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5 ways the next president can make his own luck
Taking pointers from baseballs Branch Rickey, here are the ways the next U.S. president can make his own breaks. Passivity just wont cut it.
By Jim Jubak
I certainly wish the next U.S. president, whomever he may be, good luck. Hell need it. It would be so much easier to solve many of the problems facing the next occupant of the White House if a wave of good luck -- lower oil prices or higher-than-expected economic growth in Japan and Europe, for example -- swept across the next four years.
But the next president and the country cant wait passively for luck to bail him and us out. If I could get the next president to listen to one piece of advice, it would be this quote from baseballs Branch Rickey: Luck is the residue of design. The next president has to begin now to put in place structure and plans -- what Rickey called design -- that will put good luck on our side.
Learning from the lucky
It may seem odd to offer the president advice from a baseball man, but Rickeys career makes paying attention to his words justified. Rickey, the man who constructed baseball dynasties at St. Louis in the 1920s (nine National League pennants and six world championships) and Brooklyn in the 1940s (seven pennants and, finally, victory over the Yankees in 1955), built long-term success in a game often decided by an infield pebble or a moments hesitation in throwing to home. He did it by creating institutions that made him luckier, year in and year out, than competing general managers.
Rickey invented the modern minor league farm system to guarantee the Cardinals a steady stream of young talent. It brought him the good luck of Dizzy and Paul Dean, the pitchers who anchored Cardinal pennant winners, and Johnny Podres, the kid who finally beat the Yankees for the Dodgers. Rickey pioneered the use of statistics so that he could evaluate baseball talent. That brought him the good luck of Joe Medwick, who came back to hit .312 for the Dodgers one last time in 1946, and the good luck of trading Dixie Walker to the Pirates for Billy Cox and Preacher Roe in 1947, after Walker had hit better than .300 for the Dodgers for eight years. Two years later, Walker was out of baseball.
And Rickey broke baseballs color line so he could tap into a pool of talent from the Negro League that his benighted competitors were determined to ignore. That brought him the good luck of Jackie Robinson, Don Newcombe and Roy Campanella, critical players at the core of the great Dodgers teams of the 1950s.
5 pointers for the next president
Heres how Id apply Rickeys advice to five critical issues facing the next president.- Make your good luck on oil prices. Want to bet the future of the U.S. economy on oil not going to $60 a barrel? Applying technical analysis to the trend in oil prices, Phil Erlanger, editor of Erlanger Squeeze Play, has calculated that the recent pullback means that the price of oil probably wont hit $70 a barrel in either November or December 2004. But, Erlanger calculates, oil could still go to $60 in December and it will take a drop below $47 a barrel to break that trend. And $60-a-barrel oil will take a big bite out of U.S. economic growth, according to the economists surveyed by The Wall Street Journal this month. Prices of $40 to $49 a barrel cut GDP growth by just 0.1 of a percentage point, the consensus of economists surveyed concludes. Prices of $50-$59 would cut growth by 0.5 of a percentage point. But prices of $60 to $69 a barrel would take 1 percentage point off annual growth.
So far, the United States has been lucky: Today, America wrings twice as many dollars out of GDP from each barrel of oil as it did in 1975. But the U.S. economy still lags well behind behind Japan (which uses about 1/3 as much oil per dollar of GDP), Germany and the United Kingdom. Doubling the efficiency of the U.S. economy all over again by 2025 would save about $70 billion a year, calculates a study produced by Amory Lovins for those wild-eyed radicals in the Pentagon. One eye-catching projection by Lovins: It would cost about $12 in efficiency investments to save a barrel of oil. (Go to the "Winning the Oil Endgame" Web site to read more about this study or to buy a copy.)
- Make your own luck on consumer demand. This last recession proved to be one of the shortest and shallowest on record. Part of the reason was the willingness of consumers to keep on spending, thanks to the Bush tax cuts and a tidal wave of mortgage refinancings. But consumers are sounding increasingly worried: The University of Michigan consumer sentiment index for October fell again; this third consecutive monthly decline takes the index to its lowest level since May. The part of the index that focuses on expectations for the future fell 5% and is now down 16% since January.
Related resources
Thats troubling enough, but the other leg that supported the economy during the recession is also looking wobbly. Many big U.S. companies, especially the big U.S. auto makers General Motors (GM, news, msgs) and Ford Motor (F, news, msgs), kept their factories running at full speed as the economy slowed, even if it required extraordinary consumer subsidies to sell the resulting product. That certainly helped head off the classic recessionary cycle of slower sales/layoffs/smaller paychecks/even slower sales/more layoffs. But now, GM and Ford at least have finally decided to cut production, under pressure from auto dealers who say theyre getting eaten alive by the higher interest costs created by overflowing lots. Both companies are now planning cuts in overtime and the temporary layoffs of thousands of workers.
Granted, Congress has spent us into a deep hole in the last four years. That makes it tough to increase government spending to head off a weakening of the economy, but it does look like consumer demand will need another boost in 2005. Maybe this time it will come through increased spending on domestic infrastructure such as roads, schools, bridges, homeland security and the like. After all, workers without income dont get much of a jumpstart from tax cuts.
- Make your own luck on the dollar. Everybody knows the only way out of the huge trade deficit that the United States is currently running is a decline in the value of the dollar of as much as 30%. Still, the speed of this decline makes all the difference in the world. Go too fast and the odds of recession and financial panic go way up. Slow the pace enough and the decline could almost go unnoticed. So instead of everyone at the Federal Reserve talking about the dollars inevitable decline, how about a credible commitment to a federal budget that may run a deficit to head off a recession but that will strive for balance or even a surplus when the economy is in good shape? That could keep the foreign central banks that now hold the fate of the dollar in their hands from dumping their greenbacks in a rush to be first out of a sinking currency.
- Make your own luck on outsourcing. There isnt a tariff high enough to make a U.S. worker earning $18 an hour competitive with an overseas worker earning $2 an hour or less. But we can close the benefit gap with industrialized competitors such as Japan and Germany. At GM, for example, the average cost of providing health care and pension benefits is around $1,360 a car. At Honda Motors (HMC, news, msgs) U.S. operations, the health-care and pension-benefit cost is only $107 a car. Back home in Japan, the benefit costs are even lower because taxpayer-supported nationalized health-care systems pick up the costs. Closing this benefit gap would require a major overhaul of health-care insurance in the United States that would shift costs from employers to the U.S. government. Thats been a hard sell as long as the change has been presented as one based on the social justice of guaranteeing health care to the millions of Americans who now cant afford it. A proposal might face easier going if it were targeted at making the United States more globally competitive.
- Make your own luck on the stock market. Alan Greenspan and the Federal Reserve engineered a boom market in real estate that took investors minds off their losses in the aftermath of the bursting of the stock market bubble in 2000. With home values soaring, the losses in 401(k)s didnt seem as crushing. But that play is just about over: Even if home values dont come crashing back to earth -- and I dont think they will -- the period of rapid appreciation is over; homeowners can look forward to much more modest gains. So its time for a vigorous and credible program that would restore investor confidence in the stock market.
Sarbanes-Oxley and the tepid response to corporate scandals from the Securities and Exchange Commission certainly havent done the trick. I get e-mails each and every week from readers asking, Why would anyone ever invest in stocks again? Too many potential investors still see the game as fixed. The president cant do much, if anything, to make the stock market go up (and probably shouldnt do anything, as the Federal Reserve demonstrated to our pain in the late 1990s). But because a rising stock market is a key building block of consumer confidence, the stock market shouldnt be laboring under a cloud of suspicion that makes equity gains more difficult (and less likely to persist for the long term).
Putting policies like these in place wont guarantee good luck, but they certainly make it more likely. (And we can still hope for those random bits of good fortune that the cosmic odds-maker occasionally delivers.) But after a campaign thats been long on vitriol and has raised the issue of leadership often enough that voters can be pardoned for thinking that a president should lead, make-your-own luck policies are a chance to demonstrate that the country has direction.
As that other great baseball philosopher, Yogi Berra, put it: When you come to a fork in the road . . . take it.
New developments on past columns
5 stocks to retire on -- and count on
Royal Dutch/Shell Group will finally put an end to the strange two-headed structure that has run the company, and none too well recently. The plan calls for shareholders of the Dutch parent, Royal Dutch Petroleum (RD, news, msgs), to exchange their stock for shares in a new company, Royal Dutch Shell PLC. The new company will then acquire the London parent, Shell Transport & Trading (SC, news, msgs), for shares in the new company. No cash will change hands in the restructuring. The new company will be based in The Hague but will be listed in London and trade in New York as an American Depositary Receipt (ADR).
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Shell Transport & Trading. He does not own short positions in any stock mentioned in this column.
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