Invest During Recession??? Yup - Big Business Can't Be Wrong

The beginning of the third day of the recession that might happen tomorrow, or the next day, or soon...

I'm on record - at least with the local radio station (CKNW)and the thousands who listen to it - with the concept that government investing in infrastructure projects during "slow" times in the economy is a win for the governed; you and me.

It appears that Intel's Chariman, Craig Barrett, thinks that it is in the best interests of his (big) business to do the same.

There are a lot of parallels between big business and government, maybe too many in some eyes, but in this case I think there are signs of sanity.

There are a number of reasons why it makes sense to concentrate on R&D when things are otherwise "tough" which include:

• during tough times, costs are likely to be lower (certainly than the coming, inflated good times)
• no matter how much you spend on marketing, you won't get a lot of sales - repurposing some of the marketing to R&D will pay dividends
• "If you can keep your head when all about you
  Are losing theirs and blaming it on you,
  If you can trust yourself when all men doubt you,
  But make allowance for their doubting too..." (Rudyard Kipling)
  
  In otherwords - if you keep your head (and of course use it,) and your key employees, you'll end up ahead of the game when things improve.

With government there is the added value that by spending, even into deficit, you keep your population working and mostly content, even if not all happy, instead of having to spend money on welfare and rescue. And you end up saving on major infrastructure needs that should do you well into the next upswing; bridges, roads, civic improvements like playgrounds and arenas. Never anything austentatious but lots of very utilitarian and long-lived assets; because that's really the name of the game, creating assets that when ammortized over their lifetimes are worth more than their cost+interest amount.

A bridge that might cost $100 million in bad times will cost $400 million in good times when workers would be in demand building luxuries like extra-large condominiums and pent-houses on otherwise moderate high-rise structures. The interest cost on the $100 million when nobody wants money (or can afford it or qualify for it, yet governments can - or can print their own, aka inflation) will be less than the real cost of $400 million only a few years later.

We here in the Vancouver region are suffering under exactly the opposite of this - spend during high times and do nothing during the bad times. We've had the bad times and now we HAVE to have what we could have had 10-20 years ago at what now we know would have been a bargain. Bridges to the tune of literally billions of $$. In addition, we've suffered the "sand in the gears" of bad transportation infrastructure making bad things worse for long enough it is a regional joke for those of us not actually wedded to trees or in serious need of a reality check.

If governments can "afford", at the last minute, to "bail out" national and international investors with only $700 billion, they can invest something too. In fact, since senior governments, no matter how they couch things in terms like "Federal Reserve Bank" and such, have the power to "create" money (and thus inflation,) there's really no current reason why they should not do so. In effect, spending today, at today's "dollar" worth (dollar being deemed to be whatever your local currency is but currently somehow tied to the US $) and paying off in tomorrow's inflated/devalued dollars is a "good thing"

OK - I'm no macro/micro economist but... - I've taken a couple of courses in both but that was almost 2 generations ago and I've learned a lot by both watching and living through a couple of "slow downs" and at least one full-blown recession - so... In my humble opinion...

They cycle to cycle difference in real gain, measured in how well off we the tax-paying population are, may be minimal but that's actually the point. Governments can only put a brake on prosperity by over-taxing it, but it can extend misery and depression/recession by under-investing in the future.