For small business, the days of uncertainty are over. At least for the next two years. The inauguration this week proved that. The President's speech laid out his objectives. It was partisan. It was passionate. It summed up his beliefs and his agenda. And, from what I can tell, his time will be spent on many social issues like women and gay rights, global warming, gun control, and immigration. He talked about tax reform and cutting deficits, but there appeared to be no sweeping economic changes on the horizon.
And for small businesses like mine, that's a good thing. It makes things more certain.
Obama Is Back in Charge
The President has triumphed over his opponents, won a second term with a clear electoral college majority, and enjoys a very comfortable (52 percent) approval rating. His party fully controls the Senate. Republicans retain their hold over the House of Representatives, but are suffering from significant internal divisions. It's clear that the President and House leader John Boehner aren't crazy about each other. We've watched the two of them attempt to negotiate various debt ceiling and budget crises over the last four years with little to show for it. Annual deficits continue to surpass a trillion dollars and our national debt has climbed to more than $16 trillion. Just this past week, Boehner proposed yet another extension of the debt ceiling for a few months so that the government could continue to borrow while it searches for answers.
Both politicians and economists are divided about how to handle all this. Deficit hawks, like Representative Paul Ryan, warn that the more the country goes into debt, the deeper the country's problems become. They are concerned the U.S. may be facing the same issues that countries in Europe are now facing: rivers of red ink, followed by high unemployment, skyrocketing interest, and inflation, and economic stagnation because a government can't pay its bills. Others, led by economist Paul Krugman, believe that the U.S. can afford more stimulus and more government spending and that large debts and deficits are not so economically harmful.
What does all this mean for my small business? Turmoil? Recession? Crisis? Catastrophe? Actually, none of these things. For at least the next two years, you can expect certainty!
The Next Two Years
That's because, when it comes to the economy, I already know what the government will be doing over the next two years: not very much. Despite what many hope, the President's second term will likely be no different from his first. He will continue to plead that Washington overcome "political differences" but will then, as before, blame his opponents when his initiatives fail. There will be no "grand bargain" on the deficit. It's unlikely there will be any major reforms of the tax system. Instead, and barring any foreign policy crisis, it's certain that the President will be spending most of his time trying to address climate change, gun control, and other items on his social agenda. His outreach to small businesses and manufacturers will continue because it's good and, frankly, makes for good reading.
You can be certain health care reform legislation will move forward. More significant changes to Medicare, Medicaid, social security, and other federal insurance programs--so badly needed because they consume more than 40 percent of the Federal budget (and are projected to increase substantially over the next few decades--will not happen any time soon. The President believes in a strong entitlement system. "The commitments we make to each other--through Medicare, and Medicaid, and Social Security--these things do not sap our initiative; they strengthen us," he said in his inauguration speech.
Agree or disagree, it's obvious that no one will be able to accomplish much by way of reform. The current government is too divided. American leaders do not have the majorities to make changes. And, if anything, they have proven that they can't lead or govern very well. They are not very good at negotiating or compromising or getting along. These same players are returning to Washington for term number two. Though many on the right will disagree with Obama, you can be sure he's not going to bankrupt the country. At least not for the next two years! You can be certain of more of the same.
At least until the next Congressional election in 2014. If the Democrats take control of both the House and Senate, then the President may have the majorities he needs to push through the programs he talked about at this week's inauguration. If not, he won't. Even if the Republicans win majorities, they will be powerless to enact any legislation the President opposes.
Which brings me back to my small business. How does all this affect me? In the next two years, not much at all. If anything, it helps. Because for the past four years most of the business people I know have been frozen by the prospect of "uncertainty." Will there be big tax changes? Will there be big spending cuts? Will there be big changes to health care? Will my industry suffer from excessive regulations? You've now learned, for certain, that there will be very little of this over the next two years.
Sure, you'll read about another small tax increase on the wealthy here or there, or some token cuts being made to those evil defense contractors. Some industries will complain of new regulations forced upon them. Politicians will make brave attempts to show the voters they're trying to reduce deficits. But none of it will make a major difference.
What You Need to Know About the Economy
Meanwhile, the housing industry slowly but steadily recovers, the auto industry and retail shops ring up ever increasing sales, interest rates and inflation may increase a little but are still at historically-low levels, unemployment will quietly inch down. There are no bubbles growing in tech or real estate. GDP will continue to grow, even at a slow 2 percent to 3 percent. It's not great. And none of this will happen as fast as you'd like to see it. But it's what will happen. You can be certain of it. I am.
As a result, I know how I can run my business over the next two years. I won't take any great risks. I can quietly work to grow my company. Maybe add another person or two if possible. I'll try to contract out as much as I can to keep my overhead low and conserve cash. Like most small business owners, I'll play my hand conservatively, but I won't operate out of fear. Because this I know for sure: if I keep my head down, work hard and do my best to ignore the noise coming out of Washington, I'll probably be OK.
Kind of like most years.