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Budgets and why stimulus efforts arent long range
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Editor, Manteca Bulletin,

There are two constant themes on the nightly news. They are balancing the budget and more economic stimulus from the Federal Reserve Bank.

Let’s look at balancing the budget. What incentives do the legislators have to balance the budget? I couldn’t think of any. Both parties point the finger at the other party and blame them. You know, they are both right.  Both parties are guilty. The sad part is that they will continue to be guilty.

Is anyone convinced that this is a math problem? I can assure you that both parties have access to Harvard, Stanford, and Berkeley  university math departments. The math is the same math you use at your house but with bigger numbers. Bigger number is why we have spreadsheets.  They know the numbers.

Is anyone convinced it is a political system problem? Both parties court votes with promises of money. People vote their pocketbook. Everyone wants to keep as much as they can of their hard-earned money. Don’t you? This creates the predisposition for the problem and a predisposition for kicking the can down the road.

How can it be solved? Maybe we should require legislation that makes the first cut required in any fiscal crisis to come directly from our legislative representatives. Imagine the effect on spending program votes if the legislators lost their medical, pension and salaries if there wasn’t the money to pay for them out of current receipts. Since members of both parties would suffer they might an incentive to work together.  Imagine layoffs in the legislature…at the very least they couldn’t vote themselves a pay raise.

How about more stimulus from the Federal Reserve? Isn’t that what happened with incentives from car manufacturers a few years back? After a few years of rebates folks wouldn’t buy a car unless they got a rebate. People bought cars in advance of their need for a new car. The car manufacturers robbed themselves of the future demand for their products. It created a mess and bankrupted GM and Chrysler.

If you are a businessman and you see the demand for your services pick up due to Federal Reserve stimulus will you hire more people? If you have observed the car business you wouldn’t because you realize that business will go down right after the stimulus program ends. The logical thing to do is to handle the extra business with the staff you have and then lay folks off after the effect wears off because you no longer need them. Isn’t that what happened in the car business? That is the way to maximize your profits…unfortunately.

Managing your business while the Federal Reserve is whipsawing the interest rates around and accentuating the peaks and valleys that naturally occur in business becomes more difficult. It probably makes you more risk averse because you have less certainty as to how the business will come to you. The market never reaches normal seasonality. It makes businesses reluctant to hire. Since we have seen it happen, do we need more?

Mark Laurora
July 23, 2012