. I cannot imagine a world without it and am certain that it is here to stay. I saw this future when I was 18 and am pleased to see that I was on the right track.

Why do I have such commitment to globalization? Beside being inevitable, I see its positive contribution to mankind's progress.I see the global economy as being a means to prevent strife and conflict between countries, if we work together, we are less inclined to wage war on one another. The prime example here is the European Union. This international economic union has served to pacify the region that produced the worse conflicts in mankind's history.

By working together countries achieve better results for themselves. A fundamental principle of the American economy is free competition. It insures the consumer the best product or service at the best price. The principle works on an international scale as well. Free movement of goods and services between countries insures that the consumer gets the best product or service at the best price. If you doubt this, check the origin of the clothes, shoes, watches, and other items worn by those protesting "globalization."

The global economy allows the transfer of resources from the rich to the poor countries. No better example of this than the monumental strides being made by the Chinese economy that is the direct result of greater participation in the global economy. The largest of the poor has pulled itself up the economic ladder, not through receiving large inputs of foreign aid, but by becoming a key player in the global economy. Ditto for India. One can also see this in the massive transfer of wealth allowed by the global economy from rich countries to the oil producing countries. And now that they are rich they are transferring wealth to the poor as well, e.g. the huge army of workers from less wealthy countries earning their livings in these.

Of course we have always had a global economy to some extent. Marco Polo did not visit China for a vacation. He was an international trader and he went to the source of some major trade goods to gain direct and better access to the supply. The Roman Empire lived on grain produced in Egypt.

No, we have always had a global economy. The difference now is that the fulcrum of our economic well being is no longer our domestic economy, but the global economy. It is no longer the icing on the economic cake, it is the cake. No better example of this is that the first step we took to manage our current financial crisis was to coordinate our actions with those of other countries. We have to, since the most flexible and mobile item in international trade is money. It flows like water sloshing from one shore to another.

Yes, the global economy and "globalization" are here to stay and constitute a major aspect of the "New Economy." No longer can government officials take actions and formulate policies that look inward, they must look outward first.

A classic example here is tariffs on imports. Believe it or not until the late 1800s the major source of revenue for the US Government was tariffs on imported goods. I have been in some countries where they charge tariffs on exports, as well as imports. Raising tariffs imposes a barrier on the free flow of goods and services. It prevents the consumer from getting the best product or service at the best price. Reducing or eliminating tariffs allows the free flow of goods and facilitates the consumer getting the best product or service at the best price.

So why have tariffs? First, to raise government revenue. My old tax teacher said there are two elements of a good tax, first it collects sufficient revenue to pay expenses and second it is easy to collect. Tariffs are probably the easiest tax to collect other than fees for government services such as registration of deeds. So they clearly comply with rule two of my tax teacher's maxim. But it is hard for them to provide sufficient revenue since they are applied to a relatively small part of the economy, i.e. imports. Far more revenue comes from a sales tax that is imposed on all goods and services. Tariffs are also used to protect fledgling industry in developing countries. The idea here is to raise the cost of imports to a level where you can make a price competitive product domestically. Obviously this distorts the most efficient use of resources, but it does allow a country to build an industrial base. The usefulness of this practice has occupied centuries of debate so I will let it stand at this simple statement.

Regardless of how you view tariffs, they do constitute a barrier to international trade. The US has several bilateral and multilateral agreements to reduce tariffs and I have worked closely with these. I remember when I returned from Mexico to Washington one of my Foreign Service colleagues working on the Mexican Desk warned me that the then being negotiated NAFTA Agreement was not a done deal and may not be adopted. I replied, "It doesn't matter if the agreement is adopted or not, since it is simply describing history, not setting a new course." By then 9 of the 10 largest Mexican exporters to the USA were US owned companies. Thus bilateral trade would continue to be dominated by US companies.

Now you can rant against bilateral and multilateral trade agreements but to change them simply frustrates the most efficient utilization of resources. More importantly, you make it harder for the consumer to get the best possible product or service at the best price. I am on the side of the consumer.

Along with tariffs there are a whole host of government actions that impinge on the global economy. But I see all of these being swept away by the irresistible demand to get the best possible product or service at the best price. The proof of this reality is that most of those protesting globalization are wearing attire made in China.

Leo Cecchini

Tuesday, December 23, 2008


As you all know I find the concern about foreclosures of mortgages overblown. The actual foreclosure rate for mortgages stands at 2% when it was 1% in 2004 and 2005, before the meltdown in the housing market. Most people are convinced that people will not pay on their mortgages if the house is worth less than the balance due on the loan. But this has not happened in a major way. I insist that the foreclosure rate has not increased to the extent that it should destroy the economy.

No, the actual case is that people have seen their home values decline to the point that they are worth less than the balance on the present loan. Therefore, they are not able to borrow more against their home. Thus they feel more poor and have cut back their consumption.

Regardless of the debate as to the real importance of declining home values and the actual rate of foreclosures, there is a way to make it easier for people to stay in their homes. We hear about auctions of homes with foreclosures due to nonpayment of the mortgages. What about the auctions of homes for nonpayment of taxes? As far as I can determine, the auctions for nonpayment of taxes run about the same rate as those for nonpayment of mortgages. So how to remedy this? Easy, the government simply suspends collection of all or part of taxes on the homes. This would make it easier for people to stay in their homes. And this is a direct action, instead of government lending to banks in the hope that the banks will lower interest rates on mortgages and thereby help people stay in their homes.

What's that, the property taxes are local taxes so I am asking local governments to rekindle the economy. Well Uncle Sam has a fund to use to encourage banks to lend more money to home buyers. Why not use that fund to compensate local governments for the loss of property taxes? It could be done the same way as with the banks, the Feds lend the local government money.

Now I hear lots of people say that those who lose their homes because of mortgage problems should not have bought the homes in the first place, they had no right to buy the home. So what about those who lose their home for failure to pay taxes? I guess they should never have bought the home since they cannot afford the taxes.

Local governments already reduce taxes for some home owners. Florida just adopted a law to reduce property taxes for many more home owners. Two comments here, first this has not reduced the rate of foreclosures due to nonpayment of taxes and it is unfair to those who must pay the taxes in full. Yes, I am familiar with the arguments for these lower taxes, but they do not reduce the rate of foreclosures due to nonpayment of taxes and they remain inherently unfair.

So how do I see the situation? Focusing on keeping people in their homes misses the point. The foreclosure rate is still relatively low. Curing this problem will not solve the overall economic slump. It will only allow people to stay in their homes, a good in itself, but not the solution to our economic problems.

As any good economist will tell you, the answer lies in pumping up demand. No demand, no production, no economy, which was my first lesson. Now one way to do this is for Uncle Sam to spend more, which he is doing and will continue to do. Another would be to have home prices increase, thereby increasing the ability of homeowners to borrow, as they have been doing in spades over the last decade. This also makes the home owner "feel more wealthy" and thus able to consume more. I guess the real debate should be over if we should stimulate the economy with public or private expenditure.

This then becomes the old debate about consumption. I come from the proposition that we cannot consume too much. I do not get into the debate about what is a "proper" rate of consumption since that has to do with value judgments, not economics. In fact my definition of economics is, "to satisfy the perceived needs of the people." The key word here is "perceived." I do not question the validity of the need, leaving this to my Neo-Calvinist friends.

I answer any discussion of what constitutes the "proper" level of consumption with Leo's "Magic Number," 2222. Now what does that mean? The human body survives on 2000 calories a day, 200 centiliters of water, and an ambient temperature of 22 degrees Celsius. Less than this and the corpus soon expires. Now we can get to the 22 degrees with clothing or shelter or heat, but below that temperature one expires in a matter of hours. My point is that anything over my number 2222 can be called excessive consumption.

Regardless of what constitutes the proper level of consumption,we need to pump up demand right now to revive the economy.

Leo Cecchini

Thursday, December 18, 2008


In my last blog I said Uncle Sam is now borrowing funds, i.e. selling Treasury Bonds (T-Bills), that pay "zero" or "negative" interest which means interest rates that are less than the inflation rate. He is using this "free" money to buy private sector assets. One example has been using the "TARP" fund to buy a large stake in major banks. Well that initial $250 billion buy has already delivered a gain for Uncle Sam. It is calculated that his stake in the banks has yielded a 3.2% gain in one month! Any investment adviser would be overjoyed to see his client's portfolio do so well.

And just think, Uncle Sam should wind up with maybe $3 trillion worth of assets. Now not all will pay as well as the bank shares, but we can expect an average rate of return of at least 5% per year (a truly modest estimate since he already earned 3.2% on the bank buy in one month). That would mean $150 billion a year, a good new revenue stream for Uncle Sam.

Even more stunning to contemplate is the fact that, when Uncle Sam sells these assets for a profit, he will not have to pay capital gains tax. For that matter, he will not pay one nickel in tax on any of his earnings.

As far as I am concerned I would applaud Uncle Sam buying as much of private sector assets as he can. It simply means that he will have less need to tax me. Think of the Vatican that earns more from its assets than from donations.

We are truly on the cusp of a dramatically "new" economy.

Leo Cecchini

Friday, December 12, 2008


Events dictate that I rearrange my series schedule. Instead of discussing the role of "globalization" in the "New Economy," I will talk now about the effect of the growing role of government as the major stake holder in the private sector.

We are now on the verge of Uncle Sam moving from acquiring banks and other financial institutions, to acquiring manufacturing assets. The Senators who voted against the rescue for Motor City's motor makers did have an excellent point, they insisted that, for the companies to be competitive, they had to pay wages on the same scale as their hot competitors, i.e. Honda, Toyota, Nissan and BMW, PAY IN IN THEIR US FACTORIES. Anyone who wanted to understand whey the "foreign" makers were doing better simply had to look at the difference in wages they paid to their American workers and the wages paid by Detroit. By the way, weren't all those jobs in Honda America "outsourced" from Japan?

No matter, Uncle Sam with its massive influx of funds from T-Bills has enough dough to buy up General Motors. I guess that will give real meaning to that old line, "What's good for General Motors, is good for the USA." The main debate will be how the Feds deal with restructuring the auto makers after it becomes a major, if not the principal, owner of the companies. Then we will see our law makers duking it out over how a "publicly owned" business treats its work force. I believe this was the major hurdle Renault had to overcome to survive in the auto business, definitely a potential dilemma for incoming President Obama.

Funny, the Senators who voted against the auto rescue plan for fear of growing government control of the private sector, have acted to insure that this will happen in a more direct way. Instead of being a lender to the industry, Uncle Sam will be an owner. Talk about unintended results.

Now let's review the situation. The "Financial Crisis of 2008" - too early to call it "Great" - has allowed Uncle Sam to acquire a massive stake in our financial industry. He has acquired large stakes in the major banks and sundry financial groups, the largest insurance company, and the heart of our mortgage industry. Enter becoming the major owner of the very symbol of America's industrial might, the auto industry. And right around the corner lurk the aviation industry, energy, and health care. Who knows, maybe his future acquisitions will be Microsoft and Google? Well the Feds did create the Internet so this would not be Terra Incognita for them.

Now as you all know I am a solid Republican and avowed opponent of higher taxes. But then I fed too long at the public trough to fear "intrusive or insidious" spread of government in the private sector. We already learned a great lesson in the
1990's when the Republican Congress stopped Federal government spending - we all feed at the public trough, some of us are just closer to it. That short suspension of spending sent the economy into a tailspin. Republican legislators quickly learned that being against the government's growing influence in our economy was akin to being against motherhood.

I take a fundamentally different stance on government's growing ownership of the private sector. Rather than seeing it as a threat, as an opponent of higher taxes, I see this as the perfect solution to expected budget deficits. Instead of having to raise taxes, Uncle Sam will be able to pay for future spending increases out of his earnings on his investment portfolio.

You will remember that President Bush tried to move the Social Security System to a more fiscally responsible operation by allowing payees to invest part of their payroll taxes in the private sector. He was defeated by those crying out against breaking into the "Locked Box," led by Al Gore. Not to spend too much time on it, but you have to understand that, by law, all surplus Social Security funds, i.e. funds collected, but not required for current expenditures, may only be invested in US Treasury Bonds, i.e. Federal debt. This is usually described as using payroll taxes to fund current expenditures, but this is actually done by issuing bonds to Social Security, i.e. borrowing from Social Security. As an aside, I say to all those who lament our growing federal debt, that they should applaud that debt, since without it, there would be no place to invest surplus Social Security funds.

The problem with investing Social Security funds only in federal debt is that this yields relatively low earnings, since the bonds yield low returns - in fact, at the present they pay zero or negative interest. Those arguing for allowing payroll taxes to be also invested in the private sector simply wanted to make the fund operate like any other retirement system, i.e. have a balanced portfolio of investments that offers a higher, yet still conservative, rate of return. This higher rate of return would have allowed the Social Security System to continue to meet increasing expenses without raising the payroll tax.

Well "privatizing" Social Security didn't work. So what we could not do by formal plan, may be achieved by a circuitous route. As it acquires its massive pile of private sector assets Uncle Sam will have a major new income stream, i.e. earnings on those assets,. These new earnings will allow him to cover future increases in Social Security payments, as well as Medicare and Medicaid and other government expenses. For an old tax opponent like me this is great news.

Of course there remains the question of how the Feds will use their new control over private business? We have plenty of examples of poorly run state enterprises to cause concern. To be more specific, how will an auto industry, whose largest share holder is Uncle Sam, respond to labor demands? On the one side he will have to placate workers, who are voters, on the other side he will have to preserve his earnings as an investor that he will need to pay for public expenditures. I see a whole new branch of economics coming into fashion, "Government Management of the Economy" or perhaps, "Public Private Policy?"

Since I take great pleasure in seeing perverse humor, I smile when I contemplate Marx teaching Adam Smith and vice versa.

Leo Cecchini

Wednesday, December 10, 2008


Well the debate is over, while the slaves to market valuation of mortgage based assets continue to seek an uptick in the property market to save the economy, the march of history goes on in another direction, i.e. US Government gaining the largest single stake in the private sector. This will be a principle feature of the "New Economy" and certainly the most controversial. The debate here will range from the philosophical to the ridiculous to the sublime.

The market slaves still don't get it, the market, meaning the financial markets, with the New York Stock Exchange being the most visible, have failed to correctly value our assets. They have got it so bad everyone has given up buying equity and loans (bonds) and is shoveling his funds into US Government debt, i.e. Treasury bonds or "T bills." This tectonic shift has led to the ridiculous situation where the Feds are borrowing at zero or even negative interest, i.e. it costs the Feds nothing to borrow. Now I don't know about you but, if I am offered money for no cost, I will take it. And so will Uncle Sam.

Uncle Sam is using this money to acquire the largest single stake in the private sector. It is buying into banks, mortgage companies,insurance firms, and the auto industry. And it is doing this on borrowed funds.

One could call this "backing into socialism." Many cry that US Government ownership will ruin private business. I reply that Uncle Sam is merely becoming the largest share holder in the economy and will act as any other investor whose interest is making a return on his investment. Even more important, as profits from its investment portfolio grow, the government will have to rely less on taxes to pay its bills.

Although I do not foresee government taking an active role in running the businesses it acquires, as a long time government minion who subsequently entered private business by making a new business venture succeed beyond the owners wildest dreams, I would say government types can be good business managers.

But before looking at how this ownership transfer will affect the "New Economy" we should look at two other features that initiated the talk about the "New Economy" earlier, the so-called "post industrial economy" and "globalization."

Post Industrial Economy

In 1982 I gave a speech in Helsinki, Finland to a large audience of businessmen and related government entities. In the speech I made two predictions. First, that the US economy would recover from the slump it was in then, in 1983. I said that not many would see this coming but those who did would make big gains. What's that, did I take advantage of it? You betcha. I traded my house in Mallorca, Spain for a much larger one at a rock bottom price (sounds like today) in 1982 because I knew it was the time to act. Was I right, well read the history books, economic recovery began in November, 1982. How could the recovery be so precisely defined? Easy, that was when then Federal Reserve Bank Chairman Volcker dropped the Fed interest rates.

My second,and more profound, prediction in that speech was that there had been a major change in our economy. I noted that the main motor (yes, pun intended) for our economy in the 20Th Century had been transportation, with the automobile leading the way and aviation not far behind. In short the major stimulus to the economy was to transport the corpus from one place to another. Visible evidence of this was the fact that the largest corporations in America were auto makers and the ones supplying fuel for those cars.

But I predicted that we were on the cusp of a major change, and that in the balance of the 20Th Century and well into the next, the economy would be led by communications. Moving the corpus would be replaced by communicating ideas and information.

Now many argue that this transfiguration has been to an economy based on the computer, e.g. the "IT" or Information Technology" Age. I do not deny the importance of computers to all aspects of life, e.g. they run our cars, they run our assembly lines,they allow us to explore the frontiers of medicine, and so on. But then which is the more important invention, the computer or the internet?

And when I say communication I mean it in a broad context, the composer communicating with the listener, the author communicating with his reader, the entertainer communicating with his audience, the politician communicating with voters and so on. Moving the corpus has been replaced by moving information, ideas, concepts, wishes, desires, hopes, aspirations, joys, sorrows, and more, as the main motive force in the economy.

My prediction did not fall on deaf ears, present in my Finnish audience was a contingent from Nokia, which subsequently became the largest maker of cell phones in the world. No, I did not provide them direction, I merely confirmed what they had also already seen.

The importance of this lesson? A couple of decades back or thereabouts economists began to correctly understand that the US economy had changed in basic structure. No longer was the manufacturing sector the dominant motive force of the economy as agriculture had been until the beginning of the 20Th Century. The easiest why to see this was employment. Believe it or not, agriculture had been the largest employer until the beginning of the 20Th Century when workers began to leave the farms to work in factories in massive numbers. I really don't remember the exact numbers but I recall that in 1899 over half the workforce was in agriculture and by 1930 or so the number fell to less than 5% of the work force. Maybe I have compressed the time frame, but that was the massive shift that changed the face of our economy.

Manufacturing became the primary motor of the US economy. However, employment in manufacturing never exceeded 25% of our work force. During the course of the century employment in manufacturing fell to about 16% of the work force and has held steady there.

Enter the "post industrial economy" which is what many mean when they talk about the dramatic shift to that amorphous term the "service sector" as being the main economic activity. I call the term amorphous since the immediate image of the service sector is that of someone "flipping hamburgers at McDonalds." I would contend that the short order cook is actually in manufacturing, since he turns raw materials into a finished product.

How ever you define it, the service sector accounts for 80% of our work force. It is the dominant actor in our economy. As I have presented above, a leading service sector activity is communications. There are others with similar great growth expectations. Health care now accounts for about 20% of all consumption, more than food or shelter. And it will continue to grow exponentially as our population ages. Education is also growing rapidly, as we come to realize that this is a continuing requirement, and not something confined to a fixed period of our lives. We enjoy more leisure, so activities catering to this will continue to grow rapidly -travel, entertainment, sports, and so on. And, of course, perhaps the ultimate service activity, the government. The Federal Government budget is now equal to 20% of our national economy and managing this spending requires a vast army of workers. Its requirements for staff will grow even more with its new role of being the major share holder of "Corporate America."

The service sector is a major pillar of the "New Economy." Next we will look at the second pillar, "Globalization." Then we will see how this latest development, government acquisition of the private sector, will help formulate the "New Economy."

Leo Cecchini

Thursday, December 4, 2008


Treasury Secretary Paulson in speaking about a new program for the Feds to underwrite mortgages in an attempt to revive property sales, said, "Recovery in the housing market is key to solving the financial crisis. Such a rebound would restore confidence in the banking system and support the value of troubled assets backed by mortgages." At last, the point I have been making is out in front of the entire public, mortgage based assets are being valued at the depressed prices of the housing market, which is an error. They should be valued at their long term or maturity value.

Paulson understands the accounting error being made, but instead of calling for these assets to be priced at their long term or maturity value, he seeks to raise the value of the property market and thereby raise the value of mortgage based assets, what he calls"troubled" assets. In other words, "If you cannot correct the error, use it to your advantage."

I would still prefer marking these assets to their long term value, which would not cost a penny of public funds. But Paulson's program has added benefit, not only will it raise the value of the property market, and thereby allow the mortgage based assets to be raised in value, it will also induce home sales, which, as a realtor I applaud. Increased home sales will also counter the rise in unemployment, generate increased demand for attendant goods and services, and, in the process, push the economy to better performance.

And this is a proven formula. The economic doldrums of the late1970s to early 1980s was cured when then Fed Reserve Chairman Paul Volcker dropped the Fed funds interest rates and by doing so caused a boom in home sales. The proof that this happened - in 1982 we had 1 million new home starts, in 1983, after the decrease in the Fed lending rate, we had 1.8 million new home starts. Not hard to see what drove the recovery in our economy.

I am thinking of establishing a new school of economics, "property economics." No, not a school to teach the micro-economics of buying and selling property, but a macro-economic investigation of how the property market affects the national economy.

Leo Cecchini

Wednesday, December 3, 2008


The New Economy

I watched closely a TV program with two analysts verbally slugging it out about the "mark-to-market" controversy which I have been repeatedly calling the accounting practice that has made us commit economic hara kiri. Fortunately the two were on split screens so they were not able to actually trade blows. The pro-mark-to-market man argued that the mortgage based assets, which remain at the core of our economic plight, have no value,since no one is trading them. The anti-mark-to-market man said that these assets have value since they continue to pay income because an overwhelming majority of mortgages are being paid on time, about 94% according to the Mortgage Bankers Association.

So what is the truth? Let us look at the "pro" side. The argument here is that these assets must be marked to a non-existent market. If this is the case they should be marked to zero. However, as we have seen, no one is marking to zero. Rather they are marking to notional markets. I believe they are marking to the depressed property market, a belief confirmed by one large investment firm, Black Rock, that stated it is marking to the depressed property market in Southern California. My belief is also supported by the fact that all commentators agree that the economy will not recover until the housing market turns upwards. The theory here is that as property values increase, the value of mortgage based assets, now valued to the property market, will go up and thereby improve the balance sheets of those holding these assets. Therein lies the contradiction of those insisting on "mark-to-market," there really is no value, since there is no market, i.e. there are no sales, but they say the value will increase if the housing market recovers, which may or may not induce sales of mortgage based assets. As I have been saying this is sheer nonsense, a point made by the anti-mark-to-market man.

The "anti" man said that the mortgage based assets still pay their expected return since most mortgages are being repaid. To illustrate, say we hold mortgage based assets with a face value of $10 million. At an average 6.5% mortgage interest we will collect $650,000 per year in income from these assets. At today's default rate of about 6.5% this income would be reduced by $42,250 leaving us with $607,750, not what I would call a serious hit and certainly not a cause for"panic" selling.

Let's use another analogy to see how this works. Say you have a trust fund set up by your rich uncle Harry. The fund pays you a certain amount each year but you cannot draw more from the fund nor may you sell it. What is the value of the fund? Clearly it is the income stream it provides to you. Valuing the fund to a "market" would be sheer folly since it may not be sold.

So what is happening now? The Feds are buying Fannie Mae funds and mortgages and perhaps other mortgage based assets, investing in banks, lendingto banks, and planning to guarantee mortgages. All of this serves to improve lenders balance sheets and allow them to once more extend credit. The Feds are using procedures that cater to the "mark-to-market" crowd by creating a market, Fed purchases, for mortgages and mortgage based assets. But the reason they are doing so is that they recognize the argument of the "anti-mark-to-market" side, the assets actuallyhave a good value.

Where does all this lead? As I have stated, the Feds are borrowing (T Bills) at all time low rates, 2-3%. They are buying assets that pay far higher returns, e.g. mortgages that pay an average 6-7%. They are lending at 5%+ interest rates. They are buying shares in major banks that could double in vlaue or more when the economy recovers. In short, the Feds are taking a position in the markets that gives very attractive current returns and incredible future earnings. Enter the "New Economy."

And what do I mean by the "New Economy?" Well we will have one in which the Federal Government will be a co-owner with private investors of our economy. Is this bad? Many cry, "socialism." But the reality will be that the organization that makes the rules will be the main player. Do I expect the rules to reflect this stake in the "game," you betcha. We will have a Federal Government that will be more business friendly since it will be the major benefactor of friendly behavior. The other major result is that with this new source of revenue, i.e. income from business ownership, the Feds will have less need to raise taxes, a distinct plus for the incoming Obama administration and its plans to cut taxes for the middle class, invest heavily in infrastructure to put people to work, and address the health care problem.

Now before you start crying that government ownership will lead to ruinous management of the businesses, remember, the Feds are not taking over management control, they are simply being investors. There is no reason to believe that the Feds will act differently from private investors. I would also point to the experience of Finland. In Finland the government owns several of its key industries and they work very well. While the Finnish government owns the businesses, they operate them as an investor seeking to maximize profits.