It’s common to hear candidates for executive branch offices claim that, if elected, they will run their organizations like businesses. This isn’t an unreasonable position; they have many attributes in common. So what happens when we start to look at the federal government as a business? Let’s explore that for a bit.
In business, cash comes from four sources: income, asset sales, debt issuance, and stock issuance. The same is true for government. Income comes from tax, fee, and fine collection. Asset sales is virtually identical to private business. Debt issuance is in the form of government bonds. And then there’s stock. For the federal government, stock comes in two forms.
First are voting shares, which are nontransferable. Each citizen over the age of 18 (with a few exceptions) automatically receives one voting share for free. Because they are nontransferable, there is no market for buying and selling the shares. As a result, voting shares have no monetary value. The federal government equivalent to the board of directors is Congress, who must ultimately answer to the shareholders (voters) by periodic election.
Second are non-voting common shares, which are transferable. In the case of the federal government, these shares are called “dollars,” and they are extremely actively traded in millions of markets worldwide. These shares are subject to dilution in the same way as common shares of companies. One of the more notorious examples of this dilution is the Weimar Republic‘s hyperinflation of 1923. Clearly, common share dilution is a significant economic concern, and the government must tread very lightly in issuing more money as a means of paying for government services.
I will return to this notion in future postings, but for today let’s focus on debt.
Businesses use their debt and equity to increase cash, which allows them to make large capital expenditures for durable items. This is a smart move if the expected return over the life of the asset is greater than the marginal cost of servicing the debt or of stock dilution. If the capital expenditures are funded by debt in this fashion, it is sometimes referred to as “good debt,” because the business ends up better off in the long run by having issued the debt than it would have been had it not issued the debt.
Established businesses in poor health may also use debt and equity to pay for day-to-day expenses, but this is unsustainable and should be used in only the most dire of circumstances. This is sometimes referred to as “bad debt,” because the business ends up worse off in the long run by having issued the debt than it would have been had it not issued the debt. Of course, if the alternative to issuing the debt is that the business shuts down, then the long run becomes rather irrelevant. Nonetheless, this scenario is commonly a precursor to a bankruptcy filing.
In government, similar rules apply. In a perfect world, day-to-day expenses are funded by current tax receipts, while long-term investments may be funded with debt. Using debt to pay for basic operating expenses of government is unhealthy and unsustainable.
The hard part is determining what constitutes a long-term investment. Following are a few examples, along with justifications of calling them investments.
· Education of the populace can be considered a long-term investment. Better-educated people typically command higher salaries, which generates more income tax revenue, plus more sales tax revenue since they have more disposable income. They are also less likely to claim government-subsidized services for low-income people.
· The war in Iraq could have been considered a long-term investment, since the US economy is heavily dependent upon low-cost petroleum. Had the cost of the invasion and occupation of Iraq been in the $100B range, and had the resultant government been especially friendly to the United States, this might have paid off as an economic investment.
· The subsidies given by the federal government to the railroad industry was an investment that paid off handsomely. Despite the obscene amount of embezzlement perpetrated by people such as Leland Stanford, the railroads reduced trade friction sufficiently to grow the US economy by leaps and bounds. The taxes collected from economic growth exceeded the investment made.
It should be clear from this analogy that a simplistic “pay as you go” model is as foolish a notion for government as it would be for business. Just as businesses can be exceptionally profitable even while maintaining unending debt, so too can government. What matters most is not the presence or absence of debt, but rather the use of the proceeds generated by issuing the debt.
Ultimately, the investment question is at the root of an economic stimulus package. In determining whether an economic stimulus package is a good investment, you need to compare the net present value of future tax receipts without the package against the net present value of future tax receipts with the package, minus the cost of the package itself, including the interest on the debt. Of course, it’s easy for the right to claim that the no-stimulus scenario has a lower cost than the stimulus scenario, just as it’s easy for the left to claim the opposite. Absent a control, neither can be conclusively proven.
Fiscal conservatives sometimes claim that the government should stay out of economic stimulus altogether, due to a minimalist view of government. Assuming that the economic stimulus is a good investment, in that it generates a net positive return, any intellectually honest fiscal conservative will support it, because it translates to less tax revenue needed to provide the same level of service.
In any case, hyperbolic claims from the right that deficit spending has a negative impact on the short term economy simply don’t hold water. Anything that increases the money supply via increasing debt, rather than via equity dilution, inherently improves the economy relative to the status quo, regardless of what it’s spent on. You can always live better in the short run by borrowing. Beyond that, the only genuine argument regarding government debt in a stimulus package is over the most effective uses for the money, and whether those expenditures outweigh the additional debt burden.
Next time, I’ll delve deeper into this question, and examine where the stimulus money was slated to go. This will provide an opportunity for us to more accurately determine the potential effectiveness, and discuss how useful the stimulus bill really was.
538 Refugees 
So basically, parts of the stimulus like the investment in developing future “green” jobs would be potentially considered “good debt”, because the long-term return on investment (taxes on wages, reduced reliance on foreign oil, improved stability of economy, etc.) outweighs the initial outlay of capital required.Just like a business might borrow to implement a technology upgrade and train its employees as an investment that will pay off in cheaper operating costs in the long run.Makes sense to me.
Interesting editorial, but don’t leave us in suspense. Is some text missing? For example, the editorial above displays:The war in Iraq could have been considered a long-term investment, since the US economy is heavily dependent upon low-cost petroleum. Had the cost of the invasion and occupation of Iraq been in the but if I COPY the text over elsewhere, such as here, then I see the entire text, as follows: The war in Iraq could have been considered a long-term investment, since the US economy is heavily dependent upon low-cost petroleum. Had the cost of the invasion and occupation of Iraq been in the $100B range, and had the resultant government been especially friendly to the United States, this might have paid off as an economic investment.Or is it my eyes or my computer failing?
Jean — I see all of the text, but there are some formatting glitches and odd spacing.I’m viewing in Firefox, so maybe Internet Exploder is bombing as usual?
I guess my take Mclever would be yes but with a caution. It appears that in the rush to the bottom that industry in this country has been on that R&D budgets have been slashed to the bone or eliminated entirely in some cases. Bottom lines have fattened and bonus structure to the top end has been maintained at the expense of the workers and development people that would have helped fuel the recovery here.Now remember most industry in this country are no longer run by people that know how to make any thing they are run by investment groups and venture capitalists that wouldn’t know a widget from a hammer. What they know is money and building wealth nothing concrete just wealth at the expense of every thing else. So the lesson theyare taking away from the current mess is don’t make any thing because that mibht actually require the employement of skilled people making middle class wages and the operation of those damned messy and expensive manufacturing plants so much better to just be a holding company and just buy every thing from some where else (C H E A P) and it is so much more productive (for them) and some one else will hire their laid off workers and there will still be a market for their cheap inports for certainly they are the only ones heading in that direction and are they not oh so clever to have figured this out and the board will be oh so happy. Trouble is every other entity thought the same thing and no one from the government was guarding the gate so now thye all have cheap goods to sell and no one to buy them. Oh and by the way did anyone notice yet again the elephant stepped on its member and voted to protect companys over workers and block outsourcing of jobs.I’m not a protectionist at heart. I beleive in F A I R competition but when one of the chief reasons a company out sources jobs is to garner tax breaks, some thing is wrong……stop the damned tax breaks. If one is against welfare then stop at least some of the corporate welfare and that includes the damned oil industry.
I’m not sure what happens but I run into formatting glitches quite often. Particularly from Michael. Don’t know why.
From my friend Dusty Trice’s Twitter feed: This is the tax debate in a nutshell: http://twitpic.com/2syrar
Use FF, but checked IE and the post has no formatting errors w/IE.Speaking of errors, just made a post no problem, but have been trying to make a post in the Canaries and Coal Mines thread and keep getting SUCCESS: Thank you, your comment has been submitted for moderation.SUCCESS my ass lol.carry on
Government is nothing like business.Business is a voluntary association of investors creating goods or services which consumers must voluntarily agree to purchase.Government is not voluntary and is based upon coercion. Government is not financed voluntarily but through taxes coerced by threat of confiscation and prison. Debt is obtained based upon coerced taxes. Government produces laws and regulations which are not optional for the citizen “consumer.”To the extent that there is an analogy between wise debt investing by business and government in long term capital assets, the government is failing that test.Education is not a long term capital asset, it is an ongoing expense.War is not a long term capital asset and need only be financed by debt if it requires a substantial portion of GDP to finance. The Iraq and Afgan Wars are only costing about 1% of GDP and should be financed through general revenues like any other defense expenditure.Borrowing and spending money in the expectation that it will “stimulate” private economic growth is historically demonstrated nonsense and overwhelmingly not a long term capital investment. Resurfacing highways and bridges is ongoing maintenance and subsidizing uneconomical “green” industry making products people do not want at a price they will not pay is no different than burning the borrowed money.
“Government is nothing like business.”Quite a strong statement. First of all, that’s untrue, because the parallels I drew are all accurate. Secondly, I never said, nor do I mean to imply, that the two are synonymous in every way.”To the extent that there is an analogy between wise debt investing by business and government in long term capital assets, the government is failing that test.”Perhaps so, but I think that’s a notion worth examining, rather than immediately proclaiming it to be false. I’m pretty sure there are places where the government investment has been poor, but I’m even more certain that there are places where it has been excellent.”Education is not a long term capital asset, it is an ongoing expense.”It’s a dessert topping and a floor wax. Yes, it’s ongoing, but we’re not educating the same people every year. Those people grow up and become taxpayers. If they earn more, they pay more. None of these statements are in doubt. The question I’m asking is not whether it could be characterized as an investment, but rather whether it has a positive rate of return. What’s the opportunity cost of not spending that money?”War is not a long term capital asset and need only be financed by debt if it requires a substantial portion of GDP to finance.”I never discussed the need to fund war with debt. However, one of the reasons for funding business endeavors with debt is that the benefit resulting from that effort is realized over a long period of time, and thus should perhaps be paid for by the beneficiaries. I mentioned Iraq specifically because of the oil and the potential that lower-cost oil has to improve the economy. Afghanistan requires a much more complex calculus.”Borrowing and spending money in the expectation that it will “stimulate” private economic growth is historically demonstrated nonsense and overwhelmingly not a long term capital investment.”Please elaborate with specific evidence of this.”Resurfacing highways and bridges is ongoing maintenance, and subsidizing uneconomical “green” industry making products people do not want at a price they will not pay is no different than burning the borrowed money.”Hmmm…I haven’t even finished writing my article on the stimulus package, and yet you’re already rebutting supposed argument? You created a strawman, and you couldn’t be more wrong about my conclusions. I advise you to wait until it’s been posted before you start rebutting it. That’s all I’m going to say about the stimulus for now.
Government is nothing like business.Powerful statement.Yet Republicans have been telling us for decades that the government should be run like a business.They’ve also been complaining that we have politicians in office who have never had “a real job” and so don’t understand the effects their decisions will have.I get that you want government to support business interests, and to do so in preference to the needs of individuals.But to complain that government should be more responsible to business, then deny there is a relationship? When your own people keep drawing analogies between business and (what they see as) proper government? Doesn’t seem consistent.
BD: “Government is nothing like business.”MW: “Quite a strong statement. First of all, that’s untrue, because the parallels I drew are all accurate.”Fair enough, let’s take a closer look at your suggested parallels:MW: “In business, cash comes from four sources: income, asset sales, debt issuance, and stock issuance. The same is true for government. Income comes from tax, fee, and fine collection.”Business income is derived from voluntary consumer purchases of goods and services. Taxes, fees and fines are coerced under the threat of confiscation and imprisonment. Apart from the fact that both are money flows, business income and taxes are not analogous.MW: “Asset sales is virtually identical to private business.”Not really. Business asset sales are generally buying and selling other businesses. Until our current socialist administration, this was not something the government did. The apt analogy is that failing governments and businesses both sell capital assets to stay afloat. This is not a common means of income.MW: “Debt issuance is in the form of government bonds.”Debt is best understood as deferred expenses paid for by future income. Thus, the difference between government and business income comes into play again.MW: “For the federal government, stock comes in two forms. First are voting shares, which are nontransferable. Each citizen over the age of 18 (with a few exceptions) automatically receives one voting share for free. Because they are nontransferable, there is no market for buying and selling the shares. As a result, voting shares have no monetary value.”True shares are part ownership in the enterprise. The people do not own the government or its assets. They cannot sell their share and pocket the proceeds. Furthermore, the government owes no fiduciary duties to the citizen as a corporate officer owes shareholders. The only analogy between the franchise and common shares in a business is the vote. MW: “Second are non-voting common shares, which are transferable. In the case of the federal government, these shares are called “dollars,” and they are extremely actively traded in millions of markets worldwide.”Money is simply an exchange mechanism and is not analogous to a share of ownership in a company. There is no longer even a government gold guarantee backing up the money.
BD: “Education is not a long term capital asset, it is an ongoing expense.”MW: “The question I’m asking is not whether it could be characterized as an investment, but rather whether it has a positive rate of return. What’s the opportunity cost of not spending that money?”You are changing your argument, which was:MW: “Businesses use their debt and equity to increase cash, which allows them to make large capital expenditures for durable items. This is a smart move if the expected return over the life of the asset is greater than the marginal cost of servicing the debt or of stock dilution. If the capital expenditures are funded by debt in this fashion, it is sometimes referred to as “good debt,” because the business ends up better off in the long run by having issued the debt than it would have been had it not issued the debt. Established businesses in poor health may also use debt and equity to pay for day-to-day expenses, but this is unsustainable and should be used in only the most dire of circumstances.”Education is a day-to-day expense. It may have a positive rate of return like most other wise expenses, but it is not something to finance through debt.BD: “War is not a long term capital asset and need only be financed by debt if it requires a substantial portion of GDP to finance.”MW: “I never discussed the need to fund war with debt.”OK, but it followed your debt argument.BD: “Borrowing and spending money in the expectation that it will “stimulate” private economic growth is historically demonstrated nonsense and overwhelmingly not a long term capital investment.”MW: “Please elaborate with specific evidence of this.”You are asking me to prove a negative, but I would offer the New Deal, Japan’s Lost Decade and Obama’s Stimulus I and II as examples of this failure.Government taking money from one part of the economy and spending it on another does not create wealth. Indeed, given the interest on the debt and the demonstrated historical inability of governments to choose economic winners better than the private sector, such “stimulus” is generally an economy depressing act followed by long term low growth in the private economy.
BD: “Government is nothing like business.”MW: “Quite a strong statement. First of all, that’s untrue, because the parallels I drew are all accurate.”Fair enough, let’s take a closer look at your suggested parallels:MW: “In business, cash comes from four sources: income, asset sales, debt issuance, and stock issuance. The same is true for government. Income comes from tax, fee, and fine collection.”Business income is derived from voluntary consumer purchases of goods and services. Taxes, fees and fines are coerced under the threat of confiscation and imprisonment. Apart from the fact that both are money flows, business income and taxes are not analogous.MW: “Asset sales is virtually identical to private business.”Not really. Business asset sales are generally buying and selling other businesses. Until our current socialist administration, this was not something the government did. The apt analogy is that failing governments and businesses both sell capital assets to stay afloat. This is not a common means of income.MW: “Debt issuance is in the form of government bonds.”Debt is best understood as deferred expenses paid for by future income. Thus, the difference between government and business income comes into play again.MW: “For the federal government, stock comes in two forms. First are voting shares, which are nontransferable. Each citizen over the age of 18 (with a few exceptions) automatically receives one voting share for free. Because they are nontransferable, there is no market for buying and selling the shares. As a result, voting shares have no monetary value.”True shares are part ownership in the enterprise. The people do not own the government or its assets. They cannot sell their share and pocket the proceeds. Furthermore, the government owes no fiduciary duties to the citizen as a corporate officer owes shareholders. The only analogy between the franchise and common shares in a business is the vote. MW: “Second are non-voting common shares, which are transferable. In the case of the federal government, these shares are called “dollars,” and they are extremely actively traded in millions of markets worldwide.”Money is simply an exchange mechanism and is not analogous to a share of ownership in a company. There is no longer even a government gold guarantee backing up the money.
BD: “Government is nothing like business.”shrinkers: “Yet Republicans have been telling us for decades that the government should be run like a business.”And they have been repeatedly frustrated in those attempts. Government is a political creature, not a business.
Bart, I now understand your confusion. The arguments presented with respect to things like education and war as investments rather than day-to-day expenses are not mine. Rather, I presented them to illustrate how things that might at first blush be considered day-to-day might also, in a different light, be considered investments.”Government taking money from one part of the economy and spending it on another does not create wealth.”You’re missing a word in there. It does not NECESSARILY create wealth, but if it is taken from one part of the economy and put into another part that creates a greater rate of return for the economy as a whole, it most certainly DOES create wealth.In any case, adding debt has consistently created short-term economic growth.Since you mentioned the New Deal, I’d like to hear your assessment as to the cause(s) for the ending of the Great Depression.
BD: “Government taking money from one part of the economy and spending it on another does not create wealth.”MW: “You’re missing a word in there. It does not NECESSARILY create wealth, but if it is taken from one part of the economy and put into another part that creates a greater rate of return for the economy as a whole, it most certainly DOES create wealth.”This assumes the ahistoric ability of government to invest money at a greater ROI than private investors. If this was the case, communism and socialism would have left free markets on the ash heap of history rather than the reverse.Governments are political creatures and lack the necessary abilities to run economies. For example, the Obama administration auto team running the nationalized GM and Chrysler is headed by a union operative and its membership consists of academic economists and green activists. None of this team has ever run a business, met a payroll or made a profit, nevertheless run an auto business.MW: “Since you mentioned the New Deal, I’d like to hear your assessment as to the cause(s) for the ending of the Great Depression.”The Depression was caused by the Smoot Hawley tariff increase and the resulting trade war and made worse by Hoover & FDR’s income tax increases and FDR’s artificial increase in labor costs through unionization.We did not pull out of the Depression until after WWII. My definition of recovery from the Depression is the return of private economic growth and employment. WWII was government driven in that it borrowed money to provide make work for 20 million under uniform and millions more in munitions factories to make products which were destroyed in the war. We pulled out of the Depression after the war when we returned to free trade in the Bretton Woods Agreements and the GOP Congress curbed the unions with the Taft Hartley Act. Even then, the country suffered from frequent sharp recessions until the Reagan tax and regulatory reforms coupled with his breaking of the unions. After the Reagan reforms, we had nearly a generation of high growth with only one mild recession in 91 and a slowdown in 01 which does not even qualify as a recession. It took the government driven and subsidized home mortgage bubble to end this economic boom.
I have posted two responses to Michael which were accepted for “moderation.” Is there a screen up on this thread?
@Bart… accepted for “moderation.That’s been happening to others lately, too. I had the ‘moderation” screen a few days ago on any posts longer than a sentence or two. On shrinker’s advice I cleared my cache, then re-booted, and the screen vanished, never to reappear.
testing
How come I am able to post on this thread while everybody else gets a “moderator” screen?
I can post on it.
Obviously the blog recognizes my doctorate in corporate management from… (pssst, Christine, where was that degree from?)Ah yes, OXFORD. My degree from Oxford. LOL.
This is only a test, had this been an actual emergency you would have been instructed:Put your head between your legs and kiss your ass goodbye!
Here’s a datapoint for Mr. U, in re “moderation”.I was trying to comment on the “This Day in History” thread, and got a moderation statement (and no comment.) Tried again. Same. Then I cleared my cache, tried again. No dice. Then I cleared my cache, the cookies from this site, quite FF, restarted it and tried again. No dice. Repeat. No dice. I didn’t reboot my machine (anything that needs linux rebooted is not worth bothering with). I tried the procedure yet again, attempting to post a comment from the front page. Still no go.When last seen, I was still unable to post in that thread. I have since been able to post in other threads, and, if I feel a need, I may try posting in that thread again — but, to be frank, the urge to do so has been thoroughly damped at this point.
It’s a shame, too, because I really want to know what Bart thinks ended the Great Depression.
@Michael It’s a shame, too, because I really want to know what Bart thinks ended the Great Depression.No you don’t, Michael. (Trust me, you really, really don’t 🙂
The obvious:For the time being it’s wise to save your post before clicking Submit Comment as 538 currently has a few technical issues.Had one longgg post totally zapped last night, no moderation message, no nothing lol but you can usually get your post back even after you click submit and you think it has totally disappeared by back clicking, refreshing etc.A word to the wise …carry on
@shortchain:That may be my fault. I was working on a draft of “This Day in History” when Mr. U, being the helpful guy he is, posted my draft.I finished my work and then posted it, but that left two posts: the incomplete draft one, and the completed final one.So we deleted the draft one. I fear you may be trying to post to that. Maybe try clicking on one of the links to it in the left sidebar and see if that does the trick.I’m sorry you’re having trouble.
Monotreme,Nope, that didn’t work either. But I don’t blame you. The world can live without my tiny bit of insight.
shortchain, The world can live without my tiny bit of insight. I object!Some of us can’t live without your well-reasoned insight! Your words are like oxygen in a world of carbon-monoxide distortions.;-)
Seriously, shortchain, mclever is right. You’re on my short list of The Good Ones.
Well, FWIW, I can comment on that thread now. It just started posting my comments, although it first claimed they were up for moderation and hid them for some time. So that thread got a double dose of short-stuff.I didn’t clear anything on my end, or even restart FF. And like I said, it said they were up for moderation. I sure hope that all six of my previous tries don’t suddenly show up. I may have to go into hiding.
Is this thread safe to post on again? I have already lost two lengthy posts responding to Michael and Fili is giving me grief for dodging a debate – as if that was ever my problem.Let’s see if this goes through.
Ah, Bart’s back! And I have my work all done, and a whiskey sour at my elbow. I’m ready to sit back and enjoy a good debate. (I hope Michael is still around… 😦
@shortchainI didn’t clear anything on my end, or even restart FF.~~~~~~~~~~Neither did I, it comes and goes, and clearing cookies/cache or restarting your pc is irrelevant to the computer glitches.>@BartlesI have already lost two lengthy posts responding to Michael and Fili is giving me grief for dodging a debate – as if that was ever my problem.~~~~~~~~~~Bart stop whining !!! you pathetic blowhard!apologies to pathetic blowhards …
OK, let’s try to recreate what was lost…BD: “Government is nothing like business.”MW: Quite a strong statement. First of all, that’s untrue, because the parallels I drew are all accurate.”Fair enough. You have put some work into the analogies, so I will put some work into my critiques.MW: “In business, cash comes from four sources: income, asset sales, debt issuance, and stock issuance. The same is true for government. Income comes from tax, fee, and fine collection.”Business income is derived from offering goods and services consumers voluntarily purchase. The free market may be the purest form of democracy. In stark contrast, government derives its revenue by coercion through the threat of confiscation and imprisonment. The only thing in common between business earnings and government taxes is that both are revenue streams.MW: “Asset sales is virtually identical to private business.”Generally not. Business income from asset sales is generally derived through the purchase and sale of businesses. Until the current socialist administration, American government never bought and sold businesses and it still does not do so for a profit.There is a narrow parallel in that both distressed businesses and governments will sell capital plant to raise emergency funds. However, this is not a regular means of raising funds.MW: “Debt issuance is in the form of government bonds.”Debt is best understood as deferred expenses to be paid for with future income. Given the stark differences in the way business and government obtain income, the parallel in debt issuance is pretty weak. Business has to pay a risk premium to obtain credit because the business could fail. In contrast, because the government can always coerce taxes from the citizenry, it pays not risk premium.MW: “And then there’s stock. For the federal government, stock comes in two forms…”Stock is a share of ownership in a business.Citizenry does not convey the citizen an ownership stake in the government which she can buy and sell.The only analogy is that a common share holder and a citizen can vote.However, whereas an elected corporate officer owes legally enforceable fiduciary duties to act in the best business interests of the shareholder short of harming others, the government owes nothing to the citizenry and can and does act against the interests of the citizenry.
OK, let’s try to recreate what was lost…BD: “Government is nothing like business.”MW: Quite a strong statement. First of all, that’s untrue, because the parallels I drew are all accurate.”Fair enough. You have put some work into the analogies, so I will put some work into my critiques.MW: “In business, cash comes from four sources: income, asset sales, debt issuance, and stock issuance. The same is true for government. Income comes from tax, fee, and fine collection.”Business income is derived from offering goods and services consumers voluntarily purchase. The free market may be the purest form of democracy. In stark contrast, government derives its revenue by coercion through the threat of confiscation and imprisonment. The only thing in common between business earnings and government taxes is that both are revenue streams.
MW: “Asset sales is virtually identical to private business.”Generally not. Business income from asset sales is generally derived through the purchase and sale of businesses. Until the current socialist administration, American government never bought and sold businesses and it still does not do so for a profit.There is a narrow parallel in that both distressed businesses and governments will sell capital plant to raise emergency funds. However, this is not a regular means of raising funds.
Damn it, I can’t post the rest of my response.Michael, I am going to post my responses at the “the Day in History” thread if you care to read them.
Bart, you’re going way too literally. I’m talking about cash flow as a means of drawing parallels. You’re focusing on how government and business are different. It’s completely irrelevant to the article. Let’s reread the first paragraph together, shall we?”It’s common to hear candidates for executive branch offices claim that, if elected, they will run their organizations like businesses. This isn’t an unreasonable position; they have many attributes in common.” (emphasis added)See? Many, not all, attributes in common. This article is about the areas of commonality, and how that commonality provides a foundation for analogy.You go on to say “The only thing in common between business earnings and government taxes is that both are revenue streams.” Wonderful observation! Both are revenue streams, and that’s the analogy.
Bart, you said:”Business income from asset sales is generally derived through the purchase and sale of businesses.”That is but one of many posible means. Businesses buy and sell real assets all the time. Government does so less frequently, but the process and results are very similar. A common case in government is surplus sales, but there are many others as well.”Debt is best understood as deferred expenses to be paid for with future income.”A good description, indeed.”Business has to pay a risk premium to obtain credit because the business could fail. In contrast, because the government can always coerce taxes from the citizenry, it pays not risk premium.”That first sentence is true. The second is false. If there were no risk premium, the rate on bonds would identically match the expected rate of inflation. That it does not is proof that there is a risk premium.That said, the risk premium is lower, in part because of the greater revenue security of taxation.”Stock is a share of ownership in a business.”Correct.”Citizenry does not convey the citizen an ownership stake in the government which she can buy and sell.”As I said, the voting shares are nontransferable. The common shares (dollars) are backed by the full faith and credit of the United States. In a sense (and, yes, this is a little bit of a stretch), these are the transferable shares of the nation.”The only analogy is that a common share holder and a citizen can vote.”Not the only one, but yes, it was one that I mentioned.”However, whereas an elected corporate officer owes legally enforceable fiduciary duties to act in the best business interests of the shareholder short of harming others, the government owes nothing to the citizenry and can and does act against the interests of the citizenry.”Again, you’re focusing on the differences. So what? The point of the article isn’t that they’re identical.
Oh, Bart, before I forget…What do you believe caused the Great Depression to end?
Michael Weiss wrote: “Oh, Bart, before I forget…What do you believe caused the Great Depression to end?”Look back up at “9/29/2010 10:32 AM Bart DePalma wrote”The post got caught up in the moderation netherworld until last night.
Bart,*Whew*…where to begin? Let’s start where you started:”This assumes the ahistoric ability of government to invest money at a greater ROI than private investors.”Since investments happen on a microeconomic scale, your counterargument makes no sense. If the government takes money away from a private investor who is creating one rate of return, and invests it elsewhere where it creates a higher rate of return, then it creates wealth, period. The only way your argument could make sense is if, 100% of the time, without fail, every single person in the US was a better investor than the absolute best investment the government can make. There is not a single credible economist on the planet who believes this.”My definition of recovery from the Depression is the return of private economic growth and employment.”There’s the biggest fallacy in your assessment. You crafted a definition that necessarily aligns with your conclusion. Again, this is a position that no credible economist would take. A modern economy is driven by the movement of money, and neither “knows” nor “cares” who spends it.Regardless, for the sake of completing my response, I’ll go so far as to accept your definition, absurd as it is.”WWII was government driven in that it borrowed money to provide make work for 20 million under uniform and millions more in munitions factories to make products which were destroyed in the war.”This is a mostly accurate statement. Of course, there was an awful lot of manufacturing infrastructure that was also built as part of this process, and that infrastructure was pretty readily converted to civilian use after the war. This is a classic case of government investment in infrastructure, resulting in a reduction of friction in commerce.The United States had an additional advantage in global commerce, because nearly every other nation that had a functioning industrial economy before the war had their infrastructure decimated by the war. In essence, the US was the only industrialized nation left standing. That’s a tremendous head start: prebuilt infrastructure combined with a virtual global monopoly.So, in summary, you’re wrong about government’s inability to create wealth. You’re wrong about the very definition of an economic recovery. And, finally, even using your (wrong) definition, you’re also wrong about the causes of the subsequent recovery.
“So, in summary, you’re wrong about government’s inability to create wealth. You’re wrong about the very definition of an economic recovery. And, finally, even using your (wrong) definition, you’re also wrong about the causes of the subsequent recovery.”Michael, you’re just awesome. (I’m sure Bart hopes nobody is following this debate 🙂
@filistro(I’m sure Bart hopes nobody is following this debate Yes, we have been.One of Bart’s many problems is thinking post hoc ergo propter hoc. Event A occurs. Sometime later, event B occurs. If Bart wants there to be a connection between them, he’ll claim A caused B, Example: Obama gave some speeches in January of 09. The DOW later tanked (well, continued to tank). Ergo, Obama killed the DOW.Another is his ability to simply ignore factors that are clearly related. Bush cuts taxes. Federal deficits soar. No connection there, nosiree.A third is his penchant for redefining words in any way he chooses, and pretending he can thereby can pretend the most outrageous claims are actually true. Examples: Bart has unique definitions of terms like “socialist,” “recovery,” “death panel,” etc. IF a word means what Bart wants it to mean, he can thereby prove a thing either exists or not, simply by redefining it.Odd way to argue.
(I’m sure Bart hopes nobody is following this debate I followed it. Bart got pwned.
Sayin’ Bartles got pwned is redundant! 🙂
@shrinkers Bart got pwned.Oh yeah. Well and truly. And he has withdrawn from the field without even attempting a last word.WAY TO GO, MICHAEL!!! WOO HOO!!! HIGH FIVE!!!!Shrinkers… travel safely, hurry back… and congrats on doing 20+ ms pages in one day. (Just the thought of it makes my head hurt 🙂
BD: “This assumes the ahistoric ability of government to invest money at a greater ROI than private investors.”MW: “If the government takes money away from a private investor who is creating one rate of return, and invests it elsewhere where it creates a higher rate of return, then it creates wealth, period.”Repeating the theory behind statism and socialism a second time does not make it more so. Offer some historical evidence that government can actually accomplish your theory.MW: “The only way your argument could make sense is if, 100% of the time, without fail, every single person in the US was a better investor than the absolute best investment the government can make.”The better comparison is between the citizenry as a whole and the government. The government is not taking from only one citizen to finance its investments.Even if we use your microeconomic model, a citizen can always without fail better achieve his or her individual goals better than a government that can care less what that citizen wants.MW: “There is not a single credible economist on the planet who believes this.”Actually, almost no credible economist with macroeconomic training would disagree with the proposition that a private economy can invest money for a greater ROI (GDP growth) than a government. BTW, Krugman is not a credible macroeconomic economist. His specialty is trade.
BD: “This assumes the ahistoric ability of government to invest money at a greater ROI than private investors.”MW: Since investments happen on a microeconomic scale, your counterargument makes no sense. If the government takes money away from a private investor who is creating one rate of return, and invests it elsewhere where it creates a higher rate of return, then it creates wealth, period.”Repeating the theory underlying every failed statist or socialist economy a second time is not evidence on behalf of the proposition. Where has a state managed economy offered a greater return on investment (GDP growth) than a private economy?MW: “The only way your argument could make sense is if, 100% of the time, without fail, every single person in the US was a better investor than the absolute best investment the government can make.”This is a macro and not a microeconomic issue. The government finances its statism or socialism through a general tax or debt resulting in a future general tax.However, even on a microeconomic scale, an individual citizen if far better equipped to achieve his personal economic goals than a government who generally could care less what an individual wants to achieve.MW: “There is not a single credible economist on the planet who believes this.”There is not a single credible economist or even amateur trained in macroeconomics which believes that a government run economy will create greater ROI (GDP growth) than a free economy.
BD: “This assumes the ahistoric ability of government to invest money at a greater ROI than private investors.”MW: “Since investments happen on a microeconomic scale, your counterargument makes no sense.”Government taxing or borrowing from the citizenry to spend $820+ billion dollars on a wide variety of items is in no way microeconomic.Even if we apply a microeconomic scale and assume that the government took money from one person and invested it for her, the government cannot possibly better achieve that person’s individual economic goals better than the person herself.MW: “If the government takes money away from a private investor who is creating one rate of return, and invests it elsewhere where it creates a higher rate of return, then it creates wealth, period.”Repeating the rationale for every failed statist or socialist economy hardly makes those economies any less failures. Offer evidence where a state economy ever outperformed a free economy.
Michael:Government taking $800 billion from the citizenry in general and then spending it on a wide variety of items is in no way microeconomic. Even if you applied socialism to a microeconomic scale of the government taking from one person and investing it for that one person, the person will always be able to better achieve his or her own economic goals better than a government pursuing its own goals for that person. This is the fundamental failure of government directed economies – writ large or small.
Bart, it’s a shame you’re leaving, because this will probably fall on ears more deaf than usual.I won’t comment on your $800B statement, because as I already mentioned I am writing a column about those dollars.My point was, and remains, that government investment isn’t inherently inferior to private investment. To believe otherwise is a sign of intellectual laziness. After all, for every specific case of poor government investment (and I believe there are many), I can point to a countercase of excellent government investment that simply would not have happened in the private sector. As I said before, for your statement to be true, the worst personal investment choice would have to be better than the best government investment choice, and that is simply not the case.Your primary point, that “the person will always be able to better achieve his or her own economic goals better than a government pursuing its own goals for that person,” is absolutely wrong. You have a tendency to speak in absolutes. Here, your use of the word “always” invalidates your statement.To illustrate why you’re wrong, let’s look at the history of firefighting. In the mid-1800s, all firefighters in the United States were employed by private companies, and their services were either paid under contract with private parties, or indirectly under the proceeds of fire insurance policies. In both cases, far more damage was done even to the property of those covered, because it is much harder to keep your house from burning to the ground when the uncovered house next door is engulfed in flames. It became clear over a century ago that the individual’s economic goals would be better met by universal fire coverage than by individual coverage. This was but one of many fundamendal successes of a government-directed economic policy.I don’t know how much more clearly you can be wrong on this subject.