Are Americans Becoming More French in Their Search for Security?

Of course the short answer is no but there are some very troubling trends in place right now. Strategists refer to this as “U.S. policy risk” and it is on the rise. Here are a few points:

The first is the minimum wage increase. On July 24th it will step up to $7.25/hour which is up a full 41% in two years. We’re not sure about inflation prospects but 20% annual increases in wage costs can’t be good. The real issue is that it further raises the hurdle for creating jobs, especially entry-level positions.

Healthcare costs will rise, particularly for employers. Combined with the new minimum wage increase, it makes any manager incrementally more inclined to eliminate jobs than create them.

Government “stimulus” is working but is heavy handed. The first-time homebuyer incentive is definitely adding to real estate purchasing. Numerous incentives for efficient, green and alternative energy building is helping the construction industry. No doubt more tax relief and subsidies are coming. Navigating the network of these will be a critical part of saving and/or making money in the new U.S. economy.

Far more worrisome is the rise of the “security” meme in terms of job and career. The suggestion is that “security is more important to happiness than wealth.” Going further, some are suggesting that majoring in accounting and getting a safe job is the basis of being happy because fun can be found elsewhere.

The recent rise in seekers for government jobs starts to mirror the tendency in places like France for young people to aspire to government jobs for their lifetime security, decent pay and generous benefits.

The real risk is that individual enterprise becomes more focused on taking advantage of the increasing array of government-sponsored opportunities and benefits rather than figuring out something new and possibly risky to do.

Risk capital, especially venture capital, has been very difficult to find recently in the U.S. It’s fairly common to find small companies recoiling from rather than investing in new opportunities.

Of course there is also plenty of rhetoric around limits on executive pay and trying to regulate investment banking and financial markets more closely. We’ve watched companies outsmart new regulations over and over so don’t expect them to change much, but the increasing involvement of government in private enterprise management is more European than American.

So what does it mean for investment? There are certainly sector-based opportunities in industries like healthcare but it suggests that more money will flow into labor-saving industries like technology than labor-intensive industries like restaurants.

Going beyond that, the subsidy structure is likely to spur above-market demand for products like alternative energy technologies like solar. There’s sure to be more to this story and additional investment implications to play out.