Monday, January 19, 2009

On the stimulus package

“One man's expenditure is another man's income.” 

 

That was the succinct remark from the economist John Maynard Keynes, describing the world that was trapped in the Great Depression where tightening spending and loss of income worsened the situation for each other. 

 

Now, as we try to deal with the worst recession ever since that awful Great Depression, Keynes’ ideas are again rapidly gaining favor among economists and policymakers alike.  And, yet again, the fundamental struggle is to figure out how to get households and businesses to spend such that it will trigger “another man’s income.”

 

The latest economic data show that retail sales were down almost ten percent compared to a year ago.  What a dilemma: on the one hand, unnecessary material consumption being down can be good for the environment.  However, in a consumption-driven economy, a dramatic and sudden decrease in expenditures will only ensure that the economic recession that we are in will get nastier.  In the quite strange and complex global economy that we operate in, it turns out saving money is not a virtue if it completely dampens the spending.   

 

I was thinking about all these when my neighbor walked over to remind me about getting the gutters in my home cleaned.  When I told him that we are planning to get the exterior of our home painted this coming summer, he lightheartedly remarked that I might be the only one in town spending money a few months down the road.  As our conversation on the economy ended after only a few minutes in the freezing cold, we parted company and rushed to the warm interiors agreeing that it is not going to help the economy if everybody stopped spending. 

 

This unique quality of money is best summed up by Dolly Levi—the lead character in “Hello, Dolly!”—who  often quotes her late husband’s words: “Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around encouraging young things to grow.”  Yes, the words from the musical are far more meaningful today as economic interpretation than as mere Broadway lyrics more than forty years ago.

 

Dolly’s advice to spread the money, or Keynes’ observation, imply that when people and businesses stop buying, the economy has no growth opportunity whatsoever.  As corporations tighten their expenditures, for instance, corporate aircrafts are being shunned, and we feel the impact right away in terms of job losses at the Cessna plane factory in Bend. 

 

And households tightening their spending and eating only at home quickly leads to job losses at local eateries—sometimes even permanent closures of those establishments, as has been the case with CafĂ© Zenon and El Vaquero. When consumers are no shows at eateries, it affects the jobs of those who work there, which in turn affects their own spending habits. These horrible multiplier effects can have disastrous impacts causing a massive downward spiral.

 

After driving myself crazy with such half-baked analysis of the global economic meltdown, I decided to take my daughter’s advice and simply stop reading and thinking.  For a while, at least. 

 

Thus, on a cold but sunny Saturday morning, I headed out to The Country Bakery on the remarkably picturesque Peoria Road.  It was past nine in the morning, and about 31 degrees, when I parked on the gravelly driveway.  The moment I stepped in to the bakery, I knew I had forgotten my worries about the economy.  How could I not, when I was greeted with the warmest smile, and with fresh pies, breads, and doughnuts on the shelves?    

 

As I walked out with a marionberry pie and a glazed doughnut, two other vehicles pulled up.  I wondered whether they too came in for that simply delicious home-baked comfort food, made by a baker who wakes up at midnight to get things going. 

 

Sitting in the car, I bit into the doughnut, which had quickly cooled down with that momentary exposure to the freezing temperature.  That is when I thought that maybe we do have a guaranteed way out of the recession: every man, woman, and child in America will get a pie from The Country Bakery.  Now, that is a package with a lot of stimulus in it.

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