Monday, October 13, 2008

Energy and Direction

When you reduce it to the most primal terms, economic success is based on two forces: energy and direction. Things go best when these are in balance.

There are times when you know exactly what to do, and you just want to go ahead and do it. This is when you hope you have enough energy to match your direction.

I remember a time seven years ago when I was writing urgently needed software fixes and preparing one of my books to go to press. Both projects perfectly fit my talents, they paid well, and they were needed quickly, so could I get myself through the 14-hour days? That was a case of having more direction than energy. It worked out well enough, but it wasn’t balanced; I wouldn’t have been able to keep it up for more than a few weeks.

The other extreme happens when disappointment strikes. You fail the test and don’t get the job after all. Your business keeps losing money and all you can do is shut it down. And you don’t know what to do next. But in the bigger picture, disappointment is not a bad thing. It is what stops you when you are putting your energy in the wrong direction.

When you are figuring out where to turn next, what you don’t need is more energy, at least not the same kind of energy you pour into your work when you know exactly what to do. What you need is direction — the other primal force that goes into economic activity.

It is important to be aware of the distinction between energy and direction whenever there is an economic problem. If there is an imbalance in one of these two economic forces, you usually cannot solve the problem by adjusting the other one. If you do not know your direction, it does not help to add energy or to go faster. If you cannot get yourself going, even though you know what to do, the only solution is to add energy; it will not help to further refine your direction until the energy is there.

The same is true of the economy as a whole. A recession is often described as a “sluggish” economy, but it is not really a shortage of energy. Rather, it is a deficiency of direction, a natural result when competing businesses put too much energy into staying ahead of each other when they are all going in the wrong direction. A recession is not solved by adding more energy, but by adding direction. This means that efforts to “stimulate” the economy will not resolve the recession, but will actually make things worse. Unless, that is, they are focused narrowly on the direction we need to go. The economic stimulus package of May and June did not end the recession, because it did not provide any direction. It served only to make the coming crash more spectacular when it happened.

Other non-directional proposals such as investment tax credits or a reduction in taxes on investments would do similar harm. But a massive investment in energy independence for the country — that is the kind of thing that could pull us out of the recession, because energy independence is a direction we need to go in right now.

Trying to rescue the national economy by pumping it up is rather like giving a man cocaine because he just lost his job — the buzz is dangerous and doesn’t do anything to solve the problem. A recession is a time for us collectively to find our new direction. And if we do it well enough, there might not be another recession for a long time.