Every day on my 9.4 mile drive from my house along Eisenhower Parkway to our business at General Steel on Broadway I count empty buildings. Entire strip centers are abandoned. Free standing stores are boarded up. The Macon Mall must be 50% vacant.
I went to visit a friend in a nearby small town. His contracting firm, like so many others, is shut down after a forty year run. Dozens of pieces of equipment lay idle in his yard. Large plants in his town with acres under roof are empty. Every empty building is a building that will not need to be built. All the idled trucks and tractors represent equipment that does not need to be produced, sold or serviced.
It is becoming increasingly obvious that this inventory of empty buildings and idled equipment will burden the market for a very long time. It is a clear sign of how badly we as a country misallocated resources for decades. We built buildings supported not by legitimate demand but by loose monetary policy and perverse financial and political incentives.
No amount of stimulus will restore the need for an empty building that isn’t needed. This is why zero interest and massive stimulus spending, the default policy for a recession, is not working. This is why America’s corporations are sitting on top of 1.8 trillion dollars in cash they are not spending. This is not demand that is weak because of lack of consumer confidence, though that is sorely lacking; this is demand that is weak because it never really existed.
I have written numerous times how the current administration’s radical legislation and anti-business sentiment is holding the economy back. I still maintain that assessment, but that is not the entire picture. Tax cuts and government spending, especially on silly and wasteful cronyist projects, will not create a true demand for something we just don’t need or want. When asked why he had just given a very generous charitable contribution a wealthy friend once noted, “You can only wear one shirt at a time.” Consumer demand, even in our super consumerist society, may have real limits.
We have learned that financial geniuses do not create true wealth or erase risk with PhD constructed models that omit rare but crucial details. We are also learning that elected officials do not create wealth by borrowing money from itself and our children and spending it on themselves and their constituents. The more we depend on academic elites for solutions the worse the problems seem to get.
Managing in tough economies is a matter of simple math. It is all addition and subtraction; if you cannot add revenues then you must subtract expenses. This is how budgets are being balanced in New Jersey and Indiana by governors Chris Christie and Mitch Daniels.
This recession was not the sole fault of George Bush nor Barak Obama; it was a long time in the making and both parties added to the problem. Like ‘world peace’ we all claim to want a sound currency and a stable economy. While we may disagree on how to achieve that elusive goal, the bigger restraint is that we do not want to make the sacrifice required.
It is the nature of political leaders to promise benefits without paying for them. They refuse to say ‘no’ to worthwhile projects they cannot afford. Just as we wanted to believe in the wealth generating genius of Bernie Madoff, we want to believe we are just a bigger stimulus package or a tax cut away from a return to the normal life we enjoyed yesterday.
Consider that the ‘normal’ we wish for was anything but normal. Perhaps this is the new normal, it just seems otherwise in comparison. For an alcoholic sober is not fun. Adjusting to political and economic sobriety is painful.
The problem is too much debt, complicated and poorly understood regulations, markets influenced to serve political objectives, and politics influenced to serve special interests. Tax policies change so often that no business or investor can make long term plans which is so critical for stable employment. Few of these problems are being addressed in the mass of radical legislation passed and under consideration.
Like a disease we cannot cure it by pretending we don’t have it. Like the economist stuck in a deep hole, we cannot ‘assume’ a ladder. Only if we can get real about the problem can we hope to get real about the solution.
Otherwise we just will just continue to construct empty buildings.
originally published in The Macon Telegraph