Happy days are (almost) here again…

I’ve posted numerous blogs on what bad things could happen to either the US or local economy, so today I wanted to post about some of the good things that are likely to happen.  While the US still has to face the “deficit cliff / debt ceiling” over the next few months, and Europe is still firmly in “kick the can” mode, I am becoming cautiously optimistic that good times are a year or two away, and that they will benefit both workers and investors.

  1. Oil will almost certainly grow more expensive as time goes by.   If you are commuting to Nashville every day, you may have a hard time seeing how that’s good news for the US economy.   But as the cost of transporting goods across the Pacific rises, manufacturing goods here in the States starts to make more sense.
  2. On the other hand, the price of natural gas is expected to plummet.  Fracking is predicted to allow the United States to displace Saudi Arabia as the world’s top energy producer within the decade.  It is less economical to ship natural gas than it is oil, so more of it will be used here.   That means cheaper energy, as well as cheaper inputs such as chemicals and plastics.   So at the same time the price of transporting goods from China is going up, the price of manufacturing here will fall.  (China does have its own natural gas deposits, but they are much harder to access.)
  3. Jobs were shipped to China because the low wages more than compensated for the extra costs in transportation and other areas.   But Chinese wages have been rapidly increasing over the past few years.   As the salary gap between China and America shrinks (combined with the rising cost of fuel) it increases pressure to either ship jobs back home, or to find lower-paying regions such as Bangladesh, Pakistan, and Africa.
  4. Because of these trends, GE is starting to move some manufacturing from China back to their plants in Louisville.   GE is one of those bellweather companies that’s usually a bit ahead of everyone else.   So assuming the same MBA herd mentality that sent jobs to China in the first place is still alive and kicking, over the next few years those MBA’s will start emulating GE’s strategy and begin moving more jobs back here.
  5. Jan Hatzius said so.

So I’m starting to think about a) how I can benefit as an investor, b) how other workers can benefit, and c) how Cheatham County can be prepared to capture this growth when it comes back.

I know a lot of people have been burned by the past couple of years, and don’t trust the stock market.   But those are usually the best times to invest, and I don’t believe this to be a exception.   The “easy” smart thing to do would be to invest in a S&P stock index, as much as you can afford.   And you *definitely* want to use tax-advantaged investment vehicles like your 401K or a Roth IRA, because for several reasons I expect taxes on both capital gains and dividends to rise substantially over the next decade.   (If anyone’s curious I do have a few ideas about “harder” smart things that have a higher risk/reward, so email me if you’re curious.)

For workers, the benefits of this manufacturing boom probably won’t accrue evenly.   Manufacturing will be moving back, but that doesn’t mean jobs will.   Modern manufacturing will have more automation and fewer (but smarter) workers.   So the person with a high school degree will continue to lag behind, whereas the person with training in a STEM field such as robotics, electronics, IT, etc should be poised to reap an above-average income.

I’m still thinking about how Cheatham County can tap into this growth when it comes.   The answers are investments in infrastructure and education, and the sooner the better.  This is already well-known to most of the movers and shakers I’ve talked to.  The problem here is politics, and expectations.   Funding these investments almost certainly requires a tax increase of some sort.  But the average citizen hears “tax” and their hair bristles.  There’s an almost Pavlovian reaction.  The same people who are failing to invest in their own retirement, have an even harder time understanding government making investments on the public’s behalf.   We either need to elect a slate of politicians unafraid of committing career suicide to do the right thing, or we need to do a vastly better job on informing residents and helping them see the big picture.   I have some ideas, but this is the toughest nut to crack of all of them.

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