State of Business: Lawmakers Need a Strategy to Create a Robust Economic Environment during Hard Times

By Poole, Kenneth E. | State Legislatures, February 2010 | Go to article overview
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State of Business: Lawmakers Need a Strategy to Create a Robust Economic Environment during Hard Times

Poole, Kenneth E., State Legislatures

The economy is showing its first signs of sputtering forward, but unemployment remains high. Even though there may be an economic spring thaw already afoot, many job seekers appear to be losing hope that the recession will ever end. Policymakers faced a similar sentiment in the early 1980s, and there are lessons from that experience in healing the economy.

Most past recessions were much milder because the American consumer began spending again soon after the recession started, helping to regenerate economic activity relatively rapidly. Unfortunately, we often consumed our way out of past recessions by buying houses or cars. Now we cannot afford them, and the easy credit that helped us overcome this little detail in the past simply is not available. Essentially, the piled-up bills from easy credit are now coming due for many citizens, investors and lenders.

So Americans have cut back. As home prices have returned to normalcy, banks are reluctant to lend, and consumers are hesitant to borrow. This new behavior is most affecting the banking, housing and automotive sectors. As these industries struggle, they have a ripple effect in the form of job losses across the rest of the economy.

If one can be found, the silver lining from this recession is that consumers and lenders appear ready to change their ways. Profligate spending is out of vogue. Americans are now saving more for a rainy day, and consumers are trying harder to live within their means. While this will slow the economic recovery in the short term, it may make a long-term recovery more sustainable.


For state legislators, one lesson at least is clear: No single entity can control the entire U.S. economy. Certainly, no single state policy--no tax break or big spending program will magically return the economy to what it once was. In fact, we probably don't want to restore the old economy anyway. As time and technology march forward, we need to prepare for the next generation economy.

But how?


Like being stuck in a traffic jam, there is seldom an easy solution to economic problems. We all recognize the 2010 elections are coming up. Voters are angry, and they want to blame someone. The truth, however, is politically unpalatable we are all to blame for living beyond our means. Yet, by laying the groundwork today, there are opportunities for success.

Many of today's most successful companies grew out of seeds planted during past recessions. They succeeded with creativity, preparation and time. We have to help workers and companies focus on the future, identify opportunities for potential success, and prepare for a transforming economy as it emerges from the recession. Frequently, this preparation involves public sector engagement, and state policymakers play an essential role in making public investments.

For years, experts have been saying and relative wages confirm--that the most successful workers have some post-secondary education. Not everyone needs a four-year college degree or even an associate's degree, but unemployment rates among people with these credentials are lower than for the rest of the economy. Career and technical skills combined with a creative mind and an entrepreneurial spirit make employees invaluable to their employer, and companies protect these workers because they will be needed as the economy surges.

For companies, information and knowledge are also fundamental public goods that provide an economic advantage to the states where those firms are located. Just as for people, businesses depend on the lessons their managers learn and how well their enterprise can adapt to a new economic order.

While we frequently talk of education and training, rarely do we consider the importance to our business decision makers--especially in small- and medium-sized enterprises--whose everyday choices have the greatest influence on our states' economic conditions.

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State of Business: Lawmakers Need a Strategy to Create a Robust Economic Environment during Hard Times


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