Businesses and consumers are scared to spend because they are uncertain about the future, or so the theory goes. If someone would just inject a little cash into the system then it would all start moving again. They key is to get the spending going soon on projects that are “ready to go” and will make good use of idle resources right?
There seems to be a belief that there are a few people (namely ‘the government’) that can figure figure out what resources are idle and knows what projects are just sitting on a shelf ready to implement. That is clearly incorrect if you look at any of the boondoggles that are part of the current stimulus bill. It is primary composed of increased departmental budgets and infrastructure projects that will take years (and year) to complete.
If I had to come up with a stimulus bill – let’s leave aside whether or not its necessary – I would attempt to use the private sector to funnel the money.
There are problems with just giving business a bunch of cash – they use it for things like bonuses, airplanes and 0% interest, putting their competitors that don’t get cash at a disadvantage. And, call me a fool, I am uncomfortable letting tax dollars go towards picking winners.
Assuming that most companies are like mine, there have been millions and billions of dollars in capital projects that have been postponed because no one knows how bad the economy is going to get or how long the downturn will last. So there are projects that businesses will think will make them better off that they aren’t pursuing because they are simply trying to conserve cash.
Now you don’t want to just give them money and trust that they will use it in a productive way – but the government could match any capital spend that a business decides to undertake. There are a lot of productivity projects ready to go, we cut capital in half and there are probably twice that many projects that were proposed. (unlike government, the private sector actually has to make choices).
So it’s clear that the money could be spent quickly. Because the funding is only a match there is some likelihood that the spending would actually be productive (though not guaranteed). And this type of spending is more likely to re-absorb the unemployed resources, or at the very least stop the bleeding. It is certainly better than assuming that everyone that has been laid off could become a construction worker overnight.
So that is my plan – what do you think?