A Trillionaire's Take on the Economy?

Growing up, many people talked about the American dream of becoming a “millionaire.” Of course, with inflation, a million dollars alone may not be quite enough to live a lifestyle of luxury, and you might be able to make it until death without working again, if you were good at watching your expenses. 

Now the term “billionaire” is becoming more and more popular. In the United States, my life expectancy is 78 years, and I’m 34years old now. So if I had a billion dollars, I could spend $22.7 million/per year for the rest of my 44 years. That also comes down to $1.89 million per month, or roughly $62,000 a day. I couldn’t possibly imagine how to spend $62,000 a day. Now that would be a life of luxury!

Now imagine if you had a trillion dollars! Imagine if someone was responsible for managing not a trillion, but two trillion dollars? That would be an incredibly powerful person, and likely, a very smart person given all the resources they are entrusted with. There are only two banks, JP Morgan and Bank of America, that have over $2 trillion. But banks aren’t the only place where money is kept or stored. A lot of money is also invested in stocks and bonds, and Mohamed El-Erian managed nearly $2 trillion in bonds for PIMCO through 2013.

As you might expect, El-Erian is a bright man, and he was smart enough to quit PIMCO when his 10-year-old daughter gave him a list of all her major milestones that he missed because of work. Even though he resigned from PIMCO, Allianz (the parent of PIMCO) convinced El-Erian to remain as their Chief economic advisor. El-Erian provides a lot of commentary on financial markets to the general public, while also representing Allianz. I highly recommend you pay attention when he speaks. After all, he was entrusted with $2 trillion dollars.

El-Erian echoes the concern that central banks have done all they can do to improve the economy. The changes needed to jumpstart the economy are now the responsibility of Congress. And if Congress refuses to act, we may eventually dip into a recession or limp along in a stagnation scenario where growth is elusive. So what does El-Erian think Congress should do on the fiscal front?

First, he believes we should reform the tax code. Does that mean lower taxes or increase taxes? Well, both, really. He seems to suggest we should lower taxes on corporations so they have more money to invest in projects and hiring people, which in turn will give a boost to the economy. But, he also believes we should raise taxes on individuals by eliminating certain deductions that many wealthy people get to claim, and presumably taxing all income more fairly. Warren Buffet famously notes that he pays a lower tax rate than his secretary, and he strongly believes that is unfair.

Second, he believes we should embark on large infrastructure programs to fix roads, bridges and transportation systems. This will provide a stimulus by giving companies more projects and more people jobs, but then, it will also make it easier for companies to engage in commerce in the future.

And lastly, El-Erian notes we need to deal with pockets of “over-indebtedness.” He cites student loans as an example. If more people are paying student loans, that is less money they have to spend on other things like cars and houses. Thus, the government should find ways to help people avoid taking on too much debt, so they have more money to spend fueling consumer demand.

Whether or not you like El-Erian’s specific proposals, you must concede his theme is correct. The government needs to do more to eliminate uncertainty and encourage businesses to grow, spend, and hire people. It’s not that the government needs to give anyone a handout or mandate companies take a specific action, but Congress should work to make a friendlier business climate instead of embroiling itself in partisan politics. It is the partisan bickering that is becoming the largest economic threat in our country, and El-Erian fears it can even drive us into a recession.