Business - Dave Gallagher

POSTED: Sunday, Jun. 14, 2009

Who will drive the economic recovery?

Now that there are glimmers of an economic recovery, more people are wondering what kind of role the private sector will have in it.

Last week Carl Gipson of the Washington Policy Center talked about government's impact on the economy at the Northwest Business Club's monthly meeting. One of the center's goals is to improve the small business climate through research, stressing that bureaucracy should be kept in check and ensuring fiscal responsibility. He focused on what the state legislature accomplished earlier this year with the budget and how it impacts small-business owners.

Gipson said something business owners can be pleased about is what didn't take place - tax increases. He believes that's also good news for the economy - any revenue that can stay in the private sector will more effectively help the economic recovery.

"It was a session where business owners could breathe a sigh of relief about what didn't happen," Gipson said.

What did concern him was that in balancing the budget, the state government resorted more to one-time cuts of programs and instituting fees.

"It's a temporary solution to the budget problem. We are potentially setting ourselves up for tax increases two years from now," Gipson said, noting that how deep the budget hole is will depend on what economic recovery has taken place.

One aspect of Gipson's presentation I found intriguing was the discussion of stimulus money and government's role in this recovery. So far, a small percentage of the federal government spending packages have trickled down to local levels across the country, with much more of it coming throughout the year and into 2010. Many economists are predicting the economy will start turning around in the fourth quarter of 2009 or in early 2010. So what happens if you have a flood of government money coming along at the same time the economy is growing? Big-time inflation, Gipson said.

That leads to the bigger question of the government's role in the economy going forward. The federal government and taxpayers stepped up in a big way last fall and through the winter, providing help - whether you want to call it bailout money or loans - to automakers, banks and insurance companies that were in trouble. As the economy recovers, should the government step back and let the market get back on track? Gipson hopes so.

"There are a lot of things that the government can do well, but micro-managing the economy is not one of them," Gipson said.

Given that many who study the economy - including Gipson - think we're at the bottom of what will be a U-shape recovery (big drop, stabilize for a while, then slowly recover), it will be interesting to see how government starts easing back on stimulus measures and letting private business drive the economy again. Private industry is key to any economic recovery, and as that happens it will give government a chance to concentrate on policies that will help avoid the mistakes that got us in this mess.