Pump-prime what?

By Randell Tiongson on July 19th, 2011

You would often hear about the term ‘pump-priming’ whenever economic topics are being discussed or written about. What is pump-priming? It is the action taken to stimulate an economy, usually during a recessionary period, through government spending, and interest rate and tax reductions. The term ‘pump priming’ is derived from the operation of older pumps; a suction valve had to be primed with water so that the pump would function properly. As with these pumps, pump priming assumes that the economy must be primed to function properly once again. In this regard, government spending is assumed to stimulate private spending, which in turn should lead to economic expansion.

A good combination of monetary and fiscal policy should be able to provide stimulus for economic growth. In theory, a properly executed ‘pump-priming’ will stimulate growth in the economy and push it towards recovery. Well at least in principle.

There are mixed results from ‘pump-priming’ efforts in many governments, including ours. In today’s global environment, ‘pump-priming’ activities can be a case of scale issue… like using an eye dropper to fill a pail. Further, the inter-dependencies of economies is proving to be a daunting task to influence the economy more and more.

While pumping and priming the economy may bring in some results, sustainability can only be achieved with sound fundamentals. An economy that is freer seems to result to better performances. Further, too much government intervention often results to havoc or at least, breeds inefficiencies. I believe that government intervention in the economy should be limited to ensuring fair play, regulations against excesses/abuses and ensuring a level playing field. Our government has way too many corporations and agencies that compete with private ones and yet said government corporations are severely inefficient and some are carrying huge losses. Further, the size of the government should be small relative to the size of the economy. While many administrations have announced privatization efforts, it seems that we are taking forever in privatizing them. Seriously, will it take 50 years just to privatize government corporations & agencies? Will Noynoy’s regime be any better? I pray so.

Up until we thoroughly work on our economic fundamentals which include, political & social concerns, no amount of pumping and priming will result to any sustainable economic performance.

My 2 cents.

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Pump-prime what?