I took two economics classes at the University of Massachusetts. One was ECON 103, a course in basic macro economics that taught freshman how to draw basic supply and demand curves. It was taught by a professor in a big lecture hall with smaller sections on Friday mornings (which were mercifully taught in classrooms that were just a few hundred yard from my dorm). I slept through most of it, and if it had been the only economics class I took, I might be shrugging my shoulders right now and saying “Stimulus? Sure, why not.”
The second class I took was in a building named, appropriately, after Calvin “Silent Cal” Coolidge (a staunch supporter of free market economics) when our dorm’s House Council decided to found a snack bar in the 19th floor lounge. I was one of the nerds involved in House Council – a quasi-governmental body which, up to that point, had focused on putting on educational and social programming that no one cared about and no one went to. We decided to put the tax money we had collected to a better, more productive use by launching a social hub for Coolidge residents. It also taught me a great deal about how business works.
We launched simply in Spring 1998, and sent one of our volunteers out to buy the first run of supplies. She came back with one twelve pack of every type of soda she could find – assuming that we needed variety. We learned that demand didn’t call for a wide variety – people were just happy to have a place in the building where they could get soda cheaper than the vending machines. We also learned that no one likes Diet Sprite. To get rid of the supply, I gamely purchased about eleven of the ten cans our supply director bought (so I can personally attest to how horrible it was – seriously, don’t ever buy Diet Sprite).
Essentially, I subsidized the purchase of a product no one wanted. If we had only looked at raw data about which sodas sold quickest for our next supply run, we might have thought Diet Sprite was selling like hot cakes and bought more. Luckily, we were a tight knit group, so I could express my distaste for Diet Sprite. (Have I mentioned it’s sickeningly sweet? Stay away from Diet Sprite.) What I had done is artificially create demand.
Eleven years later, our economy is lagging and President Barack Obama – in a phrase uttered last week that has been retooled for this week’s speeches and press conferences – is blaming lost demand. People are simply not spending money, so the government will start spending for them.
When I created demand, it was 50 cents per can and I spent my own money. But now, with this stimulus plan, we’re all chipping in.
And this is the problem with any government action under the umbrella of a so-called “stimulus package.” Government doesn’t seem to understand the world of business – which is why President Obama can say, with a straight face, that an entity with a trillion dollar operating deficit “is the only entity left with the resources to jolt our economy back to life.” (Seriously – he actually said that.)
Since government doesn’t understand business, and doesn’t operate by the same rules, how can we expect government activity to turn the business world around? Maybe Obama is wrong to say doing nothing is not an option. Maybe doing nothing – for a change – would be the best option.
In the meantime, I hope you like Diet Sprite; since no one is buying it, we’re going to buy a whole lot more of it.
NOTE: After some cursory research, it appears “Diet Sprite” is the same product as Sprite Zero. You’re warned.