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Tuesday, February 10, 2009
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To the Editor:

I have great respect for Peter Cappelli, but I have to strongly disagree with him in this article.  To characterize tax cuts vs. government spending as simply a "political" debate is not acceptable -- it is a fundamental difference in economic policy and practice that has serious long-term consequences for our country. 

There is ample evidence over the last several decades that tax cuts -- particularly for individuals and job-creating private-sector organizations -- significantly increase revenue to the government (cf. mid-1980's, mid-1990's and 2003-2007).   

This article did not give enough credence to the job-creating effect of lower tax rates for business -- that increased business investment as a result of lower taxes creates long-term job growth, not just significantly faster (as noted) but with stronger economic growth potential than government spending. 

I also question the assertion that increased tax revenue is diluted by individuals saving a portion of any tax cut they receive. 

Over the last decade or so, the country had minimal personal savings rates, while there have been consecutive quarters of record tax revenue coming in to the Treasury.  It has only been in the last few quarters that personal savings rates have gone up -- commensurate with growing anxiety about the deepening recession.

Would tax cuts alone provide enough stimulus to blunt this recession?  No.   And I agree with Dr. Cappelli that government spending has a role to play in the recovery.   

But tax cuts aimed at net job-creating entities as the primary component of a stimulus package, combined with government spending as a secondary (or even tertiary) component will not only have a short-term job creating effect but also create a long-term, sustainable economic growth engine.

Sara Fawcett

VP, Human Resources

EDENS & AVANT

Columbia, SC

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Dear Editor

I thought Peter's article effectively captured much of the thinking on how to get the troubled economy going again.  In particular his discussion of the mark to market issues and the differences of Keynes and Friedman was on target.  Clearly the Keynesian viewpoint is in ascendency after several decades of disrepute.  We can only hope that federal spending (across the globe) can pull us out of this illiquidity crisis and avoid a deflationary downward spiral.

I was, however, a bit disappointed in his connecting this important topic to HR effectiveness.  Peter indicated that forecasting in such times is pointless due no doubt to the lack of good Bayesian estimates for the outcomes. 

However, he does not mention the potential importance of playing out possible scenarios for contingencies.  One is almost left with the position that the HR practitioners should just sit on their hands until the outcome has arrived.  I would argue that such inaction will likely make the HR role less relevant to the organization.

Perhaps an analysis comparing RIFs to wage concessions for the organization's relative positioning vis a vis an economic upswing could mitigate Peter's position that layoffs are only exacerbating the recession

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(I presume that Peter is not arguing against the importance to the economy of corporations having positive cash flow and  retained earnings). 

The primary argument against wage concessions (at least temporary ones) has to do with retention of top performers, but I think the HR profession has to become more sophisticated about performance management.  Clearly the debacle in the financial industry shows a weakness in tying performance bonuses so tightly to individual performance.

It is my contention that the HR professional who becomes proactive around these critical issues of workforce planning and performance management will not only learn a lot in this uniquely challenging environment but can have a positive impact on the long term survival of their organization which is currently the name of the game. 

My hope is that our lessons will move beyond the academic and into practice which requires that the economy becomes stabilized.

Kurt Schmidt, Ph.D.

Peter responds:

Dear Kurt,

I'm completely with you on the role of scenarios and the goal of producing robust estimates, as opposed to point estimate forecasts. I have an article in this month's Organizational Dynamics outlining how to do just that. (Didn't have enough space in the column to outline all that.)

(Editor's Note: Peter did write about the use of simulations for workforce planning in a previous column.)

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