PrintFebruary 11, 2009
What is Plan B?
It seems certain at this point that the Economic Stimulus plan will be implemented at some point in the near future. It may be completely successful, it may be a total failure, or it may hit somewhere in between.
Rational people hope for the best, but what if it goes sour? When a prudent investor buys a stock he or she knows before submitting the order where the take-profit and the stop-loss points are. When an entrepreneur embarks on a new enterprise, he or she knows what level of sales will be needed to stay in business at several milestones in the near term. In either case this is prudent management of precious capital. There is a hope for success, but a defined point where total catastrophe can be avoided. They have a Plan B.
So what is Plan B for the Stimulus Plan? It is not difficult to picture stunning success: a chicken in every pot and a car in every garage perhaps, or a low misery index. In any case if the general perception is that prosperity has returned, then Plan A worked; no need for Plan B. Likewise a total cataclysm should be obvious to all but the most irredeemably optimistic supporter of the Plan, in which case Plan B will emerge whether anyone knew what it was or not.
In any enterprise as huge as this plan there will inevitably be waste, fraud, and abuse. What percentage is not possible to predict, but even 1% of a trillion dollars is serious money. According to some estimates about a third of the TARP was wasted.
Then there's the part that is not wasted. It is unlikely that every non-wasted or stolen dollar will be spent in the best way. That is, opportunity cost analysis will be flawed and funds will be expended for less effect than could have been enjoyed.
The net effect of waste and suboptimal asset allocation is a considerable risk of failure. Failure does not necessarily mean utter failure, just as a failing grade on a test does not necessarily mean that the student missed every question. So what does constitute a failed policy of the future? Four million jobs created or saved is one metric, but a troublesome one because it relies on a value (saved jobs) that is hypothetical, unless four million jobs are actually created. Another problem is there doesn't seem to be a timeline with that metric. Creating four million jobs in eight years is probably not a passing grade.
And what constitutes a job? If one hundred workers are employed to dig a ditch on Monday and another hundred workers are employed to fill in the ditch on Tuesday, how many jobs were created? Answer: none because nothing of value was produced so the "jobs" were just excuses to distribute wealth that was produced by someone who actually did something useful. Similarly if one hundred workers are employed to build a road that never carries any traffic, how many jobs were created? Apart from positions in the archeology department at some future university, none or close to it.
But what if it clearly and unambiguously does not work? Since success has not been clearly defined, and failure has not been defined at all, this may be difficult to recognize, but if it happens then Plan B will need to be implemented. What is Plan B?
There's another name for Plan B. Some call it an "Exit Strategy."
Tom Bruner holds an MBA from a decidedly non-Ivy League institution and has a lot of experience with Plan B.
