Wednesday, December 10, 2008

Why Obama’s Infrastructure Spending Plan Won’t Work

In 2008 the U.S. actually spent $114 billion on infrastructure, following $102 billion in 2007. Infrastructure spending over the past five years for non-defense comes to nearly $500 billion. Did that do much for jobs and the economy? Did it prevent our recession? Therefore why should we believe that Obama’s proposed $500 Billion infrastructure plan will do anymore than history already shows. If the bailout mismanagement is anything to go by, we can only anticipate more of the same, since government has no clue as to how to run business. As Amity Shlaes documents in her book "The Forgotten Man," the economy limped along under FDR's stewardship in the 1930s. Many of the era's public-works projects were undertaken for political reasons as well as economic ones. Government crowded out private initiative and neglected policies to promote the private sector. Net private investment declined at times during the 1930s. If less people are going to work, what use are more bridges and trains? Government infrastructure spending doesn’t create new jobs for very long (mostly temporary jobs), takes time to implement (approvals, planning permits etc.) and is fraught with abuse, waste and mismanagement. And by the time the money is spent, the recession will have passed. Entrepreneurs and businesses will create jobs and bring back our economy. This holds true for the other economies of the Western World; the principles are the same. We should be looking to find creative ways to encourage investment. By slashing the corporate rate tax, means a business might indeed be able to save jobs and entrepreneurs and VC’s will jump back in and invest in start-ups. This is what has fueled our growth in the past. Potentially, billions of dollars could pour back into funding start-ups. Furthermore, cut tax rates for everyone and the consumer will be back. Raising tax rates on the higher income bracket is exactly the way to prolong and deepen this recession. So why should we believe Obama’s plan of change is anything more than growing government and increasing our national debt? Post your comments here or e-mail me at businessissuestoday@gmail.com

Friday, December 5, 2008

A Permanent Shift Between Old Media and New Media

While advertising spend is generally affected by a recession, the new digital economy is surprisingly holding up. Web companies are offering cheaper and more accountable ways for local companies to advertise to a local audience. These web companies are thriving at a time when the longtime dominators of that market - newspapers, radio stations and television outlets - are reeling from the stagnating economy. The radio industry which for long time was an affordable medium for local advertising, continues a downward slide in Ad sales For the second year running, it will have experienced negative growth by tripling station revenue losses to -7 percent, according to the estimates of BIA Advisory Services. Radio’s future relies heavily on its ability to embrace new media and mobile technologies and local advertisers. CitySearch for example is an international website but it offers the ability to search locally for restaurants, theatre etc. Citysearch CEO, Jay Herrati said the local online market has been growing at 17% to 20% annually, and he expects that to increase as advertisers become more comfortable with the complexities of digital media. Local advertisers are also turning to Google Inc.'s AdSense service, which can place their text ads on Web sites that specifically cater to their target audience. The cost to advertise online can be as little as $25 per month. Budgets are spent on a pay-for-performance basis. Only when a user clicks on that Ad, is the merchant charged roughly 25 cents per click. And never before has it been so easy to track consumer behavior and recognize trends. MySpace Ads (just launched in beta) offers this minimum pricing and can target your Ads by social network groups – not exactly local advertising, but yet another way for affordable and highly targeted advertising in an increasing digital age. Traditional media companies in print and broadcast have struggled for years with the rise of the Internet. Their future is viewed as increasingly uncertain as they have been unable to renew growth prospects with revenue generated online. The economic situation could actually be creating a permanent shift between old media and new media. Under increasing pressure to cut costs, retailers and small businesses are discovering the value of the Internet as a marketing tool for reaching a highly targeted audience while closely tracking their return on investment. On average, 60% of people now check out product reviews and pricing online before making a purchase. Businesses can no longer afford to not embrace digital advertising or be a part of the new digital world. Got a specific business question? Email me at businessissuestoday@gmail.com or comment on your experience.

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