What to do about the economy

December 27, 2011
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George Erickcek, senior regional analyst at the W.E. Upjohn Institute for Employment Research, told the Business Journal before his 2012 economic forecast recently that government employment in the region is down 3.8 percent this year and predicted to drop another 2.4 percent in 2012.

“That’s the problem,” he said.

The Business Journal asked if he was a Keynesian economist, a question that made him laugh. But it is a legitimate question: The role government should play in stimulating the economy — or not — has been around since the FDR administration during the Great Depression.

“Do I believe that government stimulus can influence the economy? The answer is yes,” replied Erickcek.

When there is a serious lack of consumer demand, he said, there is “an established role for government to step in,” but that can be in one of two ways. The first way is to cut taxes, with the theory being that people will have more to spend. The other way is to increase government spending.

The first option may not work well in times of economic uncertainty, said Erickcek.

“Consumers tend to take those tax savings and save them, because they are uncertain about their employment possibilities and uncertain about the future.

“Sometimes cutting taxes doesn’t give the bang for the buck that we would like. The other way is to increase government spending,” he said.

But traditionally, government spending to stimulate the economy does not necessarily mean hiring more government employees; it is typically about the government letting contracts for major expensive projects, such as highway construction.

“The challenge with that is, it takes so long to get it through the bureaucratic mechanism and out on the street,” said Erickcek. “That’s why a couple years ago, the Obama administration was using the term ‘shovel ready’ (when the American Recovery and Reinvestment Act was passed). They wanted things that were ready to go — all the paperwork done, everything was there except for cutting the check. And even with that, things just took a long time” to stimulate the economy.

“If you ask me do I think Keynesian stimulation can help the economy, my answer is yes. The problem is that there are these barriers,” he said.

“The concern we have now with government jobs is that, as the state and local governments cut their employment — these are people, neighbors that used to spend their money at the grocery store, buying stuff, and they are no longer here, so that is a drain on our economy.

“When we do see a cutback in government employees, in school teachers or in county and city workers, that is a decrease in purchasing power for the area,” he said.

Most economists look first at monetary policy, said Erickcek. Some believe that by getting more money into circulation, it lowers interest rates and leads to more economic activity.

“The problem is, at this moment, interest rates are about as low as they can get. The banks are sitting on a ton of money. The corporations are sitting on record profits. So the problem we are having here is not one of lack of liquidity, lack of money. The problem appears to be lack of demand. There doesn’t seem to be enough demand pushing the businesses to produce more products.”

If demand isn’t there, then we are forced to look at fiscal policy — “and that’s kind of the Keynesian approach.”

But then the challenge is: the deficit. By increasing government spending, he said, “We are rubbing against a growing deficit.”

Erickcek said many Americans feel government fiscal policies should operate like their own households, but he said the federal government isn’t anything like a household.

“There’s a big difference there,” he said.

(That might be backed up by the American government’s spending policies during World War II.)

“Until we see interest rates moving up even slightly, my concern is more with employment than with the deficit,” he said.

Picture show

If a single picture is actually worth 1,000 words, then it comes as no surprise that a 19-day arts competition can be worth $15.4 million.

That’s the amount the Anderson Economic Group reported last week that ArtPrize added to the local economy this past fall — a “considerable” economic impact, said AEG’s Scott Watkins. The event drew more than 320,000 to downtown during its run.

ArtPrize Executive Director Catherine Creamer felt “creativity” and letting people have the “freedom to voice an opinion” were the true measuring sticks of the annual event, and those are the elements that really deliver the economic benefits.

“The Anderson study shows that small experiments like ArtPrize can have significant impact,” she said. “And we are pleased that Grand Rapids is thriving as a result.”


She’s really dedicated

Jennifer Wangler is dedicated to Ionia County, and the Ionians have it in writing.

Wangler was just hired by The Right Place Inc. to serve Ionia County “exclusively,” according to the announcement from Right Place last week. It is the first step in meeting the terms of a formal contract signed in October by the Ionia County Economic Alliance and The Right Place.

It’s a three-year contract in which Right Place and ICEA will work together to provide comprehensive economic development services including business retention, expansion and new business attraction support to the county.

Robert Kjolhede, chairman of the ICEA, told the Business Journal a couple of months ago that Ionia County boosters — including some key businesses, the county and local governments, and the Ionia County Community Foundation — were willing to pony up $100,000 or more over three years to help cover the cost of a new Right Place staffer dedicated to them.

Right Place is also going to kick in some marketing support to “sell” Ionia County to potential business investors across the land.

Wangler, who most recently worked at Grand Rapids Community College as a business services professional, has a bachelor’s degree from Grand Valley State University and is pursuing a master’s in training and development from Western Michigan University.

A safe bet

They didn’t have to, but they did. James Nye, D.K. Sprague and the gang from the Gun Lake Casino traveled north Friday bearing gifts — not in a sleigh, but with a truckload of clothing and food for Degage Ministries in downtown Grand Rapids.

The new casino donated thousands of pieces of clothing and food pantry items collected by casino employees and guests during the month of December. In addition, the casino matched each clothing and food item with a $1 donation, pumping some much-appreciated cash into the downtown ministry that meets the needs of the area’s homeless and underserved.

And as sort of a “stocking stuffer,” Gun Lake Casino team members also served breakfast and lunch to hundreds of the homeless and disadvantaged individuals of the community, with food prepared by the chefs from the casino’s Sandhill Café.

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