Sound Strategy: Keep a weather eye on the horizon with budgets, and change course accordingly

Sound Strategy: Keep a weather eye on the horizon with budgets, and change course accordingly

March 23rd, 2023

As our national and regional economies continue to send mixed messages around the future, we’re reminded of the importance of planning, probabilities and purpose in our strategic thinking.

One area that tends to dominate our thinking is the topic of budgets – every number tells a story, of course, and it’s the expectations in the budget that reflect our strategic intention.

Here’s a key to that budgetary thinking, though – budgets are in many ways of secondary importance to economic growth.

For example, maintaining a budget doesn’t guarantee any form of economic growth in the same way that a well balanced checking account doesn’t suggest an increase in personal income. Budgets, in other words, are a necessary but not sufficient driver to economic growth.

Growth, on the other hand, means increases in one of a few relatively simple ideas: 1) more people creating value for more people in the private sector or 2) the same numbers of people creating increasing value in their private sector efforts.

It’s that dynamic that suggests growth, and it’s growth in turn that unlocks more opportunities for regional budgetary allocations (remember, the government can’t budget anything that hasn’t already been generated by someone else).

That growth dynamic is probably our number one regional challenge looking to the future – while our regional population has remained relatively flat to even downwardly trending, we’ve seen wage gains increase.

The problem with that dynamic is that, in essence, no tree grows to the sky forever – once wage gains lose steam, we’ll shift into a period of eroding growth unless we can figure out ways to get more people creating more value for more people through things like supporting our innovators, engaging our regulators, and strong entrepreneurship.

Being a bleacher sitter, on the other hand, isn’t an option.

The trend, of course, is that budgets tend to lag in many cases economic growth–meaning, they tend to lag on the revenue side and then correspondingly lag on the expense side (it’s tough, in other words, to ramp up and ramp down quickly).

Politically, it’s also dicey to ramp down as public-sector budgets tend to stay weighty even when the private sector goes on a diet.

The human temptation to offset growth with borrowing – increased grant funding, more federal funding, and so on – can mask the growth dynamic but only for short periods of time. We must not fool ourselves on this subject.

The economic reality is this: Given some sort of a pronounced change in our population base, we’re beginning to enter into a period of declining growth in our dominant visitor economies.

That suggests, in turn, declining budgets in the coming years in a time when many of us agree that investment is paramount.

What’s all that actually mean?

It means that while declining budgets aren’t urgent at the moment, demographics suggest they will be.

The future, as Israel Prime Minister Benjamin Netanyahu points out, has an unfortunate quality in that it becomes the present and sooner than we think.

Closer to home, President Abraham Lincoln pointedly mentioned that our nation (or our region) cannot stay out of trouble by spending more than we create.

That’s precisely the reason to plan for slowing growth dynamics now as opposed to waiting–if we can adjust and plan now, it’ll be all the easier to avoid an acute pinch in the years to come.

Sound strategy, in a place famous for mariners, keeps a weather eye on the horizon and changes course accordingly.

“Sound Strategy”, a weekly commentary from our publisher Clark Twiddy, features issues, ideas and information focused on our mission statement of “Covering the Business News of the Greater Outer Banks”.

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