The Federal Stimulus & The Local Grocer: ECON 101

The students at Barlow Mountain and Scotland Elementary Schools don’t use the water fountains – they drink bottled water.


This is not a personal choice, this is a necessity which stems from the fact that chloride levels in the school’s water supply exceed state health standards. Fortunately, however, Ridgefield is on the short list to receive federal stimulus money to cover more than half of $1.45 million North Street water main project.


Ridgefield’s Weir Farm is also benefiting from the federal stimulus funds. The park just received $457,000 in federal stimulus money to help complete three projects.


These stimulus items remind me of the “multiplier effect,” one of the fundamentals of macro-economics. The concept is that any money spent on stimulus has to circulate, and how often or how quickly it circulates (the “multiplier”) determines how effective it is in stimulating the economy.

 
For example, Ridgefield gets money and pays contractors for the waterworks. In turn, they hire employees or subcontractors. That help goes out and buys groceries. The grocer hires additional help. And so on.  Every time a dollar changes hands in an economic transaction, it adds to our "Gross Domestic Product," the measure of our domestic economy.


Reasonable minds can and do differ about what kinds of spending have better multipliers or whether tax cuts are a better multiplier than outright spending. The bottom line for any small business is that the process of circulation takes time, so we have to accept that the changes to our practice or business will also take time.
 

Avoiding Litigation and Making it Through a Deteriorating Economy

A short post in the New Jersey Employment Law Blog succinctly makes the point that while a deteriorating economy means belt-tightening, layoffs and severance agreements, obtaining advice before taking action is the one way to avoid making a difficult situation even worse.

I’d like to elaborate on that point and comment on a related but different aspect of the economy. There is no doubt that survival is the overriding business objective when the economy deteriorates. The real question though is whether the actions being taken to “survive” might actually accelerate the demise of the business. 

 

The business will not only survive but may actually come out stronger if (1) costly and demoralizing litigation and controversies are avoided while (2) building habits that establish a more professional, effective style of management towards workers and the business in general. 

 

On a different aspect of the deteriorating economy: there has not been sufficient time for all the government-generated liquidity and rescue funds to make any kind of impact. Without being over-optimistic, there is a good chance better times may be coming sooner than widely expected. Our businesses and professional practices need to exercise patience, professionalism and perseverance to position themselves for better times ahead.

Finding Opportunities in Uncertain Times: Develope a Longer Term Perspective

A recent blog post suggesting that decreasing asset values present opportunities did not get my full appreciation until I put it together with an unrelated experience in an estate litigation case to draw a broader lesson.

The post was in the Utah Business, Real Estate and Estate Planning Blog, by Matt Fankhauser and entitled “A Silver Lining in Decreasing Asset Values.” The point was that decreasing asset values present opportunities for high net worth individuals. With gift and estate taxes not likely to go away, individuals can make gifts at a discount (that is, at depressed values) to take maximum advantage of lifetime gift tax exemptions and annual exclusions. 

 

While seemingly unrelated, the idea brought to mind my experiences with the parties in a will contest that was resolved only after years of litigation.

 

Valuable investment property had been in the family 35 years with the decedent refusing to allow it to be sold in her lifetime. One party in the will contest fought to gain control of that property intending to keep the property from being sold and as a family asset even longer. The estate also happened to include overseas properties that may have been owned by the decedent for 50-60 years.

 

In holding properties 35, 50, 60 years, the decedent (and other family members) exhibited a distinct long-term mindset. Since they intended to hold on to the assets for the long term, this family might very well consider a period of depressed values to be an opportune time to make tax-saving gifts.

 

More generally, a longer-term mindset, even in an uncertain economic environment, may identify opportunities that would otherwise be overlooked. That is as true of personal financial issues, such as estate and gift tax planning as it is of core business issues.