While a good businessman won’t necessarily have a strong theoretical understanding of economic principles, it seems to me self-evident that one can’t be successful in business without a solid practical sense of economics. And after all, isn’t that the free-market measure of quality? Those who really do have the better understanding will be the ones who are more successful, and success is measured in money?
Yes, I can. Have a look at what happened to the ‘Asian Tigers’ when they liberalized their business regulations and lowered trade barriers. Look at the results of India’s market liberalization. Or China’s. Have a look at what NAFTA did for Canada’s exports and economy. Have a look at what what happened in Eastern Europe after the Iron Curtain fell. Have a look at Canada’s economy after we lowered businesses taxes, de-regulated a number of industries, and reduced the size of government from 44% of GDP to 33%. Look at the economy in Britain before and after the Thatcher revolution.
There is a clear pattern that when governments lower barriers to business creation, innovation, and trade, the economy improves.
How about you providing examples of the opposite? Are there countries with free markets and moribund economies that were improved by having government ‘manage’ the economy? I keep hearing Japan mentioned as an example of successful government intervention, but Japan’s successes came in spite of government intervention, not because of it. Many of Japan’s government/industry ‘partnerships’ like MITI’s 5th generation project were complete disasters.
Japan’s decade-long stimulus has resulted in an inefficient, over-built infrastructure it can’t afford, along with high debt and economic stagnation. The result is that 2% of Japan’s GDP goes to interest on its debt, and this consumes 14% of its entire budget. And that’s without touching the principle. And it really doesn’t have anything to show for it.
So where did a government make an economy stronger by managing industry? And I’m not talking about a failed state recovering after order was restored - I mean a 1st world economy that took off after a more statist government stepped in to ‘manage’ the economy with additional regulations and taxes.
You mean like FDR’s spending ending the Great Depression?
Well, that is a good theory, but in practice that’s not what tends to happen. Shrug Life doesn’t always make sense to us.
In any case, it’s also not what Henry Ford had to do with. he didn’t pay his workers high wages out of some noble intention, or to “let them afford his cars.” He did it so that he could get the very best workers! And it worked, and over time his processes and company were able to bring down the cost of cars. That’s ultimately classic supply-side economics. But trying to make a direct demand-side equation balance would have failed grossly.
To dismiss all government interventions shows frightening ignorance. Do you think the Interstate Highway system represented “malinvestment” and “slowed GDP growth”? Also, please Google “Tragedy of the Commons” and read about technology spinoffs from the Apollo Moon-landing program. This may seem pretty basic, but you’ve got to start somewhere, Sam.
Best is a “Middle Path” between Sam’s laissez faire and a leftist position. What we don’t need is the right-wing style of regulation we’ve seen too much of in post-literate America. Even pure laissez faire might have been better than the banker-friendly government behavior of the last 30 years (which has cost Main Street and ordinary taxpayers a trillion dollars or more while coked-up derivatives players with their mortgage scams, etc. are driving Ferraris).
Demand-side action is what’s needed, but one would hope for a mechanism more intelligent than the “drop banknotes out of helicopters” solution attributed to Friedman.
A good approach, which was advocated once or twice in the pages of N.Y. Times, would be to improve homeowner confidence (and therefore spending) by forcing mortgage delays and renegotiations. Since Obama’s advisors were from the creditor side of the creditor/debtor division, such suggestions were not adopted; this will be an important theme when textbooks about the Second Great Depression are written.
Brooks’ prattle seldom has any value, except as a “contrarian indicator.”
First of all, we disagree that ‘Roosevelt’s Spending’ ended the Great Depression. But that’s a debate for another thread.
But I meant a country that elected a statist government which proceeded to permanently restructure the economy to have government call more of the shots. Say, a country that moved from a relatively free-market government to a socialist or social democratic government which raised taxes, increased regulation, or tried to ‘improve’ the mix of goods and services in the economy through tariffs, taxes, regulations, subsidies or other ways that government can influence the direction of business.
Well, then I’m not going to bother debating this issue with you. Government spending on the New Deal and the war uncategorically ended the Depression.
You mean a government which created a welfare state and national public works administration more or less overnight?
I couched my statements in terms of ‘danger’ and ‘risk’. I didn’t say that every government intervention always causes malinvestments. In fact, I just finished posting a message which conceded that ‘Pigouvian’ taxes can make a market more efficient.
I’m getting pretty tired of people constantly erecting straw men arguments against my positions or assigning views to me that I never uttered.
Again, where in my posts did you see me say that the government should adopt a strict laissez-faire policy?
‘Post-literate’? I don’t think this word means what you think it means. Given that we’re chatting via text and all… I assume this is some sort of cheap shot at ‘stupid right-wingers’ or something?
Hope all you want, and you’re not going to get it. Have you looked at the process of allocating stimulus money? If so, do you see a lot of intelligence there? Here’s a hint - the states that need the money the most are not the ones that have the most powerful members of congress who sit on the appropriations committees.
I think a helicopter drop would be far preferable to a stimulus that sends tens of billions of dollars to states so they can increase the salaries of already-overpaid public servants, while people who are actually out of work have their benefits cut off.
Or maybe that program wasn’t adopted because forcing banks to take on the risk of mortgage write-downs at a time when banks are failing may not be smart policy.
Maybe someone who could see a little further than the immediate short-term realized that if banks cannot control the terms of repayment, they are less likely to lend money, and right now the last thing you want to do is give banks a reason to not lend money.
Maybe someone realized that if you write down all these mortgages, the mortgage-backed securities become even more toxic, or the banks are forced to re-price them and take huge hits to their capital reserves.
Maybe someone realized that allowing all these mortgage holders to erase their debts on the backs of the banks would be a moral hazard that would encourage people to over-leverage themselves in the future.
Maybe someone realized that this would essentially be a huge bailout for people who were irresponsible with their money, and would ultimately be borne by everyone else.
You wrote “Market distortions through government action cause malinvestments and inefficiencies that ultimately reduce the productive capacity of the country” which seems pretty absolutist. It wouldn’t have hurt to inject a “sometimes” into that statement, would it? After all, progressives would argue that many “market distortions”, e.g. carbon tax, should be made to improve ultimate efficiency and capacity.
It might be interesting (though clearly tangential) to learn what you think ‘post-literate’ means, and what you think I think it means. To the extent it was a ‘shot’, cheap or otherwise, it was directed at faulty thinking all across the political spectrum.
In my post I didn’t mention Obama’s stimulus, but rather the idea of delay or renogotiation of existing mortgages. An interesting proposal was to allow mortgaged ownership to become rentals for a few years with a future day of reckoning. This could be win-win: owner keeps his home, housing market is not impacted, bank postpones its reckoning. Happy home-owner is then more likely to spend, boosting the economy.
But anyway, if one supposes mortgage paper has a determinable value, a bank either is or isn’t solvent. There are remedies (e.g. selling stock to the U.S. Treasury) but financial fictions to pretend an insolvent bank is solvent is just the type of nonsense which leads to crisis.
I think moral hazard is a good term that needs to be contemplated, and used as a source of instruction.
But when AIG was permitted to run up trillions of dollars worth of nominal obligations, with the only peep from authorities being Greenspan’s applause I can’t listen to a right-winger complain about the “moral hazard” of ordinary Americans without imagining a giant ugly pot calling a small deluded kettle “black.” (And make no mistake, when you speak of homebuyers “who were irresponsible with their money”, many or most of them were deceived by unscrupulous brokers.)
Ford was lying. The typical worker at a Ford plant lasted about 4 months. The job was repetitive and mind numbing and Ford treated his workers like crap. Having his work force turn over 3 times a year was costing Ford huge amounts of money. He dramatically raised salaries to try to keep his workers from quitting. However, since he did not want to announce that the reason was for the raises was horrible working conditions, he announced it was because of his generosity and that it would help the company. Nobody stupid enough to believe that paying workers more in the hope that your workers will buy your products could stay in business. It is not economics that is just basic math.
Can you offer a citation for the 4-month figure? Everything I’ve read indicates that Ford had the lowest turnover of any of its contemporaries.
From this american heritage magazine
Calling that a right-wing idea, however, is rather dishonest.
It may also be the case that grinding up unproductive old people into Soylent green would be very good for economic growth, but that doesn’t mean it’s a good idea.
It is, of course, but it doesn’t have to be.
Wrong. It is right-wing ideas like “Greed is good”, “wealth creation implies value to society”, “government regulation is always bad” that lead to such mistaken priorities.
Now any particular right-winger may try to dance around nimbly, hand-picking their own examples for a Greed is Good dogma, or whatever. One would like to hope that fellow Dopers, even those with rightist views, have a coherent and intelligent grasp of economic issues, but I see little evidence of it. Sometimes in these threads I even ask: What do you believe? but get little answer beyond a claim that unnecessary government regulations are unnecessary and a peculiar belief that liberal economists think breaking windows is good. 
So let’s start with you, smiling bandit. Was Greenspan’s cheerleading for the derivatives market a good thing or not? Was the Greed is Good banking climate that led to the mortgage crisis a good thing or not?
Nice selective quoting. The sentence right before that says, “The DANGER of market interventions is that…” later I even give examples of government interventions that improve market efficiency. I also pointed out examples of situations where there are imbalances between supply and demand that you could theoretically fix with government intervention, but the problem is that intervention has a poor track record because government isn’t very good at sorting out where and when to intervene.
I think the failing here is that you’re jerking your knee and assuming that since I’m saying something critical of government I must be a laissez-faire anarchist.
Post-literate is generally taken to mean a society in which media other than reading or writing become the modes of communication, leading to a citizenry that can no longer read or write. For example, a society in which everyone gets their information from TV and communicates by phone or video. That’s why I said it was weird to claim that society was ‘post-literate’ while writing messages on a message board.
I’m skeptical of these kinds of cool-sounding big ideas, because I believe that markets are complex and that when you meddle in them you cause problems you never anticipated. You might convince me that your plan is a good one, but the burden of proof is on you and I set the bar pretty high for government intervention, given its track record.
You sound like a fiscally conservative Democrat to me.
The market can create gluts and shortages as well and it clears these gluts and shortages with the pricing mechanism. Because they don’t have a profit motive, the governments react to adverse pricing differently than someone taht needs profits to make payroll. But with that said, ther are some goods that teh government can reasonably determine should be provided even at a loss to the fisc. Mass transportation is one example. Almost every large metropolis in teh world has a mass transit system taht operates at a loss and it is still probably a good idea for governments to operate (or subsidize others to operate) these money losing transportation systems anyway.
This is not supply side so much as it is basic econ. Reducing cost of doing business reduces hurdle rates and causes mroe economic activity. You could do the same thing with easy credit or tort reform or eliminating child labor laqws. The trick is to picjk those things that you as a society are willing to live with in order to encourage economic activity.
Yeah i agree that like trying to use a hammer to screw in a lightbulb.
There are also pigouvian subsidies and pigouvian tarriffs.
While the market efficeintly allocates capital it does not always equitably compensate labor. At least that is the notion that some people get when they look at executive compensation.
And do you think that the implementation of supply side economics has meant very much more than tax cuts and humongous deficits which cause a Keynesian effect as these huge deficits end up putting more money into then system than it takes out?
And every one of those Asian Tiger’s followed the Japanese model of managed economies. China’s economy is pretty much managed as well; a government official is present or a signatory to practically every large industrial contract.
Yeah but in America supply side econmics has come to mean tax cuts for the rich, tax cuts for the rich and oh yeah more tax cuts for the rich.
Well I guess I would point to every industrialized country in the world after the Great Depression.
Yeah but the failure rate was low enough that they were ebating the pants off of the rest of the world for decades.
It has a functioning economy.
What about stuff that happened after the Great Depression? I would think that those models are relevant to us right about now.
Not really. Not if being a Democrat means I have to support big labor, large government, big education, and the rest of the baggage of the Democratic Party.
I describe myself as ‘libertarian’ (small l) because it most closely matches my belief system:
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I believe in government, but no more than is necessary. Government is a last resort when markets break down, not a superior alternative to markets.
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I believe in taxation, but only to the extent that it is necessary to fund government operations. I do not believe in taxation as a form of wealth transfer across income strata of society.
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I believe in social programs, but no more so than to prevent extreme economic hardship. I believe that societies function better when the poor aren’t starving and uneducated and sick. But social assistance should not be a way of life and should not extend to making the middle class more comfortable.
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I generally believe in liberal social policies. I’m pro-choice, anti-capital punishment, pro-gay marriage, and support drug legalization.
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I believe that business owners do not lose their rights when they engage in commerce. Therefore, I believe that business regulation should be kept to the minimum required to assure public safety, I support the right of a business owner to hire or fire whoever he wants regardless if that person is in a union or not and regardless of the person’s skin color or ethnic background or sex.
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On the other hand, I do not believe that engaging in commerce gives someone a claim on my tax money through directed subsidies, sweetheart deals, government ‘partnerships’, or other mechanisms of forced wealth transfer. That includes tariffs and trade barriers that induce me to deal with people I would otherwise not deal with.
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I’m generally suspicious of government. I believe there are concrete reasons why government action is dangerous, flawed, and inefficient. It may be necessary, but it needs to be constrained in scope and power.
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I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn’t have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can never know what’s best for people, because the people themselves don’t know until they are forced to make choices between all the options available to them - and to pay for them.
These are not positions compatible with Democrats or Republicans. And not really with big L Libertarians, either. They’re generally classically liberal, pro-market, pro-freedom beliefs, but they don’t pigeonhole into any particular party.
That’s my whole point. Businesses can be stupid, businesses can over-produce or under-produce. But the price system connects them together in ways that correct the flaws. Let’s say someone invents a product made of plastic that is highly superior to its steel alternatives. Demand for steel will fall. There will be an overproduction of steel. But then prices for steel drop, signalling steel producers to eliminate their most expensive modes of production and stimulating demand at the same time. Now other steel-based products become cheaper, and people buy more of them and less of their own alternatives. That in turn causes other gluts and shortages. But through the price system, everything adjusts until the market clears.
This is all so tremendously complex that there is no one person who can understand it. No one can look at an input and predict the outputs across the economy. Investors who spend their lives studying markets barely do better than chance when predicting market movements.
And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable.
In a mixed economy, these unintended consequences happen, but at least a market still exists to correct for them. As the government attempts to control more and more, and the market loses its ability to adapt because of high regulation, the whole process starts to break down. But even modest levels of interference in the market cause unintended consequences, and this usually results in government interference being less efficient than predicted.
I don’t buy that mass transit is always a universal good - or at least it’s not clear that it’s always better than the alternative. And of course, there are degrees of mass transit - a basic bus system is a lot less intrusive and expensive as is Light-Rail transit, and LRT systems are a lot less expensive and intrusive than full-blown subways and high speed train links. There are a lot of examples of cities that have over-built their mass transit and as a result have under-utilized transit movements that actually slow down overall traffic flow, increase energy requirements, and cause high taxation which causes business flight and destroys jobs.
We have been operating in this thread without a good definition of ‘supply side’. I’ve been using it as “government action that reduces the regulatory or taxation burden on producers”, as opposed to generalized demand-side policies which seek to stimulate the demand of goods and services.
As soon as you start talking about what’s ‘equitable’ you get into value judgments and decisions that are ultimately political and not economic. Is it equitable that Jack Welch, who rescued GE from near-extinction and turned it into a 21st century industrial powerhouse that employs hundreds of thousands of people, be paid millions of dollars per year? If not, how come? Is it equitable that the lemon next to you in your unionized shop gets paid the same amount you do, despite the fact that he calls in sick all the time, goofs off, and causes you to carry part of his workload? If so, how come?
The beauty of believing in freedom is that I’m willing to let the individuals decide and contract amongst each other. Social engineers want to impose their view of morality on everyone else by force.
Um, I don’t think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford.