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Eye on the Market | June 14, 2011 J.P Morgan Topics: On lessons learned running the Stratford Inn In short, “one-size-fits-all” rules for business ignore the reality of the market place. And setting thresholds for regulatory guidelines at artificial levels--e.g., 50 employees or more, $500,000 in sales--takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics. The problem we face as legislators is: Where do we set the bar so that it is not too high to clear? I don't have the answer. I do know that we need to start raising these questions more often. So, there you have it, one of the more remarkable epiphanies in American politics: a paean to entrepreneurship and government restraint from one of its most progressive members. Public epiphanies like this are rare, but there have been others. Last year, Al Gore conceded that first-generation ethanol was “not good policy” given its low energy conversion ratios, and said he had supported ethanol out of “a certain fondness for the farmers in the state of lowa because I was about to run for president."* In 2008, former Fed Chair Greenspan conceded that his Ayn Rand philosophies regarding regulations and shareholder self-interest were flawed. Perhaps the most famous epiphany was from Robert McNamara, Secretary of Defense and one of the principal architects of the Vietnam War. In 1995, he conceded that he was “wrong, terribly wrong” about the war. George McGovern was one of the war’s fiercest opponents, saying on the floor of the Senate, “I'm tired of old men dreaming up wars for young men to fight”. There may be no magic elixir of policies to speed the adjustment the US faces. Look at it this way: the US is trying the mega- stimulus route, while the UK has accelerated its fiscal austerity program. Yet both countries are struggling with below-trend growth and employment. Perhaps after a debt binge, there are no easy answers, other than time. What to do next? McGovern’s article suggests that an overly interventionist public sector may be the wrong answer, given the unintended consequences. US and UK still searching for answers Total household , non-financial corporate, federal and municipal debt, percentof GDP 300% 280% 260% 240% 220% US 200% 180% 160% 140% 1987 1990 1993 1996 1999 2002 2005 2008 Source: Federal Reserve, Office for National Statistics. UK Data as of 2009. UK Michael Cembalest Chief Investment Officer The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Michael Cembalest and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. 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