How a starving government leads to recovery

  • Wed Feb 29th, 2012 9:10pm

By Tom Hoban Realty Markets

The vast majority of business advocacy groups support an efficient, high-functioning but limited government. They like politicians who agree with that view. The reason why isn’t greed, although some of that certainly exists everywhere in America. CEOs simply don’t have the luxury of being wrong very often and keeping their jobs. So they typically deal with issues proactively and pragmatically.

That pragmatic view of the world has some CEOs concluding that because government has run out of money, it might now be neutered and unable to keep growing and borrowing at the pace it has been on in the past few years. Starved of tax revenue from an economy that can’t get fired up under the current circumstances, government can say anything it wants but it can’t actually do much of it anymore. This practical reality extends from the federal government to most of the states.

Greg Zanetti of Talbot Financial, a Bellevue-based investment group, sees these circumstances as a sea change causing America to shift a bit to the right. In his January blog, he notes: “The change will take time. The effects will not be immediately seen, but will be healthy in the long run … albeit disruptive in the short run.”

Real estate and the local economy are linked to this discussion. Because only through reasonable risk and investment will expansion and sustainable jobs be realized. Viewing government today as dragging a big debt anchor, CEOs are now poised to at least measure the scope and size of a government and the impact that might have on their decisions today. It’s a math issue, not a political one to pragmatists.

The old ways don’t die easily, though. A generation of politicians that knows no other way is still in charge in many places. They keep trying to fix something few have the practical experience to know how to fix. In a Viewpoints piece in The Everett Herald (“Jobs now, jobs tomorrow,” Feb. 5), State Reps. Hans Dunshee and Mike Sells offer a state-backed, bond-financed package of infrastructure projects to kick-start the economy. There is no question that similar big projects such as the Tennessee Valley Authority or the interstate highway system ultimately benefited the private sector. But these have to be paid for. The distinction today is that such investments are coming from government with a cash-flow and balance-sheet problem, unlike past eras. Borrow a bit today to solve problems tomorrow? Makes sense unless you are already overleveraged.

Younger Americans are growing wise to these notions and starting to sound like CEOs themselves as they adopt a pragmatic reaction to government initiatives. They can do the math: Government doesn’t have money, I don’t have any to give to it, so government promises mean nothing to me anymore.

Interestingly, recovery comes now because government is forced to live within its means based on a pragmatic reaction to the math. Political rhetoric continues, but businesses can begin to lay bets on their own future because no matter what they say, politicians can’t spend and borrow much more. Consumers, perhaps forever changed from decades of excess, will follow.

For those who prefer government solutions, they ought not be concerned. Government won’t go away. It shouldn’t. It will have to become virtuous again, using taxes to invest in education, building infrastructure to support industry, serving core functions, paying down debt and, in doing so, keeping promises. Sprinkle environmentally conscious practices in the mix and you have the America we all want.

Tom Hoban is CEO of The Coast Group of companies in Everett. Contact him at 425-339-3638, tomhoban@coastmgt.com or www.coastsvn.com.