It can be hard for people on Wall Street to agree on anything.
Whether they’re on different sides of a trade or simply in competition for business, it’s rare that they see eye to eye.
One issue, however, is uniting some of the largest names in finance for one cause: fiscal stimulus.
With big names including JPMorgan CEO Jamie Dimon and hedge fund billionaire Carl Icahn, it seems there is a growing chorus among the major players in finance that the government needs to spend more money.
Larry Fink, CEO of BlackRock, in an interview with Bloomberg Go last Wednesday said spending to build up infrastructure was a huge positive for the US economy.
“You are creating jobs, creating a better and more efficient grid, better and more efficient roads, ports, airports,” Fink said. “So you can get a mileage out of it. So I believe that is what we need in this country.”
Fink also said he thought such spending would have a meaningful impact on US gross domestic product.
Dimon, for his part, wrote that part of the solution to the “serious issues” facing the US was to increase federal investments.
“I won’t go into a lot of detail but will list only some key concerns: the long-term fiscal and tax issues (driven mostly by healthcare and Social Security costs, as well as complex and poorly designed corporate and individual taxes), immigration, education (especially in inner city schools) and the need for good, longterm infrastructure plans,” he wrote in his annual letter to shareholders.
In an interview with CNBC on Thursday, Icahn said there would be a “day of reckoning” in the market if fiscal stimulus did not occur, adding that there “could certainly be more spending.”
Why fiscal stimulus?
These financial heavyweights are suggesting such a strategy for two reasons — a short-term benefit and a long-term benefit.
On the one hand, there is the short-term need to increase growth. GDP has been lackluster during the recovery from the financial crisis, and it seems that the Federal Reserve has done all it can from the supply side to help stimulate spending. The thinking is that the effectiveness of money-supply stimulus is wearing off and government efforts should focus on demand.
Fiscal stimulus jump-starts the economy by creating jobs. Those people with new jobs are more likely to spend more, thus supporting other industries. Basically, government spending would induce more consumer spending and strengthen household finances to move the wheels of the economy and kick-start growth.
The second argument for fiscal stimulus is the long-term impact, which is what Dimon is really driving at. The idea here is that by investing now, the government could strength the US’s position as a global leader and head off some of the under-the-surface problems that could bubble up later.
For instance, one big way the government can spend is investments in highways and bridges. Much of the US’s infrastructure system is struggling. Spending now will help maintain the transportation network before the system falls into disrepair.
This spending has benefits that go beyond maintaining physical infrastructure. Highways and bridges facilitate movement that is vital to the economy. Without it, growth will slow, potentially setting up a negative spiral.
Slow growth makes it harder to bring in government receipts while also leaving fewer people with enough savings for retirement. As Dimon noted, this could end up with a generation of people unable to retire and a government unable to support them.
“The problem is not that the US economy won’t be able to take care of its citizens — it is that taking away benefits, creating intergenerational warfare and scapegoating will make for very difficult and bad politics,” Dimon wrote. “This is a tragedy that we can see coming. Early action would be relatively painless.”
So taking action now kick starts the economy.
There’s just one problem
The issue, as it stands now, is that executing this sort of government stimulus requires, well, the government.
Many elected officials are worried about the $19 trillion in debt that the US government holds (whether that’s actually an issue is another question), so attempting to convince Congress that adding more debt is the solution is a tough sell.
As Icahn noted in his interview with CNBC, it is unlikely that much will happen on the spending front anytime soon. Icahn said Congress was “grid-locked obsessed” and “obsessed with this deficit to a point that I think it’s almost pathological.”
Additionally, with the election season underway it is unlikely, in the absence of a serious crisis, that the federal government would enact any large-scale spending program.
The likes of Jamie Dimon, Carl Icahn, and Larry Fink are used to getting what they want.
On this occasion though, it looks as if they will be left disappointed.