Last week I spent several days in a place where academia and business meet – an MBA case competition held on the campus of the University of Texas at Austin. The judges for the event represented the “bigs” in the real estate industry. There were representatives from Goldman Sachs, J.P. Morgan, Principal, Prudential and a number of other pension fund and equity groups. There were also directors and senior partners from Alliance Residential, Cousins Properties, AvalonBay and Parmenter to site a few. It was all a very collegial affair as brains from the top business schools presented their proposed solutions to a sticky JV partnership and asset/strategy alignment case.
I spent a lot of my time with the Vanderbilt team, where I serve as a faculty representative, but also had time to reconnect with several members of the Trammell Crow Residential fraternity and other professors and judges. The weather was quite pleasant, the food and facilities elegant, but in private conversations a sense of ennui and foreboding inevitably crept in. Now admittedly, practicing real estate these days feels a bit like being a rookie Sherpa on a climb up K2, but there was a clear sense among “my generation” as we watched and mingled with the bright and fresh faces of the soon to be graduated MBA’s, that they are inheriting a very tough spot.
America has lost it’s swagger. Reasons for it abound, but solutions – solutions that are politically feasible – do not. We all know the dismal numbers:
- Today, the national debt stands just above $15 Trillion a number that EQUALS the national GDP forecast of $15.2 Trillion.
- A key measure of personal net worth, home values, have continued to fall – from a peak in 2006 just north of $211,000 to somewhere around $166,000 today…and there is no sense that the drop will stop.
- Unemployment levels (officially) remain stuck around 9%. In reality, when you add in those who have given up looking for jobs, the underemployed and the lack of business for self-employed and the number is closer to 17% .
- The entitlement programs are unsustainable - Medicare alone has an unfunded liability of $54 Trillion – about $200 billion less than the total net worth of every family in the United States.
We’ve sort of reached that point where you need to keep the sharp objects in a drawer for your own safety. These somber statistics are compounded by the sense of outrage and frustration felt when our ruling class does nothing towards the obvious, but healthily enriches themselves and their buddies. Two examples:
- We learned this morning that Robert Kennedy, Jr. received a bailout of $1.4 Billion from the Federal Government. The shaky enterprise has created 1,400 jobs with the funding – $1 million per job – and is still struggling to make ends meet.
- This morning’s Tennessean point out the our Congressman, Jim Cooper, now has a net worth north of $20 million. Explain to me how someone with an annual salary of $174,000 can amass that kind of wealth? We all know.
The reality is we have been socializing risk in this country while the profit is privatized. Don’t know where you stand on Newt Gingrich- he’s no doubt been the beneficiary of the system too – but he makes a great point in a speech I watched on YouTube the other day. He asked the audience to complete the sentence: “If you can’t afford a house…” We all know the answer, but we set up a system that does just that and it led to the housing crash in 2007 and it’s still falling…and the very perpetrators of this crash are awarding themselves multi-million dollar bonuses!
Socialized the risk, privatized the profit. We are doing the same thing with the “green energy” companies, GM, Chrysler, student loans…the list goes on. If the guarantor on the loan is the Federal Government, any bank will lend to you. This type of intervention has distorted the markets everywhere it has been practiced. Did the median home price in 2006 deserve to be $220,000? Probably not. At $166,00 we are closer to a historic appreciation rate for the value of housing. Should a four year public university cost an average of $8,244 per year…or a private school cost $28,500 on average? Probably not, but the tuition and fees are met because loans are readily available.
John Mackey, the CEO of Whole Foods, has a terrific article in the Wall Street Journal this morning where he lays out some of the problems he sees. He pins the tail on the problem: the central problem is the lack of economic freedom in this country. Between the regulatory state that we have built – which has to keep on regulating to survive – and the growing entitlement culture, so glaringly illustrated by the Occupy Wall Street crowd, we have lost our moxie. John’s article offers up some sound solutions and I encourage you to click over and read them. I don’t like to post articles that just document the problems – I like to offer a few solutions. Herewith my wish list:
A. Fundamentally change the tax system at both the corporate and personal levels. The metrics would include the following:
- The most competitive corporate rates in the world to encourage capital migration and job creation here.
- A personal income tax system that has EVERYONE in the game. Being a compassionate society, we must have allowances for the less fortunate, but we all know they don’t make up 47% of the population!
- The elimination of all tax deductions with the exception of charity. Let’s stop trying to steer economic behavior, but we must also encourage those enterprises that do take care of those less able to take care of themselves.
B. A review of ALL Federal Programs, Agencies, grants et alia to see if they meet the following criteria:
- Is this a program sanctioned by the Constitution of the United States? If not, eliminate the program or agency outright unless it meets tests 2 and 3.
- If not, do a majority of Americans support the existence of the program?
- If they do, can we afford it in light of existing obligations?
The savings and economic freedom that would be generated by this is immeasurable. Yes, in the near term it would put a lot of folks out of work. Washington DC would no longer be the nexus of our economy…but if the work that was being done was in fact productive, putting it into the open market would generate a superior product at a lower overall cost and greater benefit. Again, we would truly be privatizing profits, but no longer socializing the risk.
C. A thorough review of our foreign policy and defense apparati. George Washington warned us over 200 years ago to steer clear of “entangling alliances,” it is time we put everything on the table.
- Foreign Aid makes up a small piece of the budget, but is there any need to continue to fund countries like China? How about we at least eliminate those that can make it on their own now and those that are overtly hostile to us?
- There must be a way to make our military smaller but more lethal. It must be able to react to any aggression, keep the sea lanes open anywhere in the world and protect American interests. But do we really need to continue to keep thousands of troops in Europe?
I know these are three extremely complicated tasks and each step will open a thousand doors. But this is a journey we need to take as a nation – honestly, our alternative could well be economic collapse. Besides – in the infamous words of Bill Murray in “Stripes,” “We’re Americans!”
Stripes Scene
