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Innovation

It may be time to stop throwing good money after bad

Written by Heather Clancy, Contributor

My father and I definitely have our differences politically, something I was reminded about over the Father's Day weekend when I went to pay him a visit in Florida. Be that as it may, I usually tend to be more aligned with him on economic theory.

One thing he spent a lot of time opining about last month while I was there was the various government stimulus packages that have been introduced. I won't go into excruciating detail, but he's very suspicious of all this spending and thinks we should stop throwing more money after the problem.

Lest you think "He's just a cranky old man," let me just say that my dad not only is my dad very-unold, he was at one time the chairman of the Coffee, Sugar and Cocoa Exchange (what we kids fondly referred to the as the Mocha Exchange). So he is definitely no lightweight when it comes to economic theory.

Apparently my father is onto something, if a recent survey conducted by the Wall Street Journal is a barometer. The poll, discussed in this article, found that only eight out of the 51 economists participating in the Journal's most recent forecasting exercise think that more economic stimulus is necessary or wise.

Realistically, the effects of the stimulus really won't be felt in a widespread way until 2010; so even though it seems like things are still pretty grim around the local supermarket, we all need to take a collective deep breath and let time do its thing. After all, we didn't get to this current place overnight.

While I'm on the topic of government intervention, I recommend reading this new article in the McKinsey Quarterly titled, "Government ownership: Why this time it should work." The essay focuses on why the current brand of investment might be different than ill-fated actions of the past. There are five reasons that things are different, argues the author, Northwestern University School of Law adjunct professor Simon Wong:

  1. Governments in the United Kingdom and the United States (and other western countries) have been forced into equity ownership and therefore are more likely to manage their ownership stakes as a commercial venture.
  2. These government owners want out quickly; they'll be involved closely and will sell when it is most opportune.
  3. The interventions have been specific enough and public enough for citizens to keep close tabs on the outcomes—and hold governments accountable.
  4. Agencies are not likely to throw THAT much good money after bad, because they are worried about their own credit ratings.
  5. Most of the companies that have received government money still have a portion of shares that are being floated publicly, which means the government technically is just one of multiple owners.

For a rather contrary view of the government's current tendency to insert itself into our collective business, you might want to check out the new Dick Morris book with the rather long-winded title: "How Obama, Congress, and the Special Interests are Tranforming a Slump into a Crash, Freedom into Socialism, and a Disaster into a Catastrophe ... and How to Fight Back."

I haven't read it yet, but the title says it all. Should be a fun four years.

This post was originally published on Smartplanet.com

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