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Building a Long-Term Economy

Some time ago, I and others predicted that the unemployment rate would soar to 9.5% or even higher, although I felt it might drop after hitting the mid 9s. This may or may not come true, but it is clear that unemployment in many communities is now well above 10 percent and in some it is painfully above 20 percent. The best estimates now see the peak in Q1 2010 at over 10 percent before beginning to decline.

Combined forces are at work here. All generations are reeling from job contraction and are transitioning to a more conservative approach to life. There is a prevalent ‘wait and see’ attitude among consumers and, coupled with the emerging ‘do we really need that?’ mentality, consumption will continue to lag. Over the long term, this is not bad and in fact should strengthen and stabilize national and local economies. In the short term however, it retards growth, promotes fear of the future, and raises questions about the wisdom of public leaders. 

Some analysts predict a mild short-term recovery in 2010-2011 followed by a drift back into recession. Growth will be predictably slow – far below the growth rate experienced after several deep recessions occurring since WWII. There are now discussions about the value of another stimulus, with strong arguments brewing on both sides. History tells us that if private sector market forces cannot recharge quickly enough, the government can play a valuable role as stimulator, but certainly, it is a slippery slope. As with any crises (even one that was predicted in many quarters) decisive action is essential. Franklin Roosevelt demonstrated the value of action in his first 105 days, with the passage of 15 major bills through Congress. Most of those bills provided relief for citizens and sustained business through a slow economic recovery. Above all, he concentrated on what was in the best interest of the Nation, regardless of theory or historic precedent. Mostly, it was Roosevelt’s intuitive leadership that prevailed during the economic crisis of the 1930s and it continued through WWII. 

Mark Zandi, the celebrated chief economist for Moody’s Economy.com is forecasting that unemployment will remain at current or higher levels until sometime in 2011 due to slow job growth. This, very predictably, is due to the time required for the economy to re-center itself. Alan Levenson, chief economist for investment manager T. Rowe Price, terms this lethargic rebound “dyna-minimalism.” Very simply, this means that debt has been reduced and savings have been regenerated to the point there is ample fuel for an economic rebound, but the timidity of lending institutions is inhibiting business growth opportunities. Coupled with more selective consumer spending, this will slow the normal cycle of consumerism that reduces inventories and generates new production cycles.

Guests on Face the Nation and other Sunday TV news programs yammer about the poorly performing stimulus and accompanying deficit. What many either don’t admit or understand is that the world’s leading economists believe the current crises will correct slowly and may not return to robust levels for many years. After the stimulus, the economy must regenerate on its own and be driven by consumer spending. If this lags, stimulus funds may not last long enough to get communities through to the next natural cycle. The government cannot continue to artificially stimulate spending. This reduces consumer confidence and encourages people (as well as banks and business) to continue hoarding – thus extending the unnatural cycle of government assistance and creating the potential for a much longer recession – one that could last a decade. Clearly, we are at a tipping point. 

Confronting reality is never easy. However, if Marty Regalia, the chief economist for the US Chamber of Commerce, predicts unemployment at 9 percent or higher into 2011, attention must turn to a longer-term community vision and action plans that deal with that reality and not an expectation that good times are around the corner. Public leaders are in a tight spot. Blending optimism with factual assessment is an art. However, as I have stated before, our research has revealed that in times of crisis citizens and communities respond to and need four things: Clarity, Direction, Truth, and a Dignified, Harmonious Style. Elected officials and professional public managers are in a tough position. Providing these essential elements will help communities work through what promises to be a protracted re-centering of the culture and economy. Are you Prepared For Challenge?

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges. He holds both the MPH and MPA degrees as well as a doctorate in education.

Visit www.futurescorp.com and click on Public Futures.

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