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Monday, November 10, 2008

Reactive Versus Predictive

Conservatives and Republicans have been relatively calm about Obama's victory. Numerous conservative pundits have called for measured responses. For example, Pajamas Media's NeoNeocon advises:

But I suggest that everyone stand back, take a deep breath, and wait. Wait, and observe. ... The goal of each of us should be to react only to evidence, not fear.

Unfortunately, some of us are not in a position to just wait, observe, and react. Those of us who are attempting to build companies actually need to do some predictin' along with our reactin'. We don't have the luxury of only reacting to events as they unfold.

We've got to guess what sort of capital will be available as we grow. We've got to foresee new and onerous regulations (like the devastating Sarbanes-Oxley). We have to forecast demand for our goods and services.

The less we can do that, the more risk there is in every decision. And there's a lot of risk and guess work in the best of situations.

This is not the best of situations. And I'm not even talking about the financial fiasco, credit crunch, market meltdown, or whatever.

Obama won the election as a blank slate. That means I have no idea what he's going to do. Is he really going to raise tax rates for the "rich"? Is he really going to increase the capital gains rates? Is he really going to spend (literally) untold sums on massive new government programs requiring huge government borrowing?

If so, I'm screwed. Plain and simple. Because while leviathan companies like IBM, GE, Microsoft, etc. might be somewhat inconvenienced by higher real costs of financing, small companies like mine, at the margin, are the first to lose access to capital. Only the rich invest in speculative startups like mine. It's actually illegal for non-rich people to invest (or, more accurately, illegal for me to knowingly accept investments from the non-rich). So if the rich decide that, due to taxes, they're better off with tax-free municipal bonds instead of riskier, speculative investments, I'm out-of-luck. So are my suppliers, my employees, their families, etc.

Even worse (or at least as bad), I have no choice but to assume the worst, because I have no idea what Obama and Congress are going to do. Since many of the decisions that I need to make are long term, it's not even good enough to guess what's going to happen next year. I need to have an idea of the tax and regulation trends for the next three to five years.

I guess for people who have steady jobs, it is possible just to sit back and react to whatever comes like NeoNeocon suggests. But for those of us trying to build viable companies, that just won't work.


Harry Eagar said...

The implication is that, with Bush in charge, you were in better shape, say, six months ago.

That is, any planning you did then is still worthwhile.

I bet not.

Why are you so worried about Obama and the new Congress. You should have been worrying earlier and deeper and about Republicans.

Anonymous said...

That's even more incoherent than usual. Your second sentence has nothing to do with your first. I have no idea to which of the two your third sentence refers.

Bret is so worried about Obama and the new Congress because

1) He has no predictive model for Obama.
2) Historically based predictive models for Congress indicate an outbreak of horrendous, as opposed to mediocre, decisions.
3) Obama's picked crew of economic advisers consists to a large extent of people who were deeply involved in creating the crisis or have been massive failures even for government officials.

I fail to see any reason Bret should have worried more about the GOP.

Bret said...

That's exactly right. Thanks for putting it so concisely. You're in more or less the same boat, right? So you can probably relate more than others.

Also, with the impending expiration of the tax cuts (coupled with Sarbanes Oxley), the difficult in planning has been increasing steadily for many months.

Harry Eagar said...

Dunno which business planet you guys live on. For the past six months, I have started every interview I've done with a CEO with a remark along the lines of: 'I suppose the business plan you drew up in January isn't of much value now.'

I always get the same response: a short bark of a laugh.

Anonymous said...

The planet where we write what we mean in clear, declarative sentences so as to communicate. Also, on that planet, Barak Obama was elected President and the Democratic Party increased its majority in both houses of Congress.

You, on the other hand, are still failing to clarify any of your recent comments. For instance, do those CEOs laugh at the absurdity of their situation or your question? I am still completely missing the significance of the six month plan, and whether it changed or not, or what it would signify in either case.

Harry Eagar said...

They laugh at the effort they wasted. One, after he laughed, said 'we're working night and day on a new one.'

I dunno. Businessmen I know have shelved projects worth hundreds of millions of dollars because the assumptions they were operating under Bush in January turned out to be worthless by August. If you don't think that's uncertainty, I know where there's a few score pounds of spreadsheets that cost a few million to produce that aren't worth even pennies now.

Could the uncertainty of Obama be any greater? Obama isn't president yet. Perhaps you'd like to take advantage of the waning certainty to tell Henry Paulson what AIG's real liabilities are. I'm sure he'd appreciate a little certainty about that.

Anonymous said...

Yes, I think the uncertainty of the Obama Administration is significantly greater. It's like going from being uncertain if you can get that new XBOX 360 this Christmas or next, and wondering if you'll be able to pay the mortgage.

Harry Eagar said...

I got news for you, Guy, since you evidently don't read the paper:

People are already wondering if they can pay the mortgage.

If McCain had won, their uncertainty would not be any less than it is today.

Anonymous said...

I got news for you, Mr. Eagar, since you evidentaly don't read up on normal English usage:

People already use what are called "analogies" which are not meant to be taken literally.

Seriously, after commenting back and forth on this topic for a month, you thought I had completely forgotten all of those previous exchanges? An obvious answer presents itself, but I will refrain.

Harry Eagar said...

It was, for the time, a poorly chosen analogy. Sort of like, 'Let them eat cake.'