Why Government Must Spend Now
What should a CEO do in the face of the economic meltdown? The conventional wisdom, with which I agree, is cut costs. Cut deeper than you think you have to. Now. Hoard cash. History has rewarded those who have followed this formula, and punished those who have not.
Yet the consequence of this behavior is to assure that the recession is deep and long. As each company makes good defensive decisions and cuts spending, why, sure enough, economic activity slows down even more. Huh! Who would have thought that if we all reduced our spending with other businesses and cut employment, spending with us would decline? Can't we just dish it out without having to take it?
The irony here is that the surest way to reverse the slide is for all companies to spend more, not less. If everyone did that, we'd of course see economic growth, not decline. But that won't happen as each CEO makes the decisions that are in their company's self-interest. Exactly which CEO is going to increase spending for the greater good?
And consumers are behaving just like companies.
So it is not enough for government to act to restore confidence in the rules and regulations that govern economic activity. Nor it is enough to make capital available to lenders. What is needed is sustained spending, because, in the end, it is spending that defines economic activity. Only government can prime the pump with sustained spending when all other players are playing defense.
The surest way to do this is to accelerate infrastructure projects and other investments in our future that directly produce current-term spending. This is not the time for subtlety. The shortest distance between the appropriation and real spending should be the goal.
Yes, this increases deficits, especially as tax revenue slows with the slowing economy. Yes, we should have been smart enough not to run deficits when the economy was growing, so we'd be in a better position to do so now when we need it. But that is crying over spilt milk.
The house is on fire now and only government can put it out before it burns to the ground.
Yet the consequence of this behavior is to assure that the recession is deep and long. As each company makes good defensive decisions and cuts spending, why, sure enough, economic activity slows down even more. Huh! Who would have thought that if we all reduced our spending with other businesses and cut employment, spending with us would decline? Can't we just dish it out without having to take it?
The irony here is that the surest way to reverse the slide is for all companies to spend more, not less. If everyone did that, we'd of course see economic growth, not decline. But that won't happen as each CEO makes the decisions that are in their company's self-interest. Exactly which CEO is going to increase spending for the greater good?
And consumers are behaving just like companies.
So it is not enough for government to act to restore confidence in the rules and regulations that govern economic activity. Nor it is enough to make capital available to lenders. What is needed is sustained spending, because, in the end, it is spending that defines economic activity. Only government can prime the pump with sustained spending when all other players are playing defense.
The surest way to do this is to accelerate infrastructure projects and other investments in our future that directly produce current-term spending. This is not the time for subtlety. The shortest distance between the appropriation and real spending should be the goal.
Yes, this increases deficits, especially as tax revenue slows with the slowing economy. Yes, we should have been smart enough not to run deficits when the economy was growing, so we'd be in a better position to do so now when we need it. But that is crying over spilt milk.
The house is on fire now and only government can put it out before it burns to the ground.
posted by Phil Bookman at 1:21 PM
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