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Fletcher: Give business a clear message

January 31, 2012
Stephen Fletcher , The Alpena News

Not too surprisingly, I know a large group of people who are CEOs of companies. Since I've been a CEO for more than 40 years, I am bound to run into a lot of people who are similarly employed.

I've just come from a board of directors meeting with seven CEOs on the board. All of them are saying the same thing: "Give us some clear signals about tax and economic policies."

The poet, John Masefield, put it this way: "...all I ask is a tall ship and a star to steer her by..." He doesn't write that he wants fast changing stars nor a fancy vessel. He just wants a plain Jane freighter and good navigation. Masefield wants a sound vehicle and a clear direction.

The CEOs want a clear tax policy and a sound economic direction for the country. They know that with a transparent economic structure that their chances of navigating their companies are vastly improved and they may even be able to expand. Expansion and growth of sales brings more employment.

Right now, with the Fed now printing money for the European Central Banks and the deficit continuing to grow, it looks like inflation will start to be more pervasive in all sectors of the GNP as opposed to just in food and fuel. In just 10 days time, the dollar has gone from increasing in value against just about all other currencies in the world to losing value against them all. The reserve currency is on a wild rollercoaster ride and some of the currency traders are getting enormously rich. You see, if they position themselves just at the right moment they reap a windfall, but there is also a huge risk in the trading.

Since the currency is just a commodity, for every winner on a trade there also is a loser. Since they are taking the risk, do they get the reward or is it taxed away from them to give to the loser?

The very large changes in the trading ratios brings uncertainty to business and investors. A good deal denominated in yen or euro for a company operating a manufacturing plant in U.S. dollars can change rapidly in it's profitability during the time it takes to manufacture a given product due to a change in the exchange rates. Business wants stable currency exchange rates.

Tax law concerning depreciation schedules for large equipment or buildings can ruin a purchase by changing the parameters under which a purchase was thought to be a wise investment. Business wants long term tax policy.

The type of governmental rule making that evidently has killed the Wolverine plant in Rogers City is a good and clear example of why investments need long lasting rule making. That plant would have had a life of 50 years or more. Millions of dollars used for design and permitting of the plant have been lost due to EPA rule changes.

The example I used last week about the ridiculousness of the 100 percent "bonus" depreciation wasn't that I hated the fact that our company would have more cash to invest in new equipment for reliability for Northeast Michigan's power grid. It was that we do 20-year planning and the depreciation "windfall" for two years doesn't change our planning. The lead time on the equipment we use is often more than one year.

The bonus depreciation was ineffectual as a stimulus because there was no time to plan for it. The so-called "shovel ready" jobs for an earlier "stimulus" were of no use because road commissions and other governmental units don't just run up engineering bills for plans that can't be used in the present.

The whole point is to give us a "star to steer her by" which comes up every night in the same place in the sky and the engineers and managers of business and government will steer their "tall ship" safely and timely into a port. The stimulus "du jour" program of some new "quick fix" that will save us from a double dip recession is a long term, i.e. fiscal program. It will include reduced spending and long-term tax law changes.

Is this too much to ask? Well, perhaps so. The U.S. Senate hasn't passed a budget for 40 months.

Stephen Fletcher was graduated decades ago from Cornell University with an A.B. in Economics and from Michigan State University with an M.B.A. He has lived and worked in the decades from graduation until now in the Alpena area. He thinks economics is fun and interesting.



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