F

Ford Motor Company's stock is up significantly this morning, from an admittedly low level. Such a one-day move isn't usually noteworthy, especially given the volatility in today's markets. But this uptick may just signify the beginning of turnaround #2 for Ford.

The first transformation is now well-known. It began in the Fall of 2006, when Alan Mulally arrived from Boeing to become Ford's new CEO. At the time, Ford was on track to lose $17 billion in their fiscal year; corporate survival was the issue. Within a few months, Mulally's team was - to understate the point - implementing a new strategy, closing North American plants, adopting global standards for design and engineering, accelerating new product development, and - to do all this - borrowing money from banks (about $23 billion) by offering its very brand logo (the blue oval) as part of the necessary collateral. It worked - Ford was able to say no to the bankruptcy route forced onto GM and Chrysler in 2009 by the Obama administration, and it is now profitable as a company as a whole. Estimates for Q3 profit, with actual numbers to be released next week, have just been revised upwards.

But one part of Ford still resembles what the entire company looked like in 2006. Its European operations are bleeding, with an announcement this morning from Ford that it now expects at least $1.5 billion of losses in Europe in the current year (compared to its earlier estimate of under $1 billion), as the ongoing destruction of aggregate demand has further exacerbated the continent's, and Ford's, production over-capacity. But the stock price is rising right now because of further announcements yesterday and today - that the company is closing plants in Belgium and Britain, and cutting 6,200 jobs. To gauge the significance, consider that these moves alone reduce Ford's European capacity by 18%, and its workforce by 13%.

Round two of the transformation is underway. It will take at least two years, Ford thinks. Patient investors should celebrate.

Ignoring the Elephant

In August, this writer was encouraged by the selection of Congressman Paul Ryan as Mr. Romney's vice-presidential running mate. The selection signaled that an adult discussion of fiscal policy change in America - the elephant in the room -  would ensue during the political campaign, I suggested.

How wrong, and how naive. Wrong, because both the Romney and Obama teams have aggressively avoided specific talk about government deficits and debt. In the vice-presidential debate, there was some banter about the federal budget, or rather lack thereof, and of entitlement expenditures like Medicare, but much of the exchange between Ryan and Biden concerned - curiously - foreign policy, also the focus of this week's last presidential debate. Mr. Ryan has offered little in public, in recent months, that addresses, arguably, America's central economic issue. Naive, on this writer's part, because what is working for Mr. Romney's team through this campaign is a deliberate vagueness regarding tax and spending plans, both long-term and, even, for the short-term as a way to mitigate the impending "fiscal cliff". Republican strategists have clearly decided that careful discussion of fiscal matters with the American public is no way to defeat Mr. Obama.

"First, win" - as the old political adage goes -  then devise and implement.

G & G

Experienced joggers will tell you that, when considering or assessing a run outside, weather conditions (other than severe) are mostly irrelevant. Another irrelevancy has now developed, perhaps of more import. It is addressed in a remarkably fresh, insightful cover story in this week's Economist magazine. More of this in a moment.

The pie metaphor, long used as a framework within which government policy is devised and judged, is still cited frequently by those on the left and right sides of the economic spectrum. Witness, for example, the so-called "fundamentally" different positions of the Obama and Romney camps. The debate occurs between, on the one hand, those arguing that what matters most, or completely, is policy that promotes growth, with the benefits thereof accruing to various sectors in society on their own. In short, when aiming for greater social and economic welfare, it's about increasing the overall size of the pie. Not so much, says the left. The fruits of growth need to be re-directed, through enlightened government intervention, to the needy, or, at least in richer countries (as we hear rather often from Mr. Obama), to the middle class. Re-distributing the existing pie will mitigate market excesses, and the rate at which the pie grows won't be harmed significantly by such policy, this side contends.

So has the debate raged. And not just recently, but starting over 200 years ago, when innovation quite suddenly sparked a new era of human productivity. This was called an "industrial revolution" in 18th/19th-century Britain, and it grew inexorably - with notable ups and downs - to sustained, secular and unprecedented expansion of well-being, first in all Western countries, then in Asian, and now Latin American and African, economies.​ Such growth, and its extraordinary benefits, is arguably the central theme of the 19th and 20th centuries. But, is it still - in the 21st? Is growth in a secular stall, and is inequality - never not an issue - really on the rise? And if rising, is this of itself a core cause of slower - or a cessation of - expansion?

Startling, fundamental questions. So, back to the Economist's cover story (and a much broader report entitled "World Economy" in the same issue)​. A re-think - an update, a re-fresh -  of the "pie" framework is required, argues the essay. Inequality, as measured by the Gini coefficient,  has risen, within any one country  (even in Sweden) over the past generation, though not on a global basis, as the poorer economies have been catching up with the richer.  And, "in a world of nation states, it is inequality within countries that has political (and social) salience". So, does this merit a new, national policy emphasis, that is, for example, should growth advocates be paying more attention to inequality?

​In a word, yes. Inefficient, corporate and state-owned monopolies (think Russia, India and China), and declining social opportunity (think youth unemployment in most developed economies) are just two symptoms of inequality exerting a brake on growth. To mitigate the former, and thus enhance the latter, the Economist suggests less of the old rhetoric, and more focus on such things as breaking up monopolies, whether in China or on Wall Street, reigning in government entitlement spending, with the savings going to education, and reforming tax regimes by lowering rates and sharpening enforcement (think Greece, among many others).

Radical, centrist thinking.....​and so germane to freeing political, ideological logjams.

Hint of Resolution

Much of the angst right now in the US markets - and elsewhere - concerns the imminent "fiscal cliff", the combination of the expiration of the 2001-03 Bush tax cuts and President Obama's payroll-tax holiday, together with large, indiscriminate reductions in defense and other government expenditures. These "automatic" policy changes - the result of intransigence on the part of each of the two US political parties - will occur - in the absence of legislative intervention - between January 1st and 15th, 2013. All in all, they would exert a significant contractionary effect (about 5% of GDP) on the US economy. The issue is one of timing - monetary policy is unprecedentedly expansionary in the face of sluggish growth and persistently high unemployment, and to be effective it requires support at this point from fiscal policy. Much tighter fiscal policy to reduce the US public sector deficit is essential, but implemented over a 5- to 10-year horizon, not as a "cliff", falling over which could lead to another recession. Already, "cliff" uncertainty has stifled corporate planning, investing and employment, despite record company cash balances.

Policy makers in Washington all know this. But in a political environment where policy compromise seems simply not doable (especially over the next two months), remedial action has appeared remote. Except, this hint of resolution has just emerged - from a relatively under-the-radar business group, led by Kathryn Wilde, called the Partnership for New York City. Ms. Wilde has been quietly​ negotiating with prominent political figures on both sides of the spectrum, including Treasury Secretary Tim Geithner, Democratic House Minority Leader Nancy Pelosi, House Majority Leader Eric Cantor, and numerous business leaders, to seek this elusive compromise. Her prediction at this point is for a partial deal soon that would provide at least a base for thorough resolution in the early months of 2013. Some tax increases could be part of this process, a concession by Ms. Wilde's group that could ensure bi-partisan support.

The upside to the markets of an announcement that the fiscal cliff has been avoided, or mitigated, should not be underestimated.​

Debating

Last night's vice-presidential debate, which, given its scope and intensity, was much more like a presidential debate​ than the first Obama/Romney encounter, was notable to this writer for two reasons. First, the Biden smirk, so persistently apparent on the split television screen, was at least annoying, and at worst a fatal debating error. The Democratic team watching must have cringed. Secondly, it was curious that the moderator, Martha Raddatz, chose to focus heavily on non-domestic issues, notwithstanding her own particular expertise in covering events abroad. Everyone knows that Congressman Ryan is a domestic economic policy wonk. But this writer for one was surprised that, as Ms. Raddatz fired off one foreign policy question after another, he was at ease in addressing Benghazi Consulate security (or rather, the lack thereof), Iranian intransigence, troop withdrawal in Afghanistan, ongoing Syrian slaughter, and large, impending cuts to defense expenditures.

Ryan's coaches must have been satisfied.​