Watching the next crisis unfold

I tend to shy away from commenting on the economy, but, having watched a few “disasters” unfold, it seemed appropriate to comment on the one that is about to happen.

A great deal has been written about the economic stimulus, and many people regularly express their doubts about what, if anything, it has accomplished. I can say for my own part it has accomplished a great deal, and has played a roll in my keeping several people employed for the past year.

True enough, we saw the train wreck coming before the fall of 2008. In my office we already had several meetings to discuss how we would confront the housing slow down.  I assured my employees, who were beginning to get nervous about the economy, that I would keep them employed for a year, that we would continue to invest in the business, and that we would be the ones who would be left standing.  That was, as I remember it, the better part of a year before Lehman Brothers and AIG made headlines and the credit market imploded. We were determined to make the company work and thrive; I believed that my vision of helping to create a more sustainable and efficient future was the best course, and still do.

As the market collapsed, and the housing market froze, I shifted an increasing proportion of the practice to commercial work.  Our experience with energy efficiency helped;we completed a small hotel and a supermarket, each a market segment leader in its own way.  Our residential clients had already been hesitating before the crash, and there was no chance they would come off the sidelines afterwards.  Contractors would call us about one house or another, increasingly desperate, and all we could do is tell them that we are “on hold.” We were fortunate that as the dust settled and land prices plummeted that several “bargain hunters” entered the market. Our responsible approach to design appealed to them and we are pleased to be finishing several houses now. I don’t expect there to be too many more of those, however, as the supply of low priced lots was quickly exhausted.  Those that can afford to sit on property are doing just that, and few people want to buy above the market.

While the commercial market provided a temporary respite from the saturated housing market, that came to a screeching halt when the dominoes started falling in 2008. Banks preferred to maintain their cash positions, and lending tightened to the point of a glacial freeze. Nobody disputes that credit was far too loose before the downturn, the correction, however, was so draconian as to prevent good loans from occurring. To this day, the unavailability of credit to small businesses, people who would otherwise expand and take advantage of lower costs in the market place, is a tragedy that is preventing sorely needed economic activity. Clients that would have built three buildings are choosing to build one, and those that might have built one have no choice but to wait—even if there business is forgoing potential revenue by not expanding. Much of the commercial market we are involved in, especially hotel work, has become a cash economy. Many people are fast to point out that lending was far too loose, and that this is a needed correction. On the larger point I agree, but, I would also point out that with few exceptions, our commercial clients are still in business, and the majority of those businesses are thriving.

If the time period between 2008 and 2009 was largely occupied by finishing commercial work, the time period between 2009 and today could largely be classified as work that was in part made possible by the fiscal stimulus. That the State of Utah wisely used money from the stimulus to free up money for Community Development Block Grants has played a large roll in many projects.  One of our most significant projects today is funded through CDBG, which means at least part of the budget was made possible by the stimulus.  Similarly, it is more than likely that housing work we undertook in Arizona would have never taken place had the Federal Government not provided economic relief to the states. In both cases, the stimulus funds have made up a small part of the overall budgets—that small part, however, has been significant in my continuing the employment of several people, in good paying jobs with health and retirement benefits.  I suspect that there are countless small businesses very similar to mine that have, in one way or another, benefited from the stimulus spending.  For me, it has meant keeping people employed—I doubt anyone in the small business sector has become rich, or taken a vacation: we just want to see people working.  I still look out at an office full of people.

I do not expect to see another stimulus, and, with congress focusing on the budget deficit it is unlikely that there will be more aid to the states.  That in itself is not a problem: if I had run a debt in my own business I would not be here today.  That the credit markets are still largely frozen, and that capital is not flowing to the small business sector is, and will continue to be the most significant problem facing us all.  I am not talking about borrowing money to make payroll, I am talking about my clients having access to capital so that they can hire my company to expand and renovate their businesses.   As I see it, the most perilous crisis facing the economy at this moment is withdrawing the stimulus before credit is freely flowing.  I agree with those who say that the private sector is best equipped to drive a recovery, but to do so, the private sector needs the basic tools of finance.  Without them, we are all reduced to a cash economy—a contraction of epic proportions.