As negotiations in Washington over the so-called fiscal cliff reach a fevered pitch, it’s useful to consider the wisdom of farmers who use the downtime of winter as an opportunity to invest before the next growing season and harvest. Below is an excerpt from a December 2010 Fiscal Times column by economist Mark Thoma. He suggests that we use this economic winter as a time for robust government investment, not belt tightening, especially on critical infrastructure.
Farmers face a yearly crop cycle that has a lot in common with business cycles. There is a boom period in the spring, summer, and fall when there never seem to be enough people or hours in the day to do everything that needs to be done. And there is also a down period – call it a recession – in winter.
The very best farmers are not idle during the winter. They use this time to repair equipment, expand capacity, and do other things to get ready for the next year’s planting and harvesting. In the spring, summer, and fall it is too costly to do these things because there is so much else to do, but in the winter there is lots of labor and equipment available for such tasks. This often requires farmers to take on new debt and pay it off after harvest, but farmers who take advantage of downtime to get ready for whatever the coming growing and harvest season might throw at them have an advantage over those who mostly remain idle during this time.
Boom times and recessions for entire economies are much the same. During boom times it is very costly to divert resources to construction and repair of the infrastructure necessary to promote economic growth. But during the economic winter, i.e. in recessions, when large quantities of labor, equipment, and raw materials are idle, the cost of such activities is relatively low. Governments that take advantage of this will be in a better position to compete in the global economy than governments that allow labor and other resources to sit idle waiting for things to improve. It does require an increase in the deficit, but if we follow the farmers’ lead and pay off the debt during boom times – something we’ve had trouble doing – we will be better off.
No matter what the government does, it will take longer than we’d like for the economy to reemploy its unused resources. But the government can help things along by taking advantage of the availability of low-cost labor and raw materials, rock bottom interest rates that make the cost of borrowing very low, and lots of infrastructure needs offering big benefits in transportation, environmental abatement, water and sewage systems, electrical grids, digital technology, and other areas. It is easy to find projects where the expected benefits far exceed the expected costs.
Political gridlock makes it unlikely that we can avoid leaving resources idle when there is so much that needs to be done and so many people are looking for work. Worse, deficit reduction based upon a false belt-tightening analogy that puts even more labor and resources on the sidelines is a mistake we should try to avoid.