Thoughts on Excellence Free E-Newsletter Series
Volume 10, Issue No. 7
By Dan Coughlin
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People are often categorized into groups by things like their gender, race, height, year of birth, and nationality. Then all sorts of assumptions are made about each person based on their combination of these labels.
Those labels mean nothing to me. They don’t tell me anything about the individual because the individual had no choice over any of them when he or she was born. Each person was just given those labels.
What’s vastly more interesting to me is whether the person is a short-term thinker or a long-term thinker. Each person gets to choose which of these categories he or she is going to operate within.
A short-term thinker focuses on doing whatever he or she can do to get a good short-term result. The short-term thinker idolizes shortcuts. Shortcuts are fast ways to get really good results, but that are not capable of producing good results consistently over the long term.
A long-term thinker focuses on doing things that will generate good short-term results on such a consistent basis that the long-term results are good as well. The long-term thinker realizes you can’t get poor results all of the time in the short term and expect to get good results over the long term. The long-term thinker abhors shortcuts because he or she knows they breed habits that can’t sustain success.
This is such a subtle difference between short-term and long-term thinkers that it may seem insignificant. However, the ramifications over time are undeniably dramatic in every area of life.
The short-term thinker stays up all night to cram for an exam, gets an A, and then forgets everything he or she learned on the topic. The long-term thinker steadily does homework, asks questions in class, takes good notes, and is well-rested and prepared for each test. This person also gets an A on the test, but is prepared to produce at this level consistently over time. The short-term thinker eventually hits a ceiling because all he or she knows is what can be crammed in during an all-out session.
The short-term thinker goes on a crash diet to lose thirty pounds. The long-term thinker works out four to five times a week and eats well-balanced meals and keeps his or her weight at a reasonable level on an on-going basis. The short-term thinker eventually gains the weight back plus a bunch more.
Two dads stand beside each other at a youth basketball game. The one child is eleven months older and much taller and stronger and faster than the other child. The older child’s father is a short-term thinker. He thinks, “my kid has what it takes to be a great player.” The other child’s dad is a long-term thinker. He thinks, “We’ll just keep working on skills and see what happens.” Ten years later the two children are the same size and height and strength and speed. The younger child has much better skills and goes on to play college basketball. The older child has never really moved beyond the glory days of being eight years old.
The 1990s and 2000s
Over the past twenty years, short-term thinking approaches have dominated the landscape to the point that they very nearly choked our economy and brought it to its knees. Two examples stand out above all the others for me. In the late 1990s, people were buying stocks in dot-com companies that they knew virtually nothing about. They weren’t investing in them because they believed in their management team or their long track records of success or their products and services. They bought the stocks because they believed they were going to go up in value and then their plan was to sell those stocks. It wasn’t about investing in good companies. It was all about trying to time the market and make a killing. That worked beautifully for awhile, but then in March 2000 the gig was up. The stocks started falling and people jumped off the ship as fast as they could until many of the stocks were worth virtually nothing. In 2004-2006 people bought houses with the idea of selling them as soon as the price jumped above a certain point. They had no desire to stay in the houses and in some cases the owners never moved in. They just kept reselling the houses. Well, that short-term thinking reached its peak in 2006 and began to see the long-term ramifications in 2007 and we’ve been feeling that economic earthquake ever since.
The short-term organization rides a trend in the marketplace to get good results, but does not have the processes in place to produce good results when the trend comes to an end. Apple, being the long-term organization that it is, has focused consistently on building insanely great products and developed a process that has produced a series of homerun products. If one product didn’t work out, they had the habits in place to produce another great product. Same is true with Walt Disney (long term focus on delivering quality family entertainment), Rolex (long-term focus on creating extraordinary watches), Ralph Lauren (long-term focus on providing easy luxury), and Toyota (long-term focus on building extraordinarily reliable cars). Even when these companies ran into hard times or made mistakes, they still maintained their long-term thinking approach.
Taxes, the Economy, and the National Debt
Focusing solely on changing tax rates is a short-term thinking approach to dealing with the economy and the national debt. Reducing tax rates does not generate a sustainably strong economy just because more people have money in their pockets for the short term. Those people still have to figure out how to deal with the challenges of globalization, cheap labor, massive technological improvements, social media, healthcare costs, being innovative and creating greater value for customers, providing great leadership, building a great brand, and so on. It also doesn’t reduce the national debt if government spending outpaces any growth in tax dollars generated by the influx of money in the marketplace.
Conversely, raising tax rates for certain people doesn’t automatically help the economy or reduce the national debt over the long term. If government spending grows faster than the increase in tax dollars, the debt continues to grow and grow. The increased dollars that flow to the government will only provide the government with more short-term dollars to spend. That doesn’t mean the tax increases will be able to solve our economic challenges.
If you prefer a flat tax rate, why not just pick a number like 22.5%. Imagine that every person who generates an income pays 22.5% of that income to the federal government with absolutely no loopholes. Whatever that amounts to, that’s what the federal government gets to spend on government programs. If you prefer a sliding tax rate, then pick a high number and a low number that gather in taxes, but that don’t incentivize people to not work or to not push themselves to try to earn a good income.
In my opinion, rather than focusing on lowering or raising taxes, the long-term thinking approach for the government at the federal, state, and local level begins with the idea that it will never spend more dollars than it brings in. Let me say that again. The long-term financial thinking approach for the government is for it to never spend more dollars than it brings in and to take part of every tax dollar and put it toward paying off the debt that already exists. After that, the focus can be on what the government spends on.
You can’t get your long-term financial house in order if you always spend more than you have in the short term. This short-term thinking approach has been applied by both Democrats and Republicans for most of the last seventy years. Since 1940 the U.S. government has only had twelve years (1947, 1948, 1949, 1951, 1956, 1957, 1960, 1969, 1998, 1999, 2000, and 2001) of surpluses and 60 years of deficits.
Some people will argue that if we raise taxes we will be able to keep all of the commitments we have made to our citizens and defend ourselves militarily. Others argue that if we lower taxes that the economy will be so stimulated that the taxes generated will be able to cover the cost of our promises. However, neither of those approaches will matter unless the local, state, and federal governments buy, no pun intended, into the idea that they can never spend more than they bring in. However, this would create massive short-term pain for tens of millions of people who depend on government checks each month. In reality, a very high percentage of those checks are being paid each month by loans from China. The U.S. really isn’t paying all of its bills out of its own coffers. Consequently, the long-term pain will be endured by tens of millions of Americans when these debts reach a critical tipping point. That’s the day when we will actually have to pay them back. This is just like the reality that a heart attack is likely on the distant horizon for people who don’t take care of themselves physically in the short term.
Governments at all levels do important things for society, but when the government does more than it can afford it saddles the members of that society with bills that drain their ability to be successful in the future. That’s why I call it short-term thinking.
Making Promises You Can’t Keep
This is the granddaddy of all short-term thinking approaches to achieving results. Promise someone he or she will eventually get something remarkable that you really can’t afford to deliver as long as they produce a good result today.
A few decades ago General Motors promised its workers they would receive an extraordinary benefits package for many years to come if they would build cars in the short term. It all seemed so reasonable at the time. Cars were being built, profits were being generated, and everyone seemed happy. Then one day the bill came. GM realized that a staggering amount of the potential profit on each car was being eaten up by a promise that had been made many years earlier. To keep that promise, GM had to borrow massive sums of money, which eventually sent it into bankruptcy court. The short-term thinking of making promises that were unlikely to be kept ended up hurting a lot of people over the long run.
Imagine in 1971 a man said to his fourteen-year-old child, “If you do well in high school, I will pay for your tuition at an Ivy League college, and I will pay for your children to go to the Ivy League as well if they do a great job in high school.” The child goes to Harvard, the father is still working, and the tuition bill is paid even though it seems a little high and the dad has to borrow some money to pay it. In 2011 the first grandchild is ready to go to Harvard. Now the dad, who is also a grandpa, has long since retired, but he has to keep his promise. So he takes out huge loans, far more than he will ever be able to pay back, to pay for his grandchild’s tuition bill. In the end, the grandchild has to pay the bill or possibly the grandchild’s child has to pay it.
Essentially, that’s what we have done in America. Many years ago promises were made to our citizens that their medical bills would be paid if they were old or poor. At the time it seemed very noble and the cost of healthcare was relatively very inexpensive. Now several decades later during an incredible rise in the quality and cost of healthcare and in the number of people who qualify for these programs it has become much clearer that it is highly unlikely that we can keep that promise without borrowing hundreds of billions of dollars every year for the foreseeable future. The long-term thinking approach would be to say, “We care about all of our citizens and we will do what we can to help everyone as long as we can afford to pay for it.”
Instead promises were made that are currently impossible to keep without borrowing money. In other words, our promises have vastly outpaced our revenues. The short-term thinking approach is to provide all kinds of things and borrow whatever money is necessary because the bill won’t really be paid until way down in the future.
Can we keep our promises to all of our citizens? It’s possible, but I think the discussion has to include the parameter that no federal, state, or local government can spend more than it takes in. Without that being a firm parameter, every government group can think of valid reasons why it should always be allowed to spend more than it has to work with.
It’s painful sometimes to make sacrifices today in order to achieve success tomorrow. It can be very painful. Recently I drove with my mom to her first home that she and my dad built in 1957. It is a small home by any standard of today. Eventually there were seven of us living in that house. She spoke about that house in glowing terms. I asked her why she moved in 1967. She said, “We wanted to get to a school with smaller class sizes. Every decision we made was about the kids’ education.” That single moment summed up my parents’ approach to life: long-term thinking.
The World’s Greatest Business Challenge
The greatest challenge in business is not to achieve success. The greatest challenge is to sustain success over the long term. In order to do that, you have to consistently maintain a long-term thinking approach.
As you run your business or your part of your business, I’m asking you to think about this question, “How can I generate the best possible result today in a way that allows us to generate more good results for many years to come?” That is a significantly different question than, “How can I generate a great result today?” One is for long-term thinkers and the other is for short-term thinkers.
Avoid shortcuts and achieve results in ways that allow you to be successful again in the future.
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