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Yash Gupta
Business School Dean

Yash Gupta

Yash Gupta is Professor and Dean of The Johns Hopkins Carey Business School.

Cutting to the bone doesn't help

Q: The overwhelming consensus among economists is that the economy needs another shot of short-term stimulus spending. But as the president and congressional leaders have discovered in trying to pass a new stimulus bill, voters want to start bringing the deficit down now. Is this one of those leadership moments when it is better to accommodate strong constituent beliefs rather than trying to convince them they are wrong?

I side with those who argue that the nation needs stimulus spending, though I'm not so sure that it needs to be put in terms of "another shot."

The fact is that the initial shot hasn't been entirely fired off; many states haven't spent all the stimulus funds provided to them by the federal government. Money is just sitting around, not doing the job it was intended to do. Through the end of the first quarter of this year, according to a federal report, my home state of Maryland spent only about 22 percent of the funds it received through the American Recovery and Reinvestment Act. The percentages were even lower in Hawaii (21 percent), New York (20 percent), West Virginia (20 percent) and Washington, D.C. (18 percent).

The federal government needs to get the states to put these unused funds to work. And given our unemployment rate of 9.7 percent - which doesn't count those who are underemployed and those who have quit looking for work - the stimulus must focus on job creation, particularly on the kinds of jobs that won't dry up in a few months.

I understand the concerns of the deficit hawks. As the Peterson Institute for International Economics notes, the U.S. budget deficit is on track to reach 15 percent of GDP in 2030, with our net foreign debt ballooning to 150 percent of GDP. That is indeed a frightening scenario. But we're not going to battle our way out of our current economic doldrums by cutting to the bone, as some advocate. We need to stimulate the economy, and the best way to do that is to put people to work so they have money to pour back into our system.

Like so many other questions related to leadership, this one comes down to communication skills. The president doesn't need to show who's right or who's wrong on this issue; he has to show what's right. A leader's role is to lay out all the facts, including the points that people might find unpleasant, and clearly explain why the program he has chosen will do the most good.

President Obama must articulate what his plan is for creating jobs and how the success will be measured. He is going to have a tough time securing congressional support for additional stimulus funds precisely because we don't have a clear picture of the economic impact created by the first wave of funds.

Yes, politicians are always tempted to do what's easy in the short term by catering to the wishes of constituents, but it's the true leaders who can make a recalcitrant public understand that the short-term plan isn't always in the nation's best interests.

By Yash Gupta

 |  June 22, 2010; 12:39 PM ET
Category:  Political leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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