Public leaders are adding fuel to recession

    One of the benefits of being affiliated with TEC (The Executive Committee) is being able to participate in presentations by world class experts on the business issues of the day.

    Currently, our most popular resource specialist is Brian Beaulieu, an internationally recognized economist who has been forecasting a worldwide, consumer led recession beginning is 2009, running through 2010, for the past several years. If Beaulieu is correct, from a macro-economic view point, the worst is yet to come.

    As an economist, Beaulieu is somewhat unique in his profession. Not only does he forecast the ups and downs of the business cycle with a certain degree of accuracy, he also suggests actions that CEOs can initiate in advance of turn in the business cycle that will mitigate the negative effects of the downturns and take advantage of unique opportunities on the upside.

    I have "adapted" some of Brian Beaulieu’s prescriptions as they might apply to the public, rather than private sector. As you can see, on several fronts, our local political leaders are clearly ahead of the curve relative to a recession in 2009.
     
    Ignore the balance sheet. With inflation adjusted interest rates at historic lows, this is a terrific time to add significant debt to the balance sheet. Heading into a downturn a nice big fat Cap Ex project like commuter rail would be the coup de grace. It appears governments, not bound by GAAP accounting, aren’t required to book long term obligations anyway. Take on more debt now, while the almost free money is readily available.

    Raise prices. Beaulieu is insistent here. For the past year and half, he has been advising TEC members to raise prices early and often. Again, local governments are on top of this one with the recent plethora of tax and user fee increases. The plan to add 0.5 percent to the county sales tax for parks and 0.5 percent to the county sales tax for public transit would be uniquely timed price increases heading into recession. Recently, the Milwaukee Pubic Schools board took a real leadership position here when they made the case for a 14.9% tax increase on top of the 9% increase last year. As one board member pointed out, "We just don’t know what else we can do."

    Forecast never ending top line revenue increases. Again, our elected officials appear to be economic gurus here. Gov. Jim Doyle was the first to yelp earlier this year when the state’s tax collections failed to meet forecast. They came back with some budget gimmicks and more taxes, and even some increased spending ideas, like commuter rail.  Now, when the economy tanks in 2009 and, according to Beaulieu, potentially worsens in 2010, our local politicians can simply "blame the economy" for any shortfall. After blaming the economy, our elected leaders will be free to raise all manor of taxes to cover the inevitable accumulated deficits.

    Insource. As with many of Beaulieu’s prescriptions for thriving in a downturn, bringing work in-house may seem counter intuitive. But for a politician heading into a economic downturn, adding headcount rather the subcontracting to better, cheaper, faster outsourced alternatives means more voters dependent on government for a job. There is simply no excuse not to be re-elected in a downturn. Similarly, retaining marginal employees in a downturn becomes even more important. The evidence would suggest Milwaukee’s leaders are doing a fine job here as well. For us, it is not getting the right people on the bus, the wrong people off the bus and the right people in the right seats. It is more like, borrow money and buy a bunch of buses and jam as many people on them as possible. They can stand. Every vote counts. 

    So, if we do experience at least two back-to-back quarters of negative growth in 2009, it appears our governments are uniquely positioned to offer up their contributions. If Brian Beaulieu is correct and the worst is yet to come, our current crop of elected leaders are working hard to insure that the worst is yet to come.
     

    Dennis Ellmaurer is a principal of Globe National Corp., a Milwaukee firm working exclusively with sellers of small businesses in southeastern Wisconsin. Ellmaurer also is a chairman of The Executive Committee (TEC), facilitating three CEO groups in southeastern Wisconsin.

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