Governments should invest during down cycles

[blazespinnaker]

The stimulus package is a great idea, assuming you rip out the non infrastructure 'porkulus'.

The fact is, when unemployment rises ... labor is cheap. When unemployment is low, labor is costly. Now is the time for the Government to take advantage of that cheap labor.

The government can get a good deal on good talent right now as unemployment rises. It's a great time to be investing in infrastructure. Investing in infrastructure when everyone has jobs and hiring them is super costly is just .. dumb.

What people don't understand or appreciate is that Government is a business. It's not even a monopoly really, though the switching costs (moving to another country) are admittedly pretty high.

Businesses, if they can swing it, should invest during down cycles, it's a smart, long term approach.

I'm pretty familiar with this as a Vancouverite. We had major cost overruns on the Olympics because the government was hiring hard to build it out during very low unemployment. This, of course, gets very expensive.

Tax cuts are not the way to go. People who get tax cuts are just going to save that money, though targeted tax credits will probably work fairly well (eg, in Canada we have a renovation tax credit of 10% of your renovations can be clawed back on your taxes. Pretty smart).

[grapejelly]

Re: Governments should invest during down cycles

Yes, stimulus is a great idea if you believe in legalized theft, and if you don't insist on evidence of efficacy before you engage in massive redistribution of wealth and income.

In other words, it fails on both moral and practical grounds.

There is no evidence that stimulus helps bring the economy out of recession faster. If there is such evidence, please bring it on. There is ample reason to believe that it does not.

Japan has been stimulating its way since 1990. FDR stimulated the American economy throughout the 1930s and things remained bleak until the war solved the unemployment problem and changed the economic game.

Yet, the same tired, wrong-headed and immoral policies are followed to this day. It's like communism: an idea that sounds noble and good, and that is in practice always evil and bad.

And it is extremely anti-liberty and anti-freedom, as it is coercive taking of the fruits of people's labor and property, which I believe is wrong.

Tax cuts are much better than stimulus because they let people keep more of what is rightfully theirs.

[LargoWinch]

Re: Governments should invest during down cycles

I do not believe any of the Keynsian crap. Governments should never be allowed to run deficits, even during a period of severe contraction.

[blazespinnaker]

Re: Governments should invest during down cycles

Yes, stimulus is a great idea if you believe in legalized theft, and if you don't insist on evidence of efficacy before you engage in massive redistribution of wealth and income.

If you don't like it, then move. Switch to a different 'business'. Every nation has to be free to take different strategies to dealing with the problems at hand. It's this freedom which allows for an evolution of ideas.

My concern isn't really about the 'theft', my concern is more about ones inability to move from one nation to another nation. That lack of mobility is the real problem.

[The Outback Oracle]

Re: Governments should invest during down cycles

Yes well...Australia is just trying a $42B "stimulus" package. The whole population, including nearly every prominent Economic commentator, is pretending it is some sort of gift by the politicians to the people.
It's just more DEBT. I just don't follow how anyone can, at the one and the same time, bemoan the level of debt AND argue for government stimulus packages.
As EJ constantly points out there is one heck of a difference between a stimulus package in a Creditor nation vs a Debtor nation.

[grapejelly]

Re: Governments should invest during down cycles

If you don't like it, then move. Switch to a different 'business'. Every nation has to be free to take different strategies to dealing with the problems at hand. It's this freedom which allows for an evolution of ideas.

My concern isn't really about the 'theft', my concern is more about ones inability to move from one nation to another nation. That lack of mobility is the real problem.

There are several utilitarian, practical (not moral or ethical) arguments against your thesis.

First, the more government "invests" the less I and other people have. So your idea is that government investment is more efficient and better than private people investing.

Hayek showed that this is nonsense. The amount of information that a private actor, such as myself, has to make economic decisions can never be anywhere near approximated by the government.

Any government "investment" will be less efficient and less effective than the same money invested by the rightful owners, no?

The "solutions" of stimulus and whatever you want to call it are taking savings, taking investment, and squandering it on vote-buying.

[BrianL]

Re: Governments should invest during down cycles

While all of that makes sense, could it be argued that the government is in a position to make longer term investments?

Buisnesses make short term decisions like laying people off to insure their quarterly numbers look good. A massive investment that doesn't become profitable [or even pay for itself] for 20+ years might not make sense from a buisness perspective but could be highly beneficial from a social perspective.

I'm sure the counter arguments are along the liens of 'if it isn't profitable in the short term, don't do it right now', but that puts a lot of faith in the rationality of shareholders and CEOs. Perhaps it is just my personal experience, but I've seen too many shortsighted decisions to swallow that. Now as to how much the government is speculating in that situation and how safe that bet is... I think there is definitely a decent argument there.

I am not well read here at all. Any thoughts?

[LargoWinch]

Re: Governments should invest during down cycles

While all of that makes sense, could it be argued that the government is in a position to make longer term investments?

The question is: what is long term? 10 years? 20 years? 30 years? Also, I do not believe the private sector is only focused on short-term, far from it. Have a look at innovations from GE for example.

Governments should be reduced to the bare minimum (essential services such as: fire protection, roads) as it takes away capital from the private sector.

I suggest the following book from Henry Hazlitt if you are unfamiliar with Austrian Economics:

http://www.amazon.com/Economics-One-...3853589&sr=1-1

[grapejelly]

Re: Governments should invest during down cycles

While all of that makes sense, could it be argued that the government is in a position to make longer term investments?

Buisnesses make short term decisions like laying people off to insure their quarterly numbers look good. A massive investment that doesn't become profitable [or even pay for itself] for 20+ years might not make sense from a buisness perspective but could be highly beneficial from a social perspective.

I'm sure the counter arguments are along the liens of 'if it isn't profitable in the short term, don't do it right now', but that puts a lot of faith in the rationality of shareholders and CEOs. Perhaps it is just my personal experience, but I've seen too many shortsighted decisions to swallow that. Now as to how much the government is speculating in that situation and how safe that bet is... I think there is definitely a decent argument there.

I am not well read here at all. Any thoughts?

Sure.

There is a very good body of theory called time preference theory. While I do not understand much if anything very well, time preferences can be falling or rising.

What you want, is an environment where people feel secure enough to make long term investments.

Such a time would involve political stability, freedom from the risks of political interference, a predictable and fair contract enforcement mechanism, strong property rights, and low taxes on investment.

What you want is low market interest rates for long term investment, as evidence that the risk of long term investment is low. (Today's long rates are only low on certain sovereign debt and are not really low at all in real terms, but are actually quite high.)

What you create with the current political psychosis is the opposite. Laws are capricious, taxes are rising, enforcement of contracts is stymied by various political agendas, etc.

What you want to duplicate is the historical example of Great Britain in the 19th century and even the US during most of the 19th century. A strong monetary system, predictable enforcement of property rights, gradual long term DEFLATION leading to low interest rates and rewarding savers and patient investors.

Then, you can have private actors building roads and freeways and mass transit.

Now, as it is today, gubmint goes and interferes with everything and starves the private sector of funds. So there is a well-founded fear of future capricious and arbitrary actions rendering any long term investment valueless. So naturally, there is no long term investment and only gubmint, which is all-powerful and immune to its own laws (sovereign immunity and similar doctrines) can engage in long term investments.

But that is a very poor situation and completely undesireable and unnecessary.

The question is: what is long term? 10 years? 20 years? 30 years? Also, I do not believe the private sector is only focused on short-term, far from it. Have a look at innovations from GE for example.

Governments should be reduced to the bare minimum (essential services such as: fire protection, roads) as it takes away capital from the private sector.

I suggest the following book from Henry Hazlitt if you are unfamiliar with Austrian Economics:

http://www.amazon.com/Economics-One-...3853589&sr=1-1

The big fault of some folks here on iTulip, is that there is a strong resistance to Austrian economics and what it teaches us, and a willingness to consider oft-tried, tired remedies such as "stimulus" in the face of at least 80 years of lack of evidence that they do any good and lots of evidence that they do a great deal of harm.

It is an ideology, this stimulus thing. People accuse "us" Libertarian types of having an ideology...but this is one also. And one without any clear evidence. If it worked, I'd reconsider my steadfast opposition to it. But it doesn't work. FDR did it over years and years, and it took 15 years for the USA to start to recover. Japan has been doing it since 1990 and it still has just resuled in a huge debt load and probably a great deal of damage.

[charliebrown]

Re: Governments should invest during down cycles

You have to believe me, I am a libritarian at heart, but just maybe gvt stimulous is good. After all, we let the people make a choice and they thought pouring their hard earned captial into stainless steel appliances, granite counter tops and 60 inch t.v. sets was a good investment.

Although looking at some of the line items in the stimulous package granite may be a better use for the capital. We could cut it up and use it for tombstones. Well be needing a lot of them in the next decades as our population quickly ages. Dont mean to be mean here, my family is going to lose our roots soon, as the "Greatest Generation" passes away.

Maybe we have to go back to a beneficent and wise monarchy. Was there ever such a form of gvt. The reign of David in ancient Israel?

[grapejelly]

Re: Governments should invest during down cycles

You have to believe me, I am a libritarian at heart, but just maybe gvt stimulous is good. After all, we let the people make a choice and they thought pouring their hard earned captial into stainless steel appliances, granite counter tops and 60 inch t.v. sets was a good investment.

No we didn't do that. It isn't that way at all. We encouraged unlimited creation of fiat currency, borrowing at tiny interest rates, and we got, naturally, a bubble.

People were responding rationally to the artificial, ridiculous and shameful practices of the government.

Although looking at some of the line items in the stimulous package granite may be a better use for the capital. We could cut it up and use it for tombstones. Well be needing a lot of them in the next decades as our population quickly ages. Dont mean to be mean here, my family is going to lose our roots soon, as the "Greatest Generation" passes away.

Maybe we have to go back to a beneficent and wise monarchy. Was there ever such a form of gvt. The reign of David in ancient Israel?

Forget your idea that you are Libertarian

But there is always hope.

[Munger]

Re: Governments should invest during down cycles

No we didn't do that. It isn't that way at all. We encouraged unlimited creation of fiat currency, borrowing at tiny interest rates, and we got, naturally, a bubble.

People were responding rationally to the artificial, ridiculous and shameful practices of the government.




Forget your idea that you are Libertarian

But there is always hope.

You are libertarian only in the Americanized (perverted) sense of the word.

[blazespinnaker]

Re: Governments should invest during down cycles

[QUOTE=LargoWinch;74661] Also, I do not believe the private sector is only focused on short-term, far from it. Have a look at innovations from GE for example.
/QUOTE]

GE is just a mini government. It has it's only type of taxes, customer lock in, and what not.

All businesses have a way to lock their customer in .. keep them from moving to a different business and using the lock in to 'tax' them.

[tojaktoty]

Re: Governments should invest during down cycles

What are 'essential services?' Is this not as subjective and relative as your addressing 'long term?'

Would not capital be taken away from the private sector to provide for state monopolies in the form of fire protection and roads?

The question is: what is long term? 10 years? 20 years? 30 years? Also, I do not believe the private sector is only focused on short-term, far from it. Have a look at innovations from GE for example.

Governments should be reduced to the bare minimum (essential services such as: fire protection, roads) as it takes away capital from the private sector.

I suggest the following book from Henry Hazlitt if you are unfamiliar with Austrian Economics:

http://www.amazon.com/Economics-One-...3853589&sr=1-1