How to Solve a Rubiks Cube
Now the New Year has ushered in year five of the Great Recession, and here we are in the Rubiks Cube Economy. It is a scrambled mechanical puzzle, a multidimensional maze intriguing to players all over the world, a classic riddle of the intellect. You reach a false solution when you twist one face into alignment, and you think you’ve got it beat but in reality everything you do just scrambles it even worse. Frustrating, but not impossible.
Here are the false solutions that policymakers have engendered so far:
- Injecting money into the cube doesn’t yield abundance. It’s a good thing that consumers are too shell shocked by the rampant unemployment to spend, and that banks are too constrained to lend. Thank heavens for low monetary velocity which is the only reason that the billions of dollars infused by quantitative easing haven’t hyperinflated our system yet.
- Twisting one face of the cube doesn’t align the other faces. Operation Twist achieved little other than scrambling the yield curve. Tried to fix it, but just messed it up even more.
- Changing its stickers is too radical. Obama failed to do more than assassinate a dictator, yet was elected for a second term. His victory signals that as much as voters complain about the economic malaise, their decision to elect change was stalled by the immensity of their fear.
These false solutions signal a dearth of creativity. Five years into the worst failure of our economic system that our generation has ever seen, there has been little recovery. Contrary to what the recent market run up may imply, the worst pain looms on the horizon. Recent unemployment numbers display that weakness persists. Reform will only increase our indebtedness, intensify our deficit, and prolong our journey down a path of encumbered GDP growth and productivity. In markets abroad, Europe wavers on the verge of buckling under its own sovereign credit pressures. Although emerging markets are the engine of global growth, they can not be decoupled from the slowdown in the rest of the world, and commodity inflation will hold them back. Don’t be misled by the infamous January effect. This is the classic false solution, a mere reflection of one face of the cube lining up right. It’s irrationally exuberant investors overreacting at the first signs of relief. It is a market trading on skittish emotion where the fundamentals have no meaning.
The reform to be made is not the cube. The solution is to stop blaming the cube because the game is never impossible. Change the player and you have the solution. While the New Deal certainly wouldn’t be the fix that we need today, creativity was the way that FDR found his way out of the maze of the Great Depression. He simply invigorated his Cabinet with people who brought unconventional perspectives. The problem isn’t Obama, his Cabinet, or the economy. Successful businesses, driven to innovate and create wealth, have way more power than any policy or monetary tool that the government controls.
Take a college student with no practical work experience and let him nurse his creativity, the imagination to break social barriers, a little bit of technical skill, and you get Facebook. Innovation and entrepreneurship were the source of multibillion dollar prosperity. Zuckerberg accomplished all this in the face of great economic challenge. His imagination was his only resource and it was the source of his abundance. It didn’t cost him anything to think. He overcame the yield curve, the tax rates, the debt crisis, Google, Yahoo, Apple, all by sitting in his Harvard dorm room dreaming up a new way to talk to your friends. This example illustrates how a businessman can beat the game and create billions of dollars of wealth for himself, his family, and most of all, the economy. GDP would increase by 1% if only 30-60 people, or about 0.00001% of the US population, created a billion dollar firm each year.
The birth of a successful business generates tremendous power. Entrepreneurship is a source of vitality because it drives efficient use of resources. Over half the companies in the Fortune 500 were born during a bear market. Firms between one and five years old were responsible for two thirds of job growth in 2007. Yet despite the benefits of innovation, it seems we are losing our entrepreneurial spirit. The number of start up companies in 2010 was the lowest in 16 years. Perhaps the tight credit markets have been an obstacle.
The solution to the Rubiks Cube Economy is imagination. The only way to win this game is for business leaders to forge greater innovation and entrepreneurship, repackaging old, tired ideas into new profitability.
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 According to the United States Census Bureau U.S. POPClock, the US population was 315,262,005 on February 2, 2013. United States Census Bureau, U.S Department of Commerce. Also, Kaufman Fast Facts, Entrepreneurship and the Economy. Originally sourced from “Inventive Billion Dollar Firms: A Faster Way to Grow.” December 2010. Ewing Marion Kauffman Foundation.
 Kaufman Fast Facts, Entrepreneurship and the Economy. Originally sourced from “The Economic Future Just Happened.” June 2009. Ewing Marion Kauffman Foundation.
 Kaufman Fast Facts, Entrepreneurship and the Economy. Originally sourced from “Where Will The New Jobs Come From.” November 2009. Ewing Marion Kauffman Foundation.
 “Entrepreneurship and the US Economy.” United States Department of Labor, Bureau of Labor Statistics, Business Employment Dynamics. February 2, 2013.