Gallup CEO releases report on U.S. economy, tells forum– “We are not in a recovery” (VIDEO)


Gallup Report: No Recovery: An Analysis of Long-Term U.S. Productivity Decline

Download report:

December 9, 2016
U.S. National Competitiveness Forum, Morning Session — Part 1
James “Jim” Clifton Chair and CEO Gallup
Speech: 29:57 – 53:20

— Please welcome the Chairman and CEO of Gallup, Mr. Jim Clifton.

James Clifton: Deborah, congratulations and thank you for having Gallup be a part of this important 30th anniversary. And congratulations on the great contributions you’ve made not only in business and industry and also to our country.

We were asked to make a report to talk a little about productivity and m more specifically about growth. I don’t want to go through the report because you can read it yourself. We have a slide deck with one slide. I’ve never done a slide presentation before but I have one slide and I do refer to it as my deck.

I want to take a little bit of a different angle on it, a leadership angle on what we’ve done. The guy that founded our company was a guy named Dr. George Gallup. He was more of an academic than an entrepreneur, but he usually makes that real good list, not the Time Magazine list with chefs and that kind of stuff, but the one with George Washington and Franklin and that kind of thing. He loved democracy so much. He said, “If democracy is about the will of the people, somebody should go and find out what that will is.” He would always report that to Washington. He said, “If you are wrong,” that’s what he worried about, “If you’re wrong about the will of the people, when you make policies and you lead, and you ‘re wrong about that premise, the more you lead, the worse you make things.” What a wonderful mission. I was thinking about how that applied to right now and about growth. Because let me just ask you: are we in a recovery? Because it’s a debate. Are we in a recovery?

I don’t think I can say this in front of this group but I didn’t actually know what productivity was. I know what GDP is, and I have some opinions about that. I know that 2.5% is a lot better than where we are now — 1.5% or 1.7%. I know we need 2.5% to break even with the amount of costs we have. And when we are at 1.7%, you are slowly going broke.

I also looked into…If you said, “What’s the right amount of GDP to have?” I don’t think this board will like this, but I don’t know what the right number is. Can you go up to 8? Can you have 9%? What do we need?

The biggest moment in the history of human development of the last few thousand years was between 1850 and 1950, in the United States of America, we overwhelmed the world. Now, we are 25% of all the money. Here‘s a good question. What was GDP during that time series? You know what the answer is? 3.75.

Think about how big those differences are. How do we boom? 3.75 over a time series of 10 years. How do you go broke? You have a time series of we have now, about 1.5 or 1.7. You have to be somewhere above 2.5%. I didn’t know that.

The next thing I learned was that GDP is not the best method. If you take the population of economists – both right leaning, left leaning, moderate, whatever it is — they say the best measure is actually GDP per capita. I didn’t know that. I started thinking maybe it would be GDP per worker would be good. You can’t do that, because sometimes you have fewer people in the workforce if too many drop out, you have it inflate….

You have to do GDP for the whole population. People at home, good for them. They use the economy. too. So do babies. So the best number that you can use. And so that’s the number that Gallup and the council and my team of economists chose to use. We went back 50 years.

We determined that was the single best metric to determine if we are in a recovery.

But now, remember, if we’re in a recovery, I looked the word up. I was on a flight back from Frankfort, Deborah. I was thinking about this. They bring all the newspapers. I had the Financial Times, the Wall Street Journal and the New York Times. i found an article in every single paper on the front page that referred to America’s recovery. That seems like a very important article to me. So, I looked up recovery. It means you have been sick and you are getting better. You’re recovering, so that’s what it means. You wouldn’t think I had to look that up but I did. Going back to Dr. Gallup’s point, if we are in a recovery, that suggests totally different activities than if we are not in a recovery. If we are in a recovery, kind of get your hands off the wheel and tweak it a little bit and keep nudge teeing in the right direction. If we’re in decline, that means that you‘ve got to shake everything up. You need turn-around. That gets back to you better get your premises right. If we are wrong, the more we lead, the more we ruin the country.

So here is my deck, my one slide deck. [Slide is the chart on the report’s front cover] This is 50 years of GDP per capita in the United States. Can you look at that and see a recovery? 

I wrote down three quotes. You can find them anywhere you want. This one is from the Wall Street Journal. The guy’s name is Eric. I won’t say the rest of his name, but I have read him before. Here is what he said. “The U.S. economy appears to be growing at its fastest pace in two years.”

I don’t know what he sees? But I guess you can say it. I think you can go through like the radio salesman. You probably can find one little blip somewhere maybe between one quarter and another. I don’t know.

Here is one from — I won’t say his name – but from Raymond Jones, the investment banking company in New York. “Growth is a lot stronger than it looks.”

I don’t know what that means. Where do you find growth is stronger than it looks on there?

This one is interesting. This is my last one. Have you ever heard of confirmation bias? The guy got a Nobel Prize for this. But when you make a decision or you come to a conclusion, what he figured out is that only 30% is based on fact, and 70% is based on emotion. He‘s actually a psychologist, the only psychologist to get a Nobel Prize in economics, Danny Kahneman about six or seven years ago. Confirmation bias is that you only look for facts that confirm what you want to believe. If you wonder how often we get into that, ___ you and I were talking about, most of the media tried to find facts — not picking on the media, all of us did it, I did it, too. – but why only Hillary can win, why Brexit will never work, why the electorate in Colombia will never vote for a FARC treaty, nobody saw Arab Spring coming.

That 70% dominates all of our thinking. It dominates our thinking. We are always in a fight with the 70%.

This one is really important. “We are seeing definite evidence…” My senior editors here in the room., but I don’t think there is anything called definite evidence. You either have evidence or you don’t. “We are seeing definite evidence (like, ‘Convince me. This is the time I really mean it.‘) The economy is expanding more strongly.” Who do you think said that one? That’s Janet Yellen. She is working on my 70%, too.

We‘re not in a recovery. It helps me when I can reduce things to their simplest one. If we were a company and this was a shareholders meeting, I would be reporting our sales are $18 trillion. We have 100 million in full-time employees. We have 50 million part-time employees. We have debt of 20 trillion going to 30 trillion. And we have revenue that’s increasing at a decreasing rate. Our revenue is down to about 1.7. I can finish the line to where it is zero. Do you want some of that stock?

The next thing I would tell you is that I’ve got some good news for you. The food is cheaper than it has ever been before. So when I was a kid, it was almost twice as much. That’s some good news. Transportation and gas.

But we have three expenses that is are totally out of control. 18 trillion in sales. 20 trillion in debt. We have three line items that are booming out of control. You know what they are? We need to know. Education, we all know health care. We all know housing. I see in the clarion call there I think we know those pretty well. Remember, there are some real basics you need to know as shareholders, too.

One of them is that with health care, we spend twice what other comparable companies spend per person. We spend twice as much as England, Canada, France, Germany, two times as much. The next thing you need to know is that they all live longer than we do. You don’t like to hear that. That doesn’t work well in the confirmation bias. That doesn’t fit neatly in there. The great American health care system.

It makes you wonder a little bit. So Canadians live three years longer than us, French live three years longer than us. We spend twice as much. It makes me wonder if the more they spend on us, the faster they kill us.

You read this, I mean you can hardly believe it. I had to google it to believe it. I was wondering how many people are killed in hospitals. We worry about soldiers. I know the generals and admirals here. You read the New England Journal of Medicine. How many people were killed in hospitals last year? 100,000. You want to go to a place where you are really in danger? Get into a hospital. They maimed 1 million. I’m just saying. Johns Hopkins put their number out. and they said 250,000. But you wonder when you have an expense item that’s out of control and has that little success, do you really need kaisan, do you need sick sigma, do you need lean, or do you need total disruption?.

Another one our analyst found was education. It is booming. It has many other implications to the amount of debt boomers have. Boomers are going to be wonderful workers. They are really different. I saw a conversation on “Squawk Box” this morning and they were talking about: are millennials different than any other generation? They said, “No, they are no different at all. They are just younger.” They came to a conclusion that fits, again, there’s your confirmation bias.

I am going to tell you. One thing is, they don’t have babies. That seems to make them quite a bit different. This is the first year where the white man is going to be smaller. They are causing the white man to be extinct. That seems like a really big thing. They also have the lowest marriage rate since the history of our company. When I was a kid, the great American dream was to own a house, not so much with them. Home ownership is the lowest it has ever been. We have been wrong about that American dream. It changes almost everything. They don’t buy diapers. They all have pets. So they buy expensive dog food. If you have stock in pet food, it is going extremely through the roof. The changes are extraordinary. Yet, we are wrong about them.

It kind of bothered me. I was watching Squawk Box. I wonder if everybody goes away with that confirmation bias and concludes the wrong thing. The ratings, they have 100,000 people watching. I know it is about the same of a Michigan home game. About a crowd about that big. They are very important people, that’s the point. If they go out and they have the wrong thing — there is one real important thing in there that has to do with education. They are going to be very good workers.

Here is one big difference between my generation and the others. The baby boomers produced jillions of babies and started a whole bunch of new companies. The other thing millennials don’t do besides not having babies, they don’t start companies. That needs to be fixed somehow. But education is probably not doing that. What we have done, when we ask them where they are right now, they are in a whole different state of mind because of what? Saddled with debt.

If you ask me, do you think there is going to be money for your retirement? Yeah. How about for your kids? Some for my kids. How about for your grandkids? I know there won’t be. If you take education, housing, health care, it may not be as simple. It is more complicated in how they fit into all the decision we make, the clarion call we make. All of them seem to be tied somehow to growth.

I’ve been trying to stretch my thinking, Debra, since we started this project. I keep getting surprised so much. If you said, “What did you figure out?” And the report, I think, is maybe coming out now; have you read yourself. I am trying to make some reckless remarks here.

So we know we need more growth. I can say this to this group. My business is selling innovation. But when we say, “How do you fix our GDP and this problem?” we know we need to get the pie growing. “What are you going to do to get the pie growing?” We have all concluded the same thing. We did it with our own confirmation bias, and we are wrong. We think it is just innovation. So we just keep building up innovation and spend hundreds of billions on innovation.

Read the Wall Street Journal either yesterday or the day before. We have a record number of patents. Since 2000, it’s just boomed – Innovation — we are blowing it through the roof. So how are we doing with new companies? It’s the lowest it has ever been. So we just keep booming, because somebody told us innovation creates companies and we don’t consider it. We don’t consider the other side of it. Maybe it doesn’t. Of course, it’s a big part of it.

I will just throw it out to you: what if innovation has no value whatsoever unless it is in the presence of a customer. We don’t think of that. What if innovation has no value at all until it has a business model that works.

48:35 This story is kind of unbelievable. Are, do you all know who Vint Cerf is? What a great guy.. He and Bob Khan got the packets to fly through fiber optics and that became the internet. They were the Wright brothers or something. He told me this story at dinner, and it’s got to be true because it’s not complementary to them and he’s one of the most important Americans ever. But he was doing his job. Remember, he had already built that thing at DARPA so that we could send signals around and all that. And a guy came over from the U.S. Senate who loved technology, and said to him, “Let me see that thing.” Vint showed it to him, and he said, “Oh, my god, it is the greatest thing I have ever seen in my entire life. Can I go back to the senate and pass a bill and throw it out to commerce and see what they can do with it?” What a conversation. >>

You know what Vint said back to him? “Fine with me, but I don’t see what value it will have to business.”

It’s a lot bigger conversation than “Watson, come here. I need you.” You know who the senator was? Yes, it was Al Gore. I’m the only guy in the world that tells a nice story about Al Gore. Think if Al Gore hadn’t come over. Maybe he knew that. Maybe he knew that that innovation had no value at all. What about another $100 billion for that DARPA piece? But until you have customers,… boom, you got an explosion out of it.

Maybe when we build institutions of innovation, somebody better raise their hand and say, “It is not making the pie any bigger. It is not fixing that right there.”

What fixes it is when somebody actually starts a business. There has been about 26 million companies; but actually only about 6 million businesses, 4 million have only 1.4 employees. There are only 2 million businesses That keeps getting smaller.

See, we keep working on innovation, while the part that fires it and creates customers, that’s getting smaller. We keep working on this one because that fits our confirmation bias.

I think I’m going to end it with this point. I think this will make sense. Here is where you have hope. If you’re an engineer, you look for solutions where you find variation. So these terrible numbers aren’t consistent across the country. So you have some states that are probably never turning themselves around. I don’t know what you do with Illinois. I don’t know what you do with California. They are so under water. Then, you have other states that make a profit. Florida is killing it. I was out in Wyoming. They are printing water out there. I don’t know what’s going on. You see the variation. I get a kick out Tennessee. That’s a good one for researchers. Obviously, the same country, same laws, same state, same governor. All the legislation and all that. You have two cities in there with very different outcomes. One is Memphis. One is Nashville. Memphis is really struggling. Nashville is killing it. What it does is it gives you hope. Leaders of these communities, especially by cities, even more by states, can change the outcome of America.

I noticed, Deborah, that somebody turned our story into Obama’s failure or something like that. If you look at that line, do you know what conclusion you can have that’s way outside of confirmation bias? You could ask yourself, “How much does the president really change the country?”

Obama’s line is bad. So is Bush’s. You go clear back to where there was a big lift. Reagan had a big lift, went down a little bit. Clinton came back a little bit.

I just throw this out to you. When we say things aren’t going well, we say, “We need a new president. That one is no good. Bush is no good.”

Let’s go clear out and try this one. I’m just wondering if there might be more solutions from the leadership of America. Maybe 10,000 of us, maybe 100,000 of us, than there is with the president.

Thank you, again, Deborah, for all that you do. Congratulations on the 30 years and thank you very much.

Ends 52:59

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