TCS Daily


Washington Needs to Help Businesses for a Change

By Larry Kudlow - July 8, 2009 12:00 AM

Are the stock market and economy taking turns for the worse? Do we really need a new stimulus plan from Washington?

Let's begin by rolling back the clock to last Thursday's June jobs report. It was not a good report. Stocks have fallen over 4 percent since then. And here's one reason why: plunging wages.

Private hours worked continue to free-fall. Hourly wages have flattened. It was a nasty report. Job losses are still substantial. It's a powerful and nasty combination. While I am an optimist by nature, this does worry me. It suggests a later, and weaker, economic recovery.

So here's a novel thought for all the geniuses down in Washington. Help businesses for a change.

You can begin by stopping the taxing of overseas corporate profits. Do not hike the minimum wage. Back off cap-and-trade. Do not nationalize health care. Stop the anti-trust assault on phone companies, pharmas, Google, airlines, and multi-nationals.

And how about a six-to-twelve-month payroll-tax holiday? That would make it cheaper to hire new workers. What about a corporate tax cut? And immediate cash expensing for business-investment write-offs? In other words, cut the tax cost of hiring, investing, and doing business. Because it's businesses that create the jobs and the incomes for families all throughout America.

And if you are still worried about the housing story or bank toxic assets, how about a capital-gains tax holiday?

Does anyone in Washington understand the way the world really works? It's called incentives. That's what this is all about. And we're going to need many more of them if businesses, investors, and families are to start prospering once again.


This article first appeared on Kudlow's Money Politic$.
Categories:

54 Comments

Why stop there?
"You can begin by stopping the taxing of overseas corporate profits."

Lets stop taxing corporations altogether. Let the shareholders pay taxes when they receive a dividend or sell their stock for a gain. Overnight, less wasteful time spent in the legal and accounting departments and we can lose about 90% of the lobbyists seeking to use the tax code for competitive advantage.

In any case, corporations only disburse taxes, they don't pay them.

Help ALL businesses by leaving them alone.
At present, too many businesses practices political entrepreneurship rather than economic entrepreneurship.
Politicians have no incentive not to meddle so why should they leave business alone?
One would hope a few business leaders would file lawsuits to oppose the present nationalization trends, but I won't hole my breath.

Correction
"....I won't hold my breath."

You are only talking about helping multinationals...and they can't grow fast anyway....
Larry,

You said "You can begin by stopping the taxing of overseas corporate profits. Do not hike the minimum wage. Back off cap-and-trade. Do not nationalize health care. Stop the anti-trust assault on phone companies, pharmas, Google, airlines, and multi-nationals."

All this is about the Supply Side multinationals who have dominated this economy since 1982, have slowed us down to a 2.1% GDP growth crawl since 2001 and who will not recover to fuel a rapid expansion no matter what you do for them.

For that you need the small companies...the entrepreneurs. In the small company arena of each industry we always enjoy growth opportunities and solid margins because otherwise we would not be in business. We cannot live from year to year on debt without turning a profit on our operations. The entire small business sector is underleveraged...but profitable anyway. Or we couldn't keep the light on.

What we need is access to working capital. Banks that will work with us. We don't need lower taxes. We don't pay corporate income taxes. We grow fast enough to shelter our taxable revenues.

We don't need capital gains tax breaks because we make money the old fashioned way...by converting raw materials into finished goods. Capital gains mean nothing to us.

Please beat up on the phone companies and the pharmeceutical companies for us because those people make life needlessly too expensive for all of us. Google scares us just as much as Microsoft always did. Cap and trade...healthcare...? Do you know how little those things impact my decisions about my small company? Please. Just let me have my own little bank and everything will be 72 black-eyed virgins here in America.



B of A calling business loans
I stopped by a small business the other day and was his pissed. His stock was diminished because B of A called in loan without telling him.
What a great way for our nationalized banks to help out small businesses.

Can you please DEFINE the Buzz Words like Supply Side? All who use it don’t seem to mean the same
..

Fine...maybe this will settle it for you...
I agree that the term Supply Side means a lot of different things to a lot of different people and insofar as some folks rely on Wikipedia...the Cliffs Notes of all human knowledge...to understand everthing let me say this about that.

Since we came out of Stagflation...that I specify as that period of the US economy lasting from 1970-1982...American capitalism has been very different than it was from 1929-1969. I am referring to the entire 25 years from 1982-2007 as Supply Side. That's what I mean when I say Supply Side and this is what I am describing when I discuss the numbers.

If you think that our economy could have been characterized as Supply Side before 1982 or even as far back as 1970 when the continuation of Keynesian monetary and fiscal policies by the government...especially regarding inflation and interest rates...clearly harmed the economy then you must be talking about "supply side" type policies such as tax reductions that may or may not have been a good idea at one time or another. But the US economy from 1982-2007 was indeed unique in all the world and in all of history and I, once again, use the word Supply Side to refer to that.

Government policies cannot help the underlying economy much. The government is too small and the economy is too large. Capitalism as a social behavior phenomenon has a natural life of its own. What the government can do effectively, however, is to mess an economy up. Therefore, I am less interested in government policies...unless it does stupid things...and more concerned with the nature of the economy itself.

How and Why
"I am referring to the entire 25 years from 1982-2007 as Supply Side. That's what I mean when I say Supply Side and this is what I am describing when I discuss the numbers."

In as much as the players, politics and policies were variable throughout the period-how and why?

History and libs repeating themselves
As Marx said.. History repeats itself.. the first time as tragedy and the second as farce. Liberals never learn as their goal is their method (the state) and less so fixing anything. Leftist libs do not mind the farce they create as long as they get to apply their tried and tired method, government. They will write history books later claiming it was Our only choice. It's inevitable.

That's no definition Forest. Instead of clarifying, your "definition" only made it more obscure
How is one supposed to glean the essential features of Supply Side (economy) from that “definition”?

got to lovr that free market.
Paintball Slogan:

"If you can't take the hit, don't get on the playing field".

So your solution is to tax everyone but you?
...

You still haven't defined the term.
you just declared a time period when what you call supply side policies were and weren't in affect.

Considering the fact that there were literally hundreds of tax law changes during both of the time periods that you selected, you haven't thrown much light on what it is you believe.

What free market?
"Bank of America (BAC: 11.95, 0, 0%) will receive $20 billion in additional bailout money from the U.S. government to help complete its merger with Merrill Lynch, the Treasury Department announced early Friday, in addition to a backstop on $118 billion of assets."

BofA is a nationalized bank.

You are absolutely right
A few simple things, like cutting the base tax rate, would do more to counter a recession than all this nanny-state meddling!
Instead of son-of-TARP redo's, the across-the-board tax cuts that you suggested would do more to help the economy. In a past article, you mentioned healthcare. Again, the strategy for this is--when in doubt rush through expensive government interventionist programs. In the situation of swine flu, they are forcing through a program of universal vaccination--when they haven't even finished clinical trials for safety and efficacy. Fauci freaked, swine-spooked, has understanding of the potential ramifications. The testing on vulnerable populations, even under the best of conditions and circumstances, is highly risky. This will be widespread use of daycare and elementary schools to disseminate government-sponsored vaccines.
There are always side effects, autism, high fevers, for children; spontaneous abortions, preeclampsia for adults. However, with this crew, where the first option is always
the self-aggrandizing interventionist, these concerns are secondary.
This is not to say that TARP, Son-of-Stim, and Cap'tain Tax do not have some merit. This is to say that there can be very serious long-term consequences from ill-conceived policy.
LOVE YOU, LARRY!
Joan

Supply Side as the dominant practice of capitalism...
I know this is difficult and I know I am not explaining it very well. Let me try again.

From 1982 until now the most capable element of the American economy has been Supply Side capitalism...whether or not the policies of the government promoted the Supply Side capitalists or got in their way. I think the government was trying to help them...at the expense of the rest of us.

American Supply Side players have dominated the development of the global economy for the past 25 years with our designs, our consumer markets and our investment funds. We have not grown our own economy as rapidly since 1982...as we did when we were doing most of our own manufacturing before 1970...but we still made most of the money because we controlled all three...operations, finance and marketing. Especially with our own consumers...we earned the wholesale, the distribution and the retail margins whereas our foreign suppliers only got paid their "factory cost".

For their part, the Japanese also sold into our markets more than we sold into theirs. So their Supply Side capitalism was not very profitable and their economy could not be characterized as Supply Side. The Japanese went straight from Keynsian numbers into a Deflationary Stasis capitalism with only a brief period of Stagflation during 1991-1992.

Supply Side industries are consolidated and their markets are dominated by a few multinational players. If there is global competition then those operations produce commodity priced goods and services...immense volumes with tight unit margins. Many large Japanese corporations are typical of this...although their economy has not done well enough to be called Supply Side. Instead what the Japanese have is a deflationary stasis. Japan's economy is dominated by an unhealthy capitalism that cannot expand its GDP rapidly...and their companies maintain adequate ROE performance with massive ROI leverage...but very slow growth and very low unit margins.

If competition is constrained then Supply Side entities will earn ever larger profit margins by pricing up at whatever the market will bear. Our Health Care players and our elite universities have figured out how to do that...OPEC and the oil companies are also pretty good.

Of course, there were always large corporations, borrowing lots of money from large banks and dominating their industries. The railroads of the 19th century are a perfect example of that. You could call them Supply Side players and you could call government programs that favored those companies Supply Side policies. Sure.

But the larger economy back then was characterized by capitalistic opportunities to expand rapidly into eager markets, the GDP grew at a much quicker pace and Keynesian mechanisms best described it. There were lots of violent swings, periods of rapid growth and recessions. There was enough gold to underwrite the entire thing. The relationships between inflation, unemployment and economic expansion were really very different before 1970...or 1960 perhaps...than after 1970 and for certain after 1982 in the United States.

Keynesian capitalism is typical of manufacturing economies but we outsourced those operations. Other nations, such as China are very much Keynesian now...their inflation is consistent with rapid GDP growth...they have a Keynesian economy because their Keynesian practice of capitalism is dominant over there now. But this will eventually slow down for the Chinese just as it did for the Japanese and American industrialists.

Supply Side capitalism coexists with Keynesian capitalism and lots of primary capitalistic practices. All can be present inside the same economies at the same time. For example, San Miguel produces virtually all the beer in the Philippines and they are very much a Supply Side player. But the Philippine economy itself is not Supply Side. It is not even Keynesian yet. It is dominated by local players with their own rural banks and foreign industrialists...Japanese and Koreans...with grass roots plants to exploit the cheap labor. And more recently Indians with Call Centers. The sustainable Philippine economy is still pre-development.

Supply Side players will not go away...we need them to build our cars, to design our television sets and to brew our cold beer. But Supply Side entities such as hospital holding companies, pharmaceutical houses and insurance carriers are killing us and we need to break up their hegemonies with enough competition to drop their prices...or by returning those industries to myriad smaller players who will not have the market strength to play life and death extortion games with us. Or give the hospitals back to the nuns. Probably the pharmaceutical houses need to evolve toward commodity products (Supply Side) and the clinics should be downsized into local service vendors (Keynesian).

Banks? Let the Supply Side banks take care of the Supply Side corporations. Let the government stay integrated with those guys and save those industries to vital to fail.

We need our own Credit Unions to hold our mortgage paper, car loans, education debts, credit card accounts and to underwrite our small companies. We are wealthy here in America unlike any society ever before...yet we are still enslaved to the corporations, the banks and the government. We need an entirely new practice of capitalism to grow our economy rapidly now...neither Keynesian nor Supply Side. I have my own name for it...but that requires a longer explanation than aything I can do here on the blog. Thanks.

Supply Side capitalism...
Let me try again. Supply Side entities are multinational corporations, control a significant share of their global markets, produce commodity goods and services...high volumes and low unit margins...when there is effective competition and leverage their ROE performance with substantial leverage against modest ROI numbers.

Low inflation is necessary to keep bank interest rates...the cost of capital...down and low corporate tax rates are multiplied by high debt-equity ratios allowing after-tax ROI tranches to add up to acceptable ROE projections or CFO's will sit on their cash instead of investing in operations.

Our economy has been dominated by successful Supply Side entities since 1982. From 1970 until 1982 the government's monetary and fiscal policies were Keynesian...but our Keynesian capitalism had already matured past its rapid growth ability to power our economy at the 4.5% average annual growth rates we came to expect from 1929-1969. So we had Stagflation until we figured out what to do next.

Supply Side did 3.1% from 1983-2008. But only 2.1% from 2001-2008. With a lot more leverage on our balance sheets. This is why we are calling this a balance sheet recession...we are deleveraging rapidly across the entire US economy.

Insofar as Stagflation gave us 2.3% from 1970-1982 and it was clearly time to make a move we have probably slowed down enough now at 2.1% for another economic transition into something we have not yet described. Another practice of capitalism...that we are probably already working with but have not yet allowing to come to the front...just as we suddenly realized with Reaganomics that such mechanisms were the next phase for us...so we crafted policies to enable Supply Side. We got 25 good years out of it...not bad. So what's next? And how do we get there?

The 1% the Japanese have been doing since 1992? Not going to be good enough for us.

Taxes only get in the way or get out of the way...
I understand that a great deal of what you all think about Supply Side is focused on corporate tax policies. But the underlying practice of capitalism has a life of its own. The govenment cannot make its economy happen...the government can only harm the economy by failing to understand enough about the mechanisms to stay out of the way. With Supply Side, high taxes can be a real problem for companies with thin margins and lots of leverage. But interest rates are far more important and that means inflation must be controlled.

However, if Supply Side itself has already run its course then no amount of tax breaks or low interest loans will make our Supply Side companies actually invest in new opportunities they do not really see, hire workers they do not really need or power our economy here in the US any better than similar companies in Japan...who have been unable to get their GDP up past a 1% average expansion since 1992.

We need something better. Supply Side capitalists will still be out there but our Supply Side dominated economy is toast...and if we only recover to Supply Side then we will call our economy Deflationary Stasis instead.

The Industrial Revolution...
When Marx was writing the Industrial Revolution was only 50 years old. We are now operating inside the Post Industrial Society where anyone with the money anywhere in the world gets to play and we are moving into the Post Sovereign Economy where entire nations will compete with financial capitalism instead of military imperialism.

History is not repeating itself. If we return to the old ways then we are all going to be killed by it. There is nothing inevitable about stupidity. There are certain mistakes that we dare not make.

"all economists accept this proposition and therefore are “supply siders.”"
"The term “supply-side economics” is used in two different but related ways. Some use the term to refer to the fact that production (supply) underlies consumption and living standards. In the long run, our income levels reflect our ability to produce goods and services that people value. Higher income levels and living standards cannot be achieved without expansion in output. Virtually all economists accept this proposition and therefore are “supply siders.”"

"“Supply-side economics” is also used to describe how changes in marginal tax rates influence economic activity. Supply-side economists believe that high marginal tax rates strongly discourage income, output, and the efficiency of resource use. In recent years, this latter use of the term has become the more common of the two and is thus the focus of this article."

"Supply-side economics provided the political and theoretical foundations for what became a remarkable change in the tax structure of the United States and other countries throughout the world. The view that changes in tax rates exert an impact on total output and that marginal rates in excess of 40 percent exert a destructive influence on the incentive of people to work and use resources wisely is now widely accepted by both economists and policymakers. This change in thinking is the major legacy of supply-side economics."

http://www.econlib.org/library/Enc/SupplySideEconomics.html

What are YOU talking about?

High taxes are a problem, period.
"In the early 2000s, to check whether such a high responsiveness of work hours to wages was reasonable, Prescott studied work hours in various countries. His reasoning was that because workers would respond to wages net of marginal tax rates, he could see how responsive hours were by studying countries with large differences in marginal tax rates. Canada, the United States, and Japan, he noted, have marginal tax rates of about 40 percent, whereas France, Germany, and Italy have marginal tax rates of about 60 percent. He showed that a labor supply elasticity of three would predict that Western Europeans would work about one-third less than North Americans and Japanese. The evidence confirmed his prediction. Moreover, his posited labor supply elasticity is consistent with the fact that hours worked per person were much higher in France and Germany in the early 1970s when marginal tax rates were substantially lower. "

http://www.econlib.org/library/Enc/bios/Prescott.html

" supply-side economics is not just a recent fad "
"The historical roots of supplyside theory run deep. In fact, the seeds of supply-side thought were firmly planted by such classical economists as Adam Smith and Jean-Baptiste Say, with strands of supply-side ideas dating back literally thousands of years. As nations debate and embark on economic changes taking us into the next century, it is crucial to understand what "supply-side economics" actually means. "

"Supply-side economics places supply over demand in the hierarchy of economics, and therefore deals with enhancing economic production, efficiency, and growth within the context of the marketplace; largely)—but not exclusively-focusing on relative prices, such as incentives for working, saving, investing, and risk-taking. While supply-side tax policy has been highlighted for the past two decades, the supply-side school’s purview is much wider. "

" "As the driving force of economic growth, Say’s law exalts the creativity of suppliers over the wants and needs of demanders or consumers. As entrepreneurs invent new things and learn how to make them more efficiently, unit costs and prices drop and goods become more attractive. As goods become more affordable to a wider public, more people work to acquire them by creating goods to exchange. These new suppliers both provide and acquire new wealth at ever lower expense."[5] That is, supply-work, investment, entrepreneurship, and risk-taking—drives economic growth. "

" A free-market economy leaves most economic decisions to individuals operating in the private sector, rather than government bureaucrats and/or elected officials, as is the case with industrial policy and its more extreme cousin, socialism. While both supply-side and industrial policy economists largely concern themselves with supply-related issues (e.g., investment, production, etc.), the supply-side school of economic thought operates within the wider intellectual framework of free-market economics, knowing that production for the sake of production is fruitless. Production must meet Current or create new demands. Value must be created. And supply-side economists recognize that the government lacks the requisite experience, knowledge, and incentives to make resource allocation decisions or to create value. "

" "Since economic thought first became formalized over two centuries ago, there have been essentially two different views about wealth. One view, first defined by Adam Smith and JeanBaptiste Say, is that wealth is primarily metaphysical, the result of ideas, imagination, innovation, and individual creativity, and is therefore, relatively speaking, unlimited, susceptible to great growth and development. The other, espoused by Thomas Malthus and Karl Marx, contends that wealth is essentially and primarily physical, and therefore ultimately finite."[11]"

http://www.thefreemanonline.org/featured/a-walk-on-the-supply-side/

Forest, it sounds like you are on the side of Malthus and Marx.

Thats hilarious!
At least it would be if it weren't so G-dammed delusional. People who think like Kudlow don't live in reality, they live in a bubble of ideology. Really, its kind of sickening. How can people be so stupid? Especially people who write about economics and have a megaphone in the media.


What the hell does Kudlow think was going on from 2001-2008????? Government was all about helping business! The things Kudlow wants are exactly what was going on with the Bush Administration. What did it get us?

Wages have been stagnant for 6 years. Even at a time when corporate profits were in the clouds, wages didn't grow and hiring didn't skyrocket either.


"It suggests a later, and weaker, economic recovery."

Tell us something we don't know Kudlow. This isn't new.

"You can begin by stopping the taxing of overseas corporate profits. Do not hike the minimum wage. Back off cap-and-trade. Do not nationalize health care. Stop the anti-trust assault on phone companies, pharmas, Google, airlines, and multi-nationals."

In a nutshell, the stupidity of, rather, the true agenda, of conservatism. Status quo. But Kudlow left out banks, we need to remove all regulation of banks too! Kudlow wants the status quo, he wants golden parachutes, he wants American jobs sent to other countries, he wants Executives to make tens of millions while worker wages stay flat, he wants insurance companies and energy companies to continue to manipulate their monopolisitc markets to pad their own profits.

And then...

"And if you are still worried about the housing story or bank toxic assets, how about a capital-gains tax holiday?"

He wants to pad his own pockets. Yes, we need to make the rich even richer so we all can prosper, cut capital gains tax. The gall.

What does capital gains tax have to do with the housing meltdown? The vast, vast majority of people losing their homes don't pay capital gains tax.

"Does anyone in Washington understand the way the world really works? It's called incentives. That's what this is all about."

BS. Its called welfare. Plain and simple, Kudlow wants it easier for the wealthy to increase their wealth and we're supposed to believe it will help everyone. Despite the fact it has been tried for the last 8 years and led us into a potential Depression. Great work Kudlow. Get back in your bubble.

But first...

P.S.
"And how about a six-to-twelve-month payroll-tax holiday? That would make it cheaper to hire new workers. What about a corporate tax cut? And immediate cash expensing for business-investment write-offs?"

I give credit where its due. Those there are some decent ideas to consider to help stimulate the economy. In particular, make it cheaper to create jobs in the US and make it more expensive to create jobs outside the US.

Revisionist arguments...
Writers who were not alive in 1970 might imagine that Supply Side economic theory was mentioned in the Bible but that does not make it true. There were no Supply Side policies in support of Supply Side capitalism before 1982 because there was no Supply Side theory prior to 1970. You can say that governemnts lowered taxes or controlled their currencies to avoid inflation before 1970 but these things were done for their own reasons and without reference to Supply Side effects...because there was no understanding of Supply Side. In fact the intuitive sense of tax rate reductions would have been tax revenue reductions...and policy makers would not have had the theoretical basis to argue otherwise.

Analogy. Before we had sovereign nations the concept of Military Imperialism had not been developed. Therefore, when a caveman with a pointy stick killed his neighbor and took the dead man's stuff he was not an emperor...he was a murderous thief.

Similarly, when people sat together out in the jungle 50,000 year ago and decided among themselves what to do about the lion that was killing their goats they were not operating a republic. They were simply talking about the situation, arriving at a consensus and making a plan.

I was at the University of Pennsylvania from 1973-1975 and our professors were just starting to take Dr. Laffer's ideas seriously. He only finished his PhD in 1971 and his theory was not even called Supply Side until 1975, forchrisake. It was all still revolutionary and none of the models explained anything very well. But we knew that Keynesian mechanisms were no longer working...because we were already in the middle of Stagflation...another new word.

Maybe you should have read Adam Smith, Mises and Hayek
"I was at the University of Pennsylvania from 1973-1975 and our professors were just starting to take Dr. Laffer's ideas seriously. He only finished his PhD in 1971 and his theory was not even called Supply Side until 1975, forchrisake. It was all still revolutionary and none of the models explained anything very well. But we knew that Keynesian mechanisms were no longer working...because we were already in the middle of Stagflation...another new word. "

Whose fault is it that your university was behind the curve?

How was it that JFK understood to cut taxes to stimulate the economy?

Not a new idea.


"The Laffer Curve, by the way, was not invented by me. For example, Ibn Khaldun, a 14th century Muslim philosopher, wrote in his work The Muqaddimah: "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.""

" When, on the contrary, I show, a little elaborately, as in the ensuing chapter, that to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied...

Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. "
John Maynard Keynes, The Collected Writings of John Maynard Keynes

"Kennedy's fiscal policy stance made it clear that he believed in pro-growth, supply-side tax measures:

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle--workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit--why reducing taxes is the best way open to us to increase revenues.3

Kennedy reiterated his beliefs in his Tax Message to Congress on January 24, 1963:

In short, this tax program will increase our wealth far more than it increases our public debt. The actual burden of that debt--as measured in relation to our total output--will decline. To continue to increase our debt as a result of inadequate earnings is a sign of weakness. But to borrow prudently in order to invest in a tax revision that will greatly increase our earning power can be a source of strength."

http://www.heritage.org/research/taxes/bg1765.cfm

Call it what ever you want, but the concept has been around for quite sometime. That your 'profession' was too ignorant to see is quite telling, reinforcing economics place as a pseudo-science.

Govt 'helped' many businesses into bankruptcy or nationlization.
Some help!

Cut taxes and regulations for ALL, businesses and individuals, and watch the growth. THAT is the kind of 'help' the government can provide, stay out of the way.

See that's the problem...
These corrolations in the data do not prove anything and certainly don't predict market behavior very well. The basic science cannot be done with real world field studies on human populations and social scientists are simply guessing. Then they try to find data to support their fictions.

What we end up with is two or more theoretical camps with pretentious intellectuals who never really worked as capitalists guessing against each other. Macroeconomists are mostly failed physicists who are just about barely smart enough to apply their pedestrian math skills to financial phenomena and they continually struggle to adjust their models to fit the data. Then they declare exceptions when current events violate their rules.

I've been studying this stuff academically for more than 40 years. It's completely full of holes and nothing like real science. Economics and all other social sciences are philosophical arts.

Don't listen to me...
You seem to be confident that this economics business has all been figured out already and that you can simply look it up on the WEB and there it is. So we should all be just fine. A child can read about it. Nothing more to discuss and nothing more to understand. Obama and his boys can just look it up, do what Wikipedia says and everything will be great. So that's the end of it. Super.

What I am writing is not intended for you because your entire agenda is to argue that I am wrong rather than to understand that what we have been thinking and what we have been doing has led us to this...something about the current practice of capitalism must be flawed and someone must figure that out. Maybe me. Maybe someone else. But the people running this economy definitely don't have it right yet. Just like in 1970...just like in 1982.

This is why it is so hard for me to take you seriously, Marjon...all you want to do is argue. You don't want understand. Or maybe you can't understand...and that is fine, bless your heart...but I don't need to humor you. I had a lifetime of that foolishness with the first wife...and raising three daughters. I paid my dues.

Why are you different?
"the people running this economy definitely don't have it right yet. "

They have the same 'education' you do, no?

Maybe what you can't accept is that the fundamentals ARE very simple and you wasted a lot of time and money on your 'education'?

Why do you think you know how to fix it?
" Economics and all other social sciences are philosophical arts. "

Especially since you don't seem to promote free market economics?

OK...I'll play...
Marjon,

Yes, we all started out with the same fundamental education when we were in our 20's. That was 40 years ago, the global economy has evolved quite a bit and we have all been doing a lot of things since then. I started out as a professional Biologist with an advanced degree and several years working as a research scientist before I went to business school. The finance and economics books were similar in tone and rigor to sociology and anthropology texts. Silly, made up stuff.

When the quant boys applied math to economic data those models were inconsistent and sometimes contradictory. Flat out wrong. But you needed to be able to understand their assumptions and their actual derivations to see that. I studied hard, read the texts over again until I grasped their arguments fully and I did understand. Instead of staying at University and helping them play with their models to see if we could get that data to fit I went out into the real world to immerse myself in the actual practice of capitalism...I did not stay for the PhD, I accepted a job instead...but I kept up with the academic side too.

The economists never could get it right. The reason? There were too many variables for them to model and they never had the perfect data their math assumed. After all this time they still don't have a workable description of the Great Depression. With enough dimensions their math resolves itself into algorithms, those algorithms can never be solved to completion. The problem is always a "forward finite" projection if the paradigm is going to be useful...rather than to move backward from results into theoretical causes...but even working in that direction, after you already know what happened, you don't have good measurements of all the intermediary variables you built into the model and you must continually adjust the model for behavioral anomolies regarding the data you do have.

As a scientist I reject such fictions as misleading. As a capitalist I need a workable understanding of a finite set of variables that I can manage in order to reach objectives. Let me give you a couple of analogies.

On a chessboard there are only 64 spaces and 32 game pieces. We all know how each piece moves, there are only two sides to the contest and we can record every move they make. Nevertheless, modeling the progression of the game and the behavior of the players is an impossible task...because even here there are too many variables and the starting point for what might happen next changes substantially with each move...and then you need to run the recalculations all over again.

Instead, a chessmaster develops a certain routine of his own and comes to recognize standard attacks and defenses in his opponents. But more than that a great player can look at a board and simply know what's going to happen...several moves ahead and with the sort of counter-intuitive logic that only comes from total immersion. The guys at IBM who try to defeat such an ability with a super computer are not actually chessmasters themselves...they are mathematicians. They did not spend their every waking hour developing a visceral sense of the game...they learned how to write algorithms instead.

And this is the difference between myself, the people out here like me who have been living in the world of financial capitalism all our lives and those people at the universities trying to model what we do. We have some ability to understand this game...and they have no chance. Can all of us look at the economy and understand completely how it all holds together? No. But some of us do and none of the economists are in that group.

Another example. When I am driving a car I know where I am going and I know how to drive. I cannot predict all of the variables of weather, traffic and road conditions I will face. Speculating what might happen in the next ten minutes is a game for children sitting in the back.

I am confident that I will deal with these things as I encounter them and I have a pretty good sense of how to go about it. When I think about driving and the trip I know what is going to happen well enough to get there. A new driver or one of the kids would be lost and confused immediately.

Someone really smart who has seen a car a few times but who has never actually driven anywhere might be able to describe the process in a textbook for the poor schmuck who never had his hands on the wheel either...and that person might be convinced that he had it completely understood if he read the book...but he would be very mistaken about that. You might become a gifted backseat driver if you study hard but you don't really know what you're talking about.

Financial capitalism and the global economy are far more complicated and difficult than driving a car or playing chess. Barack Obama does not understand it. Alan Greenspan already told us he was completely wrong about it all those years.

I am not different. I am the same. If I had not been doing this, all this time, all over the world, thinking about it and writing about it continually then I would not have come to my understanding of the practice of capitalism as a human social behavior. I really don't know why it seems so clear to me. But I recognize that most people are profoundly confused about the economy.

Someone must figure this thing out...and we are talking here...together...trying for that. So I want you to have an open mind, Marjon and to work with this thing rather than simply to amuse yourself finding fault with me. Otherwise you are wasting your time more than mine. Thanks.

'some of us do'?
"And this is the difference between myself, the people out here like me who have been living in the world of financial capitalism all our lives and those people at the universities trying to model what we do. We have some ability to understand this game...and they have no chance. Can all of us look at the economy and understand completely how it all holds together? No. But some of us do and none of the economists are in that group.
"
If you did, you wouldn't tell anyone and you would be more wealthy than Buffet.

And I don't believe the system is all that complicated. If a few fundamental standards are maintained, the system's billions of trades per day will take care of itself. But I don't hear you advocating for any of those basic standards. Instead what I hear is an arrogant individual telling us the world is so complicated only someone like you, from Wharton, can have any hope of understanding.

Seeing that something's wrong is the first step...
In the business world there is an intuitive routine we all go through trying to make sense of operations and then there are "just the way we do things here" explanations that might not really be very well understood by anyone working there. Finally there are counter-intuitive phenomena that the smartest people would not catch unless they were immersed in manufacturing, for example, and were able to tease apart the process of creating wealth to really understand the tasks and the underlying constraints. That "this is how we do things here" statement very often does have a solid operational basis that you really need to think about because...at first...it seems wrong.

At a certain point as a senior manager you immediately recognize when a mistake is being made. You have literally seen it done before, you know what they were thinking when they set it up that way and you understand why it's wrong. You can say "stop that stupidity" and when they listen everything gets better fast. This is how great consultants make their money. We see dumb things going on when we are walking through the door and we know what that means about the decision makers. We have 80% of how to fix this mess figured out by lunchtime.

Capitalism and business are complicated enough that you cannot afford to make any fundamental mistakes. You have enough trouble making money and competing in this economy without any of that. If you need to think about it very hard then you don't understand what is going on at a visceral level. If you don't have it internalized then you will continue to make mistakes.

It's like a knife fight. If you don't immediately know what to do without thinking about it then you are going to get hurt really bad. Imagine what you would do, read about it all you like and talk real loud if that makes you feel tough. But when the knife comes out you better just move. It will be over before you know that it's even on.

The guy who's really good at such stuff...he might not look too smart, you might not even notice him and he doesn't say anything at all. Donald Trump, on the other hand, is all mouth. He can't manage anything.

So with the economy you need to know when something would be stupid. Clearly, the economists working for the government don't understand. They do stuff and immediately it is wrong. They talk about doing things with the banks, for example, and we say..."Oh, don't do that!" but they do anyway and it doesn't work at all. This GM mess is insane the way they are handling it. Obama's boys are smart and I'm sure they each wrote a terrific PhD thesis. But they have no sense of capitalism and they make amateur hour mistakes.

Who are the Leftist libs?
Will you name names? I'm curious to learn who they are these days.

Good stuff forestbaker
Regardless if I agree, or what I do or don't agree with, its nice to read a thoughtful consideration of the subject at hand. Your perspective is thought-provoking. Makes sense.

What post industrial society?
Because of rich 'industrialists' like Richard Branson and Paul Allen, a private space tourism may be getting off the ground.
FB, you sound like the patent officer a hundred years ago that said there was nothing left to invent.
There are so many growth opportunities on the horizon if governments would get out of their way.

It doesn't take a consultant to see the stupidity
Ask the employees. The Japs called it Kaizen. But then this makes the boss look stupid.

Watch your mouth...
Racial epithets are inappropriate...I don't care if you are uneducated, opinionated or abusive toward me...but try not to be ignorant when we are having a discussion. I must call you on this...you're out of line here and you are also completely wrong about the process of continuous improvement in Japanese manufacturing.

See...I promised myself I wouldn't talk to you anymore. So stupid...no offense.

Sorry, Japanese
" The suggestion system is an integral part of an established management system that aims at involving employees in Kaizen. The number of worker's suggestions is regarded as an important criteria in reviewing the performance of the worker's supervisor and the manager of the supervisor.


The Japanese management encourages employees to generate a great number of suggestions and works hard to consider and implement these suggestions, often incorporating them into the overall Kaizen strategy. Management also gives due recognition to employee's efforts for improvement. An important aspect of the suggestion system is that each suggestion, once implemented, leads to an upgraded standard."

http://www.1000ventures.com/business_guide/mgmt_kaizen_main.html


http://books.google.com/books?id=qaqKh6Tp4SsC&dq=kaizen&printsec=frontcover&source=bl&ots=d363qVP17o&sig=Yf5ek1l0V83-vd9CW_GjPcgIFAg&hl=en&ei=bt5bSqqZB8OYlAeoyYjzDA&sa=X&oi=book_result&ct=result&resnum=10
{Gemba kaizen By Masaaki Imai}

Where am I wrong?

American glory hounds
In the USA, getting promoted is most important to make more money and obtain more power. Few every get ahead without the support of their subordinates, and too few recognize their efforts.
Ford wanted to get in on the new quality 'gimmick' in the 80s and sent their quality manager to a Deming seminar. Deming told the president not to waste his money if the president wasn't prepared to understand and implement the revolutionary changes required by attending personally.
Hiring a consultant to figure out what is wrong in a company is an admission the leaders have poor understanding and communication with their employees.
Since the Army instituted their after action reports into their quality system, significant improvements have resulted. The key to an after action debrief is their is no rank. Anyone can say anything to anyone about what went wrong with no repercussions. Egos and rank must be left at the door.
How often does that happen in the corporate world?

Why grow your company if no one is there to buy.
If you give more cash to companies via a tax cut, there is no insentive to grow if there is no one to buy the same companies product or service.

If you give more money to those who consume, then the natural order of free enterprise will create more jobs as companies meet newly created demand.


By definition, anything short of pure communism is a "free market"
...

"Global warming: Our best guess is likely wrong"
" No one knows exactly how much Earth's climate will warm due to carbon emissions, but a new study this week suggests scientists' best predictions about global warming might be incorrect.

The study, which appears in Nature Geoscience, found that climate models explain only about half of the heating that occurred during a well-documented period of rapid global warming in Earth's ancient past. The study, which was published online today, contains an analysis of published records from a period of rapid climatic warming about 55 million years ago known as the Palaeocene-Eocene thermal maximum, or PETM.

"In a nutshell, theoretical models cannot explain what we observe in the geological record," said oceanographer Gerald Dickens, a co-author of the study and professor of Earth science at Rice University. "There appears to be something fundamentally wrong with the way temperature and carbon are linked in climate models." "

http://www.physorg.com/news166795736.html

Another fine reason for the government to do NOTHING.

Give the money back by not taking it in the first place.
Why not let people make their own decisions regarding their money?

Whose money are you 'giving'? Where did you take it from or did you print it out of thin air?

As much as ObamaGump and Crew irk me...
...I can not say I am surprised by it, given how it is just history repeating itself again.

What irks me is when Republicans get on board or even start this crap....Hoover in 1929 and Baby Bush in 2008.
They never learn the history that (as far as I am concerned) is as plain as day.

big vs. small
A multi-national might not be able to grow fast on a percentage basis, but since they are already big, even small increases mean huge increases in production/employment.

While small companies have the ability to grow fast, they usually only do so at the expense of other small companies or multi-nationals.

Additionally, small companies, being more volatile, are also more likely to shrink rapidly as well.

So when average together all of the "small" companies, they end up acting like the multi-nationals anyway.

What makes you think that it is possible for "supply side" to "run it's course"?
Companies have no limit to the number of new ideas they would like to pursue. This idea that the economy will sputter out for a lack of new ideas strikes me as being nonsense.

Companies are always competing with each other to get more efficient, and to add new products.

bob defines delusional bubbles
Bush spent the last 8 years doing nothing but try and help businesses?

Wages have not been stagnant for 6 years. Take home pay has, but unless you can figure out the difference than you are too ignorant to have an opinion on this subject. Hint, look up the cost of fringe benefits and how they impact wages.

typical Keynsian analysis
and wrong for the same reason Keynes has always been wrong.

Businesses are always looking for ways to expand. Even when the economy is slow. When companies resume hiring, and more importantly, stop firing because they have run out of money, then consumers regain the confidence to spend.

TCS Daily Archives