Stimulate Demand and Supply will Follow

Everyone wants their piece of the pie, the pie being the $787 billion stimulus plan. But the cries from small business for more of the pie have gone on deaf ears, according to their mouthpieces at the NFIB and SBEC.

Of course direct assistance is preferable, but haven't we finally gotten past the days of trickle-down Reganomics? Remember the Lafer curve? Is a payroll tax holiday really an effective stimulus? I think not, it will surely keep the lights on a bit longer for struggling small businesses. But isn't the free market supposed to weed out the week suppliers?

With consumers representing 2/3's of economic demand in the economy, should not the biggest stimulus go that group. And in the bill it does, the biggest single item ($116 billion) is for a tax cut for individuals. People are not spending as much as they were, and won't until they feel better about the economy and their prospects. The direct stimulus to consumers will temporarily prop-up their spending until the job engine restarts. This is what the small business community needs, even if they can't see it right now. Fix the demand side and supply will follow, Economics 101.

Finding Evidence for Customer Behavior Adjustments

One of the realities I have discovered as a financial leader is it takes some savvy to search out the Truth on which to act. You need sound data to make good decisions, yet the marketplace is not structured to provide it directly. The average news source, whether right wing, left wing, or neither, is driven by a need for readership. Readership, sadly, is a measure of people reading, and people pursue the sensational. The sensational does not usually include the Truth, maybe some small "t" truths, but not the one you seek. Luckily, the advent of blogs and special interest websites has greatly improved the sources of good information.

The price of gas, cost of oil, why it has gone up, and what you can/should do about it, is a good example. The Truth, supported by substantial evidence, is the complicated fact that the price of oil is primarily driven by worldwide supply and demand factors. While supply is relatively fixed in today's environment, demand has been growing greatly. US consumers are still a substantial part of the demand curve. So while no short fix will help much (i.e. opening ANWR would provide less than 1% of current global production), a long term reduction in consumption will. This is born out buy recent statistics on gasoline demand sited at The Big Picture, a wonderful source of macroeconomic data. Easy to see from the chart that as the price of gasoline has gone up, demand is declining, and as a result the price will start to stabilize.

Your read should focus on these real behavioral changes. Consider what a long term adjustment in driving will do to your customer base and therefore your business, and adjust accordingly.