Chicken and Egg

I wouldn't want to have Obama's job right now (actually, come to think of it, I would). His comments on the economy show that things are not going his way, but I believe a lot of that is of his own doing.

Facing a rising jobless rate, Obama told a White House news conference: "For all the progress we've made, we're not there yet. And that means the people are frustrated and that means people are angry."

"And since I'm the president and Democrats have controlled the House and the Senate, it's understandable that people are saying, you know, 'What have you done?'"

Here's a PR tip... if people are asking 'what have you done?', then even if you have done something, you're pretty much up a creek without a paddle - you get an F for your communications efforts.

The problem with the economy isn't rocket science, and it's disappointing that Obama isn't explaining it to people properly. It's your proverbial chicken and egg scenario. Most companies right now have TONS of cash on their books. For the past two years, they, like American consumers, have basically been saving and hoarding.

The issue with the economy was totally different two years ago (it was a credit and debt issue back then... today that's not the case... although debt will reemerge as a national issue, it's not an issue today). 

But having billions in your bank account doesn't employee people... spending that money (to make more money) is what creates economic growth (and jobs). Yet, no corporation is going to open it's wallet if there is no pre-existing demand in the market, and there won't be demand in the market until corporations open their wallets (which leads to employment and increased consumer spending).

So basically, the old chicken and egg scenario. Corporations won't spend if the demand isn't there and the demand won't be there without corporations spending.

So that's the first message Obama should be getting people to realize - this is no longer a credit and debt recession, it's a chicken and egg recession.  

The second message is that we aren't dealing with an economic recession anymore, we're actually dealing with a confidence recession.

 Businesses don't need to start spending every dime they have, but if they just increased capex/opex spending by a little it would begin a self perpetuating cycle of recovery. So why in heaven's name would they not start spending even just a little bit? Why continue to stockpile cash?

Because they do not have confidence that another crash might not yet occur. So not only can they not spend, they have to fill up the war chest just in case a crash occurs.

So Obama's second message ought to revolve around spurring consumers and businesses to spend... and here's the key... in moderation!

It's actually a great time to be spending money if you have it, because discounts are everywhere.

So rally the nation by clearly articulating that the only reason we aren't rebounding quickly is not due to economic forces... corporations and people are not 'broke'... it's primarily an issue of confidence at this point. And if everyone can ease back in to moderate spending, we'll bounce back just fine.

But instead, the main message that they keep putting out there is that they are working on another stimulus package. Why do I think they have chosen this as their message?

Put simply, I think they are just hoping that the recession will run its course (as most recessions do), that spending will eventually increase and when it does they will be able to say that the recovery was due to actions they took (the stimulus).

In addition, Bush told folks to go out and shop and the Obama administration doesn't want to do anything that Bush did or sound like Bush in anyway. While in general this is a good rule to follow, on this particular issue it's not. 

The problem is that Bush was right. I'm not a fan of Bush but his initial response to 9/11 was perfect - keep flying, keep shopping, we're gonna get 'em.  The recession wasn't caused because people were spending money on shirts or steaks or a new bed. It was caused by bad home loans and cred swaps. It's OK to spend, just spend within your means.

It's kind of sad in a way that the Obama administration can't say the things it should be saying for fear that they will sound like Bush.

So because Obama is not being clear about why the recession is still going on and why nothing seems to be changing, it's no surprise that people are basically asking "What have you done?"

What he needs to do is get out there and explain we're in a chicken and egg scenario and that the first stage to righting the ship now is for consumers and businesses to increase spending moderately.

If everyone spent just a little more than they are (even if that is still well below what they use to spend) the flood gates would start to open. Stocks would rise, businesses would spend, which would lead to more confidence and more consumer spending, etc.

In my opinion, and I'm not an economist, we simply aren't in an economic recession in the traditional sense.

We are actually in a PR crisis... a crisis of confidence... a chicken and egg scenario. We are currently in a stage best summarized by the saying "The only thing to fear, is fear itself." The only question remaining is when we're going to stop being afraid and regain some confidence and I think Obama has dropped the ball in realizing this.

As a result, in a few months Democrats will have to answer the question "What have you done?" and the one answer, despite all they have done, that they will be unable to give is "Restore confidence."