How do we fix the economy???

Imaginos1892 wrote:

Tenshinai wrote:Cutting taxes equates to spending money you don´t have, except worse, because if a government spends money(directly from the printing press or from loans), then at least part of it gets back in the form of taxes, as well as increasing the size of the total economy, which at least to some degree can/will help an economy that is in trouble.

ARRRGH!! NO! Government can NOT increase the size of an economy; it can only increase the amount of money. If there is no increased value to back it up, all you get is inflation. The only way to increase the real size of an economy is by making things that are worth more than they cost; everything done by government costs more than it is worth. We have to expand the four primary economic functions: farming, mining, manufacturing and construction.

Cutting taxes (and government spending, which everybody seems to forget about) frees up money that can be used for productive purposes. If it is, the economy grows and the government ends up collecting more money on lower taxes. If not, the economy stagnates and everybody howls for Somebody To Fix It, NOW!
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If a business tries something that doesn't work, they either stop doing it or they will go broke. If the government tries something that doesn't work, they just keep shoveling our money into it forever.

Don't forget all of the "soft" costs of the regulations that keep getting added to year after year. Roughly about 3500 new Federal regulations are added per year (typically 300-500 new laws as well). Those regulations have both an opportunity cost (economic activity that couldn't happen because of the regulation) and a compliance burden (costs associated with following the regulations. The vast majority of this is behind the scenes at the various Federal agencies. Some of the regulations are likely to be worth the opportunity and compliance costs but not all of them. And with the sheer volume of new regulations, the only ones we ever hear about in time to oppose/support are the high profile ones. The low profile regulations have cost burdens as well, but since we never hear of them we can't make a cost/benefit analysis.

So one way to help the economy is for congress to appoint a subcommittee for each one of these agencies and have them sort though all of these piles of regulations and come up with delete lists. Given that there are 1000s of Federal laws and 100,000s of regulations (google that and discover that the situation is so confusing that no one knows how many laws and regulations we actually have) there should be large numbers that can be removed as outdated and/or ineffective.

Government can produce things for more than they cost. It simply requires that government produce things and offer services that people are willing to voluntarily pay for. The problem is that government can't produce things as inexpensively as the private sector. The incentives of government are not directed at efficiency but at achieving political goals. We saw that in the national industries of Great Britain before Thatcher privatized them. Like her or hate her, she freed up resources and labor to work elsewhere and produce more efficiently.

Government as a pure regulatory body indeed does not add to the economy. It does add to inflation. Inflation does tend to increase demand as it imposes an opportunity cost on savings. The same increase in demand can be achieved by productivity increases lowering prices. This does not inhibit savings, but stimulates it as well as increasing demand.

Lower prices increase demand by making more people not only willing to purchase but able to do so. This increased demand fuels a need to increase production. That requires more capital, which increases demand for capital and interest rates. That increases the incentives for saving either through direct investment or through banks.

Inflation simply increases demand by making it more painful to save for the future than to buy goods and services now. Painful because goods and services will cost more current dollars in the future than right now.

So, even if government spending increases the GDP statistic, it represents a drain on the economy and it's growth rates. Some regulation is necessary to inspire trust in the economy as a whole. That does not mean that government doesn't drain economic activity, it always will after some basic level needed to inspire trust.

Hooraaah! Everyone together now, thinking by yourself is dangerous, can´t have such awful things as people questioning the proper dogma.


The level of faerytale incompetence just hurts.

The fact that you spout off a bunch of inane shit that has already been disproven repeatedly by the REAL world, that doesn´t seem to bother you one bit. Amazing.

Generally having private enterprise provide goods and services is more efficient than having government do it, but there are some exceptions.
Where there is national infrastructure like rail lines, highways and phone lines a mixture can be optimal. Private enterprise providing the natural monopoly, but doing so either in partnership with government or under a specific set of guidelines. Pure business efficiency often needs to be modified to suit national effectiveness.

An example would be providing a fair share of such infrastructure to remote areas. This may not be optimal for business profit, but necessary for promoting decentralisation which benefits the country overall.
Generally developed countries have found that government controlled health systems are more effective, with European and Australasian countries providing healthcare at significantly less individual cost than the USA with all its private companies seeking to make a profit.
Defence also needs to be government controlled otherwise the lowest bidder would lead to regime change. Private enterprise would produce the goods after competitive tenders, but care needs to be taken to not let such companies control government decisions.

Not all political goals are useless, Daryl. That does not make them any less political. An economic drain of a transit system that connects disparate parts of a nation might be a political boondogle at first but eventually may become worthwhile over time. Many a private enterprise would pass on such a project.

Exactly. Few businesses think more than afew years out, governments need to think up to decades out, and we are all the better for them doing so.

PeterZ wrote:Not all political goals are useless, Daryl. That does not make them any less political. An economic drain of a transit system that connects disparate parts of a nation might be a political boondogle at first but eventually may become worthwhile over time. Many a private enterprise would pass on such a project.

PeterZ wrote:Not all political goals are useless, Daryl. That does not make them any less political. An economic drain of a transit system that connects disparate parts of a nation might be a political boondogle at first but eventually may become worthwhile over time. Many a private enterprise would pass on such a project.

worthwile over time is (with some exceptions) something private industry is not particularly good at. That has become increasingly true with modern public corporations and stock markets. Driven by "stockholder value" the vast majority of businesses are far more interested in the next quarter than the next quarter century. Most CEOs tend to be interested in the 5-10 year horizon which will encompass their reign and how to maximize their gain in that period. (Their are many many exceptions to this but they are becoming rarer.) Many couldn't even care less if the company collapsed as long as it did it the day after they left, although titanic egos prevents most from going this far at least.

The impact of this shortsightedness is having a profound negative effect on the long term economy. So how do we fix it.

1. Basic research.

Let's face it we don't know what we don't know and that goes triple for basic research. The vast majority won't lead to anything important for at least 50 years if ever. Which is why the government funds most of it with private charities picking up the rest.

It's an easy thing to "kick the can down the road" with since the payoff (if any) is so far away. On the other hand in an economic mess like we are today it doesn't make a great deal of sense to spend money on such a speculative endeavor.

One way of increasing this would be to have an automatic funding increase when the economy is good but to have that funding go away again when the economy is bad. Grant based research can't be funded this way effectively otherwise we'll get piles of partly finished projects and minimal progress. But the additional funding could be placed in a trust for prizes. This also has the additional benefit of spreading out the type of government funding. Both grant and prize based systems have their advantages and disadvantages. Some things work better with one, other things work better with the second. Although it does do some prizes the vast majority of funding is grant based. Increasing the funding for the prize based model would enable us to benefit from research best driven by that model as well.

2. Modify a portion of the way grant funding is delivered.

Right now it is peer reviewed. The plus of which is that crackpot ideas are screened out. The minus of which is that crackpot ideas are screened out. We really don't want to be wasting huge quantities of $$$ on useless crackpot ideas. But at the same time, truly innovative, game changing ideas very often seem like crackpot ideas to the egos of the current experts in the field. So if we really want innovation we have to direct a portion of funding to crackpot ideas and keep funding crackpot ideas even when the vast majority fail.... a long term commitment.

3. Infrastructure.

This is another area that the can keeps getting kicked down the road. We should have spent the stimulus $$$ on it but didn't (maybe if we had the real economy would actually be back to normal now). There's no way Obama would be trusted with spending more here but long term we desperately need improvement in this area.


4. Make CEOs, board members and other senior management care about the long term future of their companies.

There are all sorts of micromanagement ways of dealing with this problem, but the simplest way is to make them have skin in the game long term. So if stock compensation public companies CEOs, board members, and other senior management was required by law to be spread out over a period of 25 years they would care a lot about the future of their companies.

biochem wrote:
worthwile over time is (with some exceptions) something private industry is not particularly good at. That has become increasingly true with modern public corporations and stock markets. Driven by "stockholder value" the vast majority of businesses are far more interested in the next quarter than the next quarter century. Most CEOs tend to be interested in the 5-10 year horizon which will encompass their reign and how to maximize their gain in that period. (Their are many many exceptions to this but they are becoming rarer.) Many couldn't even care less if the company collapsed as long as it did it the day after they left, although titanic egos prevents most from going this far at least.

The impact of this shortsightedness is having a profound negative effect on the long term economy. So how do we fix it.

1. Basic research.

Let's face it we don't know what we don't know and that goes triple for basic research. The vast majority won't lead to anything important for at least 50 years if ever. Which is why the government funds most of it with private charities picking up the rest.

It's an easy thing to "kick the can down the road" with since the payoff (if any) is so far away. On the other hand in an economic mess like we are today it doesn't make a great deal of sense to spend money on such a speculative endeavor.

One way of increasing this would be to have an automatic funding increase when the economy is good but to have that funding go away again when the economy is bad. Grant based research can't be funded this way effectively otherwise we'll get piles of partly finished projects and minimal progress. But the additional funding could be placed in a trust for prizes. This also has the additional benefit of spreading out the type of government funding. Both grant and prize based systems have their advantages and disadvantages. Some things work better with one, other things work better with the second. Although it does do some prizes the vast majority of funding is grant based. Increasing the funding for the prize based model would enable us to benefit from research best driven by that model as well.

2. Modify a portion of the way grant funding is delivered.

Right now it is peer reviewed. The plus of which is that crackpot ideas are screened out. The minus of which is that crackpot ideas are screened out. We really don't want to be wasting huge quantities of $$$ on useless crackpot ideas. But at the same time, truly innovative, game changing ideas very often seem like crackpot ideas to the egos of the current experts in the field. So if we really want innovation we have to direct a portion of funding to crackpot ideas and keep funding crackpot ideas even when the vast majority fail.... a long term commitment.

3. Infrastructure.

This is another area that the can keeps getting kicked down the road. We should have spent the stimulus $$$ on it but didn't (maybe if we had the real economy would actually be back to normal now). There's no way Obama would be trusted with spending more here but long term we desperately need improvement in this area.


4. Make CEOs, board members and other senior management care about the long term future of their companies.

There are all sorts of micromanagement ways of dealing with this problem, but the simplest way is to make them have skin in the game long term. So if stock compensation public companies CEOs, board members, and other senior management was required by law to be spread out over a period of 25 years they would care a lot about the future of their companies.

I am not as convinced that CEOs are so divorced from a desire to see the continued success of their firm. That canard has gained more traction through repetition from the left than actual facts. Some CEOs took risks that were foolish beyond belief, Enron anyone? Yet even so most CEOs don't want to destroy the company they run and many have spent decades of their lives working for.

As for market value, that calculation is based on the long-term value of the companies income stream. Analysts estimate that value based on past growth. That estimate is based on how well that company has turned R&D investment into growth. Intel for example invests heavily into R&D, about 20% of revenue...not income but revenue before any other expenses are taken out. Total R&D approximates their net income annually. When they stop that investment, their share price will tank as future growth will be downgraded quick as a wink.

Most tech start ups are R&D heavy. They want to get bought out by firms like Intel. So the combination of organic R&D as well as acquisitions are the true measure of research investment. By that measure, private companies are investing heavily, at least in the tech and biotech industries.

I would agree that basic research that no one knows if it might generate a commercial return is not going to find many supporters in the private sector. That sort of research will need to come from government support.

I am less enamored by government support of infrastructure. Sure this is one way to accomplish the projects. Yet, as we have seen recently, the gasoline tax that was supposed to go to supporting the interstate system was not used for that. Instead we needed the Porkulus bill of 2008-2009 to begin those needed repairs. Had a private enterprise owned those bridges and roads, they would have maintained those assets. Granted then the users of those roads would have had to pay some sort of toll. I submit that the price of all the tolls of a private interstate highway system would be less than the taxes we pay on gasoline and the other taxes we had paid to create that system.

Some roads simply will not be commercially viable in a sufficiently short period of time. For those government is the best option to own, build and maintain.

The best example for the private investment of infrastructure is the internet and cellular nodes. Fiber lines and cellular nodes are being laid not because government is paying for it, but because companies know that these systems will generate revenue sufficient to pay for the investment. Heck, different companies are laying down fiber lines and cellular nodes to the same locations because they are competing for the business. Competition creates redundancies that will help just incase one system suffers a catastrophic failure. All of this is being done without government investments.

PeterZ wrote:I am not as convinced that CEOs are so divorced from a desire to see the continued success of their firm. That canard has gained more traction through repetition from the left than actual facts. Some CEOs took risks that were foolish beyond belief, Enron anyone? Yet even so most CEOs don't want to destroy the company they run and many have spent decades of their lives working for.

Want to? Probably not many.

Willing to, if they get a big giant paycheck out of the deal? A lot more than are good for the country. And they somehow tend to end up running a lot of really big corporations whose collapse hurts lots and lots of people, some degree of sociopathy seems to help in their rise in the business world.

As for market value, that calculation is based on the long-term value of the companies income stream. Analysts estimate that value based on past growth. That estimate is based on how well that company has turned R&D investment into growth.

Ideally that's true, sure.

In practice? Every single goddamn quarter everyone is running around with their hair on fire making sure this quarters numbers are good for the earnings call and we'll worry about next quarter next quarter! I see it over and over and over and over...

I am less enamored by government support of infrastructure. Sure this is one way to accomplish the projects. Yet, as we have seen recently, the gasoline tax that was supposed to go to supporting the interstate system was not used for that. Instead we needed the Porkulus bill of 2008-2009 to begin those needed repairs. Had a private enterprise owned those bridges and roads, they would have maintained those assets.

Private enterprise would never build them in the first place, because they're not going to turn profits on them. I mean sure, in a FEW places it'll happen. Heavily populated, high traffic, travel choke points where many people will be forced to pass through and you can charge the crap out of them and they'll still use your bridge/road/whatever... but extending that network across the country? HA! No company would touch that with a 100 foot pole.

Without the government doing the driving the US has no interstate system, period. Because while the interstate system is profitable for the entire nation in the aggregate due to its effect of increasing economic activity for all, which is exactly the kind of thing governments are for getting done, it is never going to be profitable to any individual entity running the thing. It's government or nothing.

Daryl wrote:Generally having private enterprise provide goods and services is more efficient than having government do it, but there are some exceptions.

Actually no, it´s a bit more complicated than that.

Due to how public enterprises does not by default absolutely require profit margins to be added between manufacturing price and selling price, governments CAN always be more efficient on the most basic level. They can also exploit economies of scale from the start and improve efficiency that way even further.

The complications come in when you look at realistic supply vs demand developments, governments generally has zero interest in developing consumer goods and trends or starting new businesses attempting to create a new market etc. There´s also the risk of developing inertia and bureaucratic meddling. Those are not a default in governments, but they happen more easily.

At the other side of the public spectra, governments have no problems running companies like private corporations, anyone who ever drank Absolut Vodka tasted the result of a highly successful publicly owned corporation.


Private business only really have one advantage, and that is that of having ideas.
This is extremely important, but at the same time, only some people are capable of creating new business, so the vast majority of ideas, even if you only look at the best ones, never goes into production or use.

This is why a mixed economy by default has the best chance of success. The more restrictions placed on either private or public to run business, the less effective the economy as a whole will be.

And trying to completely remove either, a public only society can work, but risks end up on the stale side, while a private business only society is a path of insanity towards anarchy and dictature, as in such, politics becomes irrelevant and eventually money or force is the only thing that "talks".