The debate continues to rage over the need for an economic stimulus program and, if needed, how big it should be and, most importantly, will it work. The consensus, for the time being anyway, confirms the need, but the size and chances of success both depend on who is asked. Lest there be any doubt: I am not an economist and that may be a good thing because it’s hard as hell for me to follow any train of thought in which an economist is the engineer. I’m a pretty good observer, though, and have a way with analogies, so let me try one on you for size.
Let’s think of our economic conundrum as a water pump. No, not a newfangled, electric wizard; rather, the old-fashioned kind with a handle and a spigot. Below the pump lies an aquifer full of water and along side of the pump sits a jar of water with which to prime it. And today’s goal is to get some water flowing out of that pump. With me so far? Good...
OK, the aquifer represents the potential of our economy, but it must flow through the pump to be realized and greater flow equals a more robust economy. The jar with priming fluid represents the stimulus package Uncle Sam is currently considering. And the amount of water in the jar represents the size of the stimulus package. And we all know that if there isn’t enough water in the jar our attempts to prime the pump will fail and we’ll be forced to go in search of yet another jar of water before we can think about getting some meaningful flow. Conversely, if there’s too much water in the jar, it doesn’t really matter because once we’ve got water coming out of the pump we can fill up the jar again. So I’d say we’re safer with a bigger stimulus amount than a smaller one. And finally, we come to the invaluable handle for, without it, we have no means to pump the pump! The role of “economic handle” is played by the lenders, borrowers, consumers, and such that provide our economic muscle. And here, folks, is where the greatest unknown lies.
If we take our jar of water and prime the pump without anyone working the handle we’ve just poured a jarful of water down the proverbial hole in the ground and have nary a thing to show for it. The original TARP funds prove my point: they were distributed to banks who chose to use them to shore up their internal financial problems. Lending wasn’t any easier because money wasn’t any more available. No borrowing, no buying, no hiring. Down the drain, in other words. Now we need another jar of water. And even if the funds are made available we need an optimistic consumer with secure employment to venture back into the marketplace.
The key in getting our water (or economic) pump gushing H2O (or dollars) lies in the pump handle and the Federal government (or state or local) has no real control over those supposed to work that handle. Once the money is thrown into the private sector, it’s up to the private sector to do its part. Timing is just as important: you don’t pour the water into the pump and then take a break. No, you’d better, by god, be pumping the moment you pour or, once again, your effort is for naught. Similarly, the banks had better be ready to lend to folks ready to borrow.
I almost forgot...we need one more thing: patience. If you’ve ever worked a dry water pump you know what I’m talking about. That water doesn’t start spewing after a couple of pumps. Chances are good that your arms are going to get tired and you’re going to start cursing under your breath before you hear the long-awaited gurgling and splashing. Our economic pump is no different. Good times will not return overnight and, what with our 15 minute attention span, we need to extend our focus a little farther down the time line. Think positive and pump like hell, folks.
The bottom line in both enterprises is that we’ve no guarantee in slaking our thirst or reinvigorating our economy. We pour, pump, and (hopefully) at the end of the day we’re better off than the beginning. Both enterprises offer alternatives, too. We can choose to sit by the pump and hope that a passer-by offers us some water and we can, likewise, choose to let the financial system continue its downward spiral and hope that something productive rises out of the ashes. I’m for pumping rather than hoping, but can offer no concrete evidence that it is the better alternative. It seems to feel better doing something about something, though, doesn’t it?
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Bruce,
I thought your piece on the economy was very good. It mirrors my thoughts and feelings directly. While I don’t know enough and don’t understand it all, I agree that doing nothing, or even not doing enough and not soon enough, is the worst thing that can happen. Your water pump analogy is a great way of looking at it. If I decide to borrow it, I’ll be sure to give credit and tell people where I read it.
I heard another analogy recently that I liked, which goes like this: the economy is a patient suffering a heart attack. The ER doctors know that several procedures or interventions can be employed to save the patient. Those range from starting the patient on an IV to performing open heart surgery. Hospital policy also stipulates that the latest research has shown that a patient’s recovery can be aided by having the hospital rooms painted blue instead of white. Some of the ER doctors say let’s start the IV and insert a stint immediately. And some of the ER doctors say let’s not do anything until we paint the room blue.
I for one would rather see the government spend too much money, than risk not spending enough. Because, like you said, a little bit of water isn’t going to get the pump started.
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