Its Not the 1930’s

You’d think that politicians would recognize that today is not the 1930’s and they have tools available today that don’t have to increase the national debt. The basic theory utilized today, and from the 1930’s, is that the government should step into the void and replace the spending of the private sector. In doing so the government runs a deficit, pumping money into the economy. The problem is that this doesn’t generate sustaining economic activity.

During normal times a developer develops a project, hiring contractors, architects and engineers. Hopefully he makes a project and takes some of the profit to start a new project or takes the success of the last project to solicit investments from investors for the next project. The contractor does a good job and is assured of getting future jobs and buys equipment or resources to reduce down time. Other people see the success of the developer and develops their own projects or invests in developments. The system provides hope of a better tomorrow.

If the system breaks down at some point, through a bubble, government regulations or a scarcity of resources the system breaks down. The developer doesn’t move on the next project, the contractor doesn’t buy new equipment and makes due with their current equipment and higher maintenance costs, fishing boats are put out of business, etc. Sometimes the slow down happens slowly like in the 1980s and sometimes it ends in a large crash like it has recently.

The problem with government stimulus is that the government decides the winners and losers and doesn’t provide much visibility in the future. If your a contractor working on stimulus funded projects would you buy equipment with a 5 year lifespan or overhaul your 5 year old equipment. Currently, based on Caterpillar sales, I would say many contractors are doing the cheaper overhauls.

There is still money out there ready and willing to invest in projects. Unfortunately it’s sitting on the sidelines, most likely in government treasuries used to pump money into the economy. Ironic isn’t it. The government has tools at it’s disposal to get the money on the sidelines to jump back in. Mainly they have the ability of extracting the government out of the way of projects already planned. Sometimes it’s projects the government is funding themselves.

While working at the County of San Luis Obispo on bridge replacement projects, the main impediment was the permitting process. There are still bridges working through the permitting process ten years after they were started. Imagine all of the bridge projects that could be done if the government stepped out of the way of its self and had those projects started? Imagine if the government said they were streamlining the permitting process for bridge replacement projects for a period of 5 years and that it would take no longer than 3 months for the necessary permits to be processed. The bridge contractors would have the visibility to purchase new equipment for those projects.

Another example may be found up and down the coast of California in the form of the Coastal Commission. I think the Coastal Commission was set up to protect the coast, but it mainly operates as an extortion ring. Want to build your house on your property, well you’ll have to pay for stairs so people can go through your property and make it to the beach. Want to get a permit to relicense your nuclear power plant? That will cost you a trail along the road to the main gate of the power plant. There are some desalinization water plants planned along the coast of California funded with private financing. Many of these projects are being delayed going through the permit process. How about streamlining the process to get these projects built? It doesn’t cost the government anything, except for providing good services to the people. Imagine if the Coastal Commission was put on hiatus how many investors would get off the sidelines and invest in projects before the extortion agency was reinstated.

Numerous people are out of work in the San Joaquin valley of California. You’d think it was a product of the current economic malaise, but it’s because a court ruling regarding pumping of water from the California delta. Many farmers who are the beneficiary of the pumping of the delta water have had to make their fields fallow, putting many people out of work. You can take a look at the area in this unemployment video. Its the dark area in California at the start of the video. The government could provide a solution to this problem or restart the pumps putting people back to work. The ruling in question was to protect an endangered species, unfortunately the ruling puts at risk around 20 other endangered species who benefited from the pumping of the water.

My point is the government has the ability to fix the current economic problems without spending money they don’t have. They could simply get out of the way and let people get back to work.