TCS Daily


Kudlow: More Government Spending?

By Larry Kudlow - February 9, 2010 12:00 AM

I'm trying hard to remain optimistic about economic recovery here in America -- and for that matter, around the world. In my credo, optimism trumps pessimism every time. And, despite wayward anti-growth policies still pouring out of Washington, I still believe in the cyclical-recovery scenario here at home. But the growing debt problem in the U.S., Europe, and elsewhere is starting to sap confidence in the optimistic growth scenario. I have to keep my eyes open to this.

Here's my thought: Sovereign-debt-default jitters out of southern Europe are spilling over into emerging markets around the world, and corporate-bond risk questions right here at home. There's a contagion. So the big shots in the G7 meet in some godforsaken place in northern Canada and what do they do? What's their solution?

More government spending.

Can you believe it? That was their pledge. No supply-side tax cuts that might generate growth and dissolve debt. Just more spending. I've never seen anything like it.

Look, the problem here isn't just debt. The problem also lies underneath the debt. In other words, there are no tax-rate incentives to promote economic growth. That, of course, would help dissolve the debt.

European Central Bank head Jean-Claude Trichet says everything is going to be just fine and oh, by the way, Greece is going to get its debt-to-GDP ratio down to 3 percent in two years. Huh? What is he smoking? It's now over 13 percent and the government unions are demonstrating in the streets to stop budget cuts.

You look at recent stock market turbulence and you clearly see that the investor revolt against debt continues. It's a revolt against big-government spending and borrowing -- all of which will ultimately lead to much higher tax rates if not stopped. But "stop" is a word that no one seems to understand right now.

The financial revolt against big-government spend, borrow, and tax policies cannot be emphasized enough.

But there is a way out of this morass. The recipe is simple: smaller government, stricter spending limits, and lower, flatter tax rates to promote economic-growth incentives.

I don't know why this is so hard. It's the one thing the G7 and the U.S. have not yet tried. We need to quit this reliance on government and give primacy to free-enterprise entrepreneurs. Free them up. These are the people that create jobs and growth. That is the only tried and true growth solution.


This article first appeared on Kudlow's Money Politic$.
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45 Comments

more spending
It doesn't matter that the same old neo-Keynsianism hasn't worked, and in fact keeps causing the same types of troubles. It's still a good system for the corrupt elites, the best one in fact.

They know that now that so many people are dependent on various types on entitlements, there isn't much necessity to change that system. The more the population are dependent, the more they must rely on the nanny state, and this keeps the politicos in power, which is their main concern.

Most americans are also used to living beyond their means and are still in denial about it, and since they see the government doing the same thing, they think it can continue forever.

Living above our means...
Americans are wealthy. At least as measured by the amount of income we enjoy. However, the system of banks, corporations and government agencies manage to take most of that away, from most of us and what remains is mostly invested in corporate equities and bonds. So the system gets it all back anyway.

Larry is asking for small business expansion to drive this economy but under the rules of financial capitalism that requires bank leverage much more than tax breaks. Our entrepreneurs might attempt a launch, but they will almost always fail and return to the labor pool with less wealth than they had before they tried...without really competing with the established players in their consolidated industries. And the system wins again.

We need a new practice of capitalism that engages all this household wealth we have our hands on and that enables small business development here in the United States. As it stands, America looks more like a fat consumer market for small foreign operators than any hotbed of our own competitors entering the global arena.

Capitalism here has become a spectator sport.

living above
It's hard to make the case that one is wealthy if he is in debt; no matter what the income.

Then you said that banks, corps, and govags take most away. Which of the three thakes most?

Also notice the difference in that the govags take it away from you by force, whereas you can buy one car instead of another, go to one bank instead of another, voluntary associations.

Your comments about capitalism don't apply since anything that violates free trading isn't capitalism.

Would you mind listing (and explaining) the rules of financial capitalism?
And how is financial capitalism different from plain vanilla capitalism?

Forest's 'financial capitalism'
I've tried to get him to describe this notion several times, to no result.
He claims he has written a book about it, and I requested one from him, via snail-mail, but it hasn't arrived yet.

One hint might be that he keeps ragging on big banks. That with the term 'financial' all the time, sort of reminds me of the old, discredited movement called, 'Social Credit'.

It might be he is some sort of variant of that.

Recently, when he's ragged on big banks, and recommended many small banks instead, I asked about the fact that anyone can start up a bank, and mentioned the new Signature Bank as an example, and also asked how he would like the proposal of Wal-Mart to get into banking.

But he doesn't answer those queries either. Then again, he is a politician himself, so what else could we expect?

Cry me a river, Larry
Larry needs to wake up.

I've ranted about this before, so I'll just stop right now.

Sure about that, Larry?
"Look, the problem here isn't just debt. The problem also lies underneath the debt. In other words, there are no tax-rate incentives to promote economic growth. That, of course, would help dissolve the debt."

Just think.. after getting Congress to set the tax rates for unearned income (interest, dividends, capital gains...) at half the rate borne by wage earners, there are STILL no incentives to invest money.

Funny. I thought the mere fact of HAVING money, in excess of what one needed to keep body and soul together, was the true stimulus to invest what was left after funding one's opulent lifestyle.

Now about that debt. Tax breaks have been awarded to the investor class (those enjoying that excellent unearned income) since 1981, when a benevolent Ronald Reagan decided to save the country from the liberals and the communists.

And the result of that activity? The gross federal debt during Ronald Reagan's first year in office was 33.4% of GDP... while the debt during Dubya's last year in office was 69.2% of GDP. In other words, under their wise leadership we more than doubled our inability to meet budget.

By contrast, Bill Clinton entered his term in office with a 64.1 percentage of GDP. And left it with 57.3%. Not too shabby.

So if we're REALLY serious about paying down the debt we should probably follow the practises of the Clinton administration, rather than those of either RR or GWB. Each president's results form their own best proof of efficacy.

Source
http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

Check out the way the debt was paid down between 1949 (98.2%) and 1981 (33.4%). It can readily be done, when we have the collective will.

Roy is sure about Clinton
I also condemn Reagan and Bush for wasting(what the government calls 'spending', so much money). But a better idea than following any prez, would be not to waste so much in the first place. In this manner they wouldn't have to extort so much from anybody.

Roy & 'unearned income'
This is a strange term, to call interest, capitol gains, dividends, etc. 'unearned income'.

People 'earn' not only by the sweat of their brow, but in varioius other ways. So if a guy invests in some company and gets a dividend he does indeed earn it, and it shouldn't be stolen from him either in order to redistribute to somebody else as you would have.

A persons money, after they have spent some on their 'opulent lystyles' can be used to earn more of it.

The problem in your terminology might stem from the discredited Marxist 'Labor theory of value', that we discovered you believe in, some time ago.

Remember, you claim that your views are just commone sense, but some of have to keep pointing out that they are specific to certain schools of thought(mostly marxist), so we have taken on the chore of pointing them out to you.

It sounds so simple
"But a better idea than following any prez, would be not to waste so much in the first place."

Would that we could. But our main problem is that the money's already been wasted. Our big expenses, ones that can't be avoided, are (a) the existing humongous Debt and (b) the interest on that debt until the day it's paid.

Can't do anything about those elephants except pay the man. Plus, of course, there's the one trillion dollars we've wasted to date in Afghanistan, chasing what our own military tells us is around one hudred hard core members of Al Qaeda.

The other two big line items in the budget are Social Security and Medicare-Medicaid. And SS is currently running four trillion dollars in the black. This program, contrary to the disinformation we hear on a daily basis, is actually now helping to fund the rest of government with its huge balance of payments surplus.

Medicare could obviously use some work. The first thing would be to completely rework the prescription drug benefit, so we weren't just funneling billions in profits to private drug firms. And the second thing would be to fund adequate enforcement. Right now, fraud is rife. And we've seen ample evidence that every dollar put into federal enforcement pays many dollars in saved expenses.

The same could easily be done with the IRS. Enforcement, in the form of audits, has almost disappeared... with the obvious result that tax cheats have proliferated. In addition, the lion's share of enforcement efforts have gone toward the poorest taxpayers, those who use the EITC. Such efforts are rewarded at far less than one dollar to the dollar spent.

Instead, expand the audit program and target the coporations and the richest taxpayers. That's where the money is. And while we're at it, target the abusers of the offshore privilege. The ones whose operations are NOT located in Bermuda or the Caymans.

That would be an excellent start at reining in expenses. After that? Do whatever Harry Truman was doing. He reduced the Debt from 98.2% to 74.3% of GDP in four short years.

I think that's pretty damn good. Don't you?

Not to mention that my program is a much more specific one than yours (six action points as opposed to "just spend less").

Hardly a strange term
"This is a strange term, to call interest, capitol gains, dividends, etc. 'unearned income'."

The terminology shouldn't sound strange to you. That's the term originated by, and employed by, the IRS. Have you never completed an income tax form before?

As for the "labor theory of value", let's look at this example:

You have lumps of coal lying underground in Pennsylvania. And you have masses of iron lying underground in Minnesota. Add labor and what do you get?

Answer: Detroit's automobile industry.

To continue to think old thoughts, and just stupidly justify them as being anti-Marxist, adds nothing to the debate. David Ricardo believed every bit as much in the notion that labor added value to raw materials as did Karl Marx.

Any idea who David Ricardo is?

Coal, Iron and laborers existed for millennia. Why didn’t auto industry come up earlier?
..

simple & specific
It's understandable that you might have missed the 956 messages where I had also listed several of the same items to cut back on like; no overseas military bases, no subisidies, no dept of edu, no dept of energy, separation of HC and state, no subidies on anthing, etc.
So I have mentioned many specific things already.

But you want more taxes and enforcement of it. I recommend less and simplified taxes. Perhaps a flat tax like about 25 other countries have, and are successful.
Then when the debt is paid, the lowest taxes in the world so that more foreign investment would come in.

Hardly
Yes I know David Ricardo, and "Various labor theories of value prevailed amongst classical economists, including Adam Smith and David Ricardo, culminating with the socialist theories of Karl Marx".

Of course it would be used by the IRS;it's a lame excuse to try to disguise what is theft by them. If anything is 'unearned' it's all those burocrats.

Your auto industry example is invalid. Those resources have been there for millions of years, and people have been around those areas for about 12k years, yet it it's only in the last 100 years that they made cars with the stuff. The car is more a product of the mind than human muscle power.

It reminds me of the story of the Swatch watch in CH. They guy that started that company calculated that since the labor portion of the cost of producing the swatch was less than 10%, so instead of moving to china or wherever, he instead employed the most expensive labor in the world, within 20 miles of where he was in CH.

I do admire Ricardo and Smith though because they liked free trade, unlike you.

So, you would uncritically accept any phrase coined by any group, Roy?
..

That's how the English language works
We add words to our language whenever some group needs a fuller vocabulary to describe what it is that they do. Certainly the computer industry has added many useful terms to our vocabulary. And the same with government. Or pilots. Or dope dealers. Or printers.

The term "unearned income" is used to describe money being earned even when the person doing the earning is doing nothing to earn it. It's a valid descriptive phrase. You just get a statement each month, and never have to lift a finger.

Pretty good idea
I like your idea about cutting back on foreign military bases. If we didn't have to maintain the Empire we could save a lot of money.

And by retaining it in the domestic economy we could prosper with a minimum of expenditures for our social safety net. That's just an emergency measure, necessitated by a system in which most of the money leaves the general circulation to gravitate upward into the world of "capital investment".

But all those other departments? The money we spend on Commerce, Labor, Education, Agriculture or Energy amounts to chicken feed. Nearly all the federal dollar gets spent on four big ticket items: Defense (and Homeland Security), Social Security (which pays for itself from payroll taxes, Medicare (badly in need of repair) and interest on the existing Debt. So I would begin by looking closely at defense spending and Medicare.

Naturally a certain amount of capital investment is a good thing, in a system where the government itself doesn't provide industrial investment directly. But this area is vastly over-subscribed, and is being used as an excuse for greed.

You'll notice that year before last all those kazillions of "investment dollars" didn't manage to spend themselves on small business (our best employer of humans). They wound up in the Big Casino... where everyone bet on black and the system went red.

Whenever a sector isn't working well, I think we should try an alternative to see whether it works any better. Instead of bailing out all the banks that were self destructing, we should have just let them fail... and provide venture capital and small business funds directly out of the Fed. My opinion.

As usual, you're evading the main point - YOUR reasons for accepting a particular phrase
..

That's the word for it
It's not up to me to accept it or not to accept it. That's the phrase that's in common usage.

The definition, from investorwords.com:

"An individual's income derived from sources other than employment, such as interest and dividends from investments, or income from rental property. also called unearned revenue. opposite of earned income."

One word I'd be very happy if you stopped accepting: "evade". You use it so much I'm suspecting some sort of brain damage.

Yet again, Roy indulges in ad hominem attacks to evade the issue.
..

unearned is a biased word
The person actually did do something to earn it. He used his skill, or talent, or experience or education to make a decision about what to do what that part of his money.

If you believe in private property a person can use his money for whatever he wants to. If a guy tries to make use of his knowledge to make a profit, it is just as earned as via his muscle power.
An architecht doesn't have to lay one brick, but he gets more money than any of the tradesmen because his design is a product of his mind, just like Warren Buffets who only sits and thinks.

So did Henry Ford who never got any axel grease on his hands but 'earned' his billions from his ideas about how to manage a car business.

Also, the did I got to help me with computer had some 'earned' income from me even though he didn't have to do anything more than tell me which button to push.

And I earned more money than the kid has because I used some knowledge I have to get some more, in order to pay him. We both earned it.

The only unearned income is from stealing or fraud, etc.

good ideas
Right, and all those stupid depts with their billions here and there, start to add up to real money. Eg. they recently said that the USPS lost about $3.5 or whatever; sure that's only a few billion, but it goes on year after year, and all the distortions that it causes.

I know the dept of edu's budget is a measly 67 billion or so; peanuts really but it does ad up. esp. considering private schools can educate better for less more as demonstrated all over the place.

They could also stop buying golf carts and houses for the millionaire journalist John Stossel, but they keep on doing it. So far FEMA has bought him two houses. If he goes on like that he'll be richer than Bill Gates, but the goverment thinks it's a really good idea.

No, it's standard English
Besides, it's very descriptive of the process by which an idle person can sit at the bar, nursing his mai tai, while he watches his money make more money on the business channel.

The idle rich mostly guess ignorantly at which investment will make them the fastest return. Very few look in their pockets for excess change and ask the question "how much good in the world can my money contribute toward?"

Henry Ford, in TOTAL contrast, was a hands on manager who personally oversaw a radical new approach to running a factory on a high-production, low-overhead basis. So don't fancy yourself that as you're watching Larry Kudlow while sipping your drink, and hoping some tips will come your way, you're behaving like some latter day Henry Ford.

Saving pennies in a jar
In fact, you are pointing to some good ideas. The USPO? No reason it shouldn't be put on a paying basis. And it could easily be done. Just make the bulk mailers pay the going rate for moving their advertising. They shouldn't put the burden on first class letter mailers and the general public.

Just think.. we could save ourselves a few billion that way.. except for one thing.

"The USPS has been independent of the government since 1971. The USPS is still though subject to some government controls and must break even over time with its budget. It does not draw any money from the federal budget for its regular operating budget but a few employees are still eligible to draw money from the old civil service system (CSRS) for their retirement."

(answers from Yahoo.com)

Whatever the USPS borrows from the federal government it has to pay back. And the current shortfall has two sources. First, total mail volume is significantly down, meaning less income. Second, pension payments must continue. So outflow stays the same.

Anyhow, let's assume that we can save the taxpayer $3.5 billion a year by just doing away with the USPS. That's around ten bucks per person. Personally, I would subscribe to a mailing servce that cost me ten bucks a year. And I would like it even more if junk mail were more expensive, so I didn't have to throw out so much of it.

In the face of annual deficits now in the trillions though, this is insignificant. It's like staring bankruptcy and foreclosure in the face, and telling your family "We have just GOT to start turning the lights off when we leave the room." It doesn't address the real issue.

Focussing on the ill-conceived cash for clunkers program would have been much more productive. It's an example of "broken window" thinking to throw out cars that still run, so you can spend public money on new ones.

standard ignoring of my e.g.s
What about the examples I gave that weren't of guys in a bar, but using their minds? You only agreed with my Ford example.

Your comment about 'how much good.....contribute" is some sort of religious or socialist notion that has nothing to do with making investments and getting a return like dividends.

The word 'unearned' is a charge word sort of like when they say GW denier.
That is also biased because it tries to conjure up holocaust denial, but a better term would be gw-skeptic instead.

The word 'idle-rich' is biased as well. What if the rich guy is doing a lot of thinking about starting a new industry with his money, making some investment?

So these are more examples of how you are not a 'common sense' guy but are left wing biased because of these terms.

In the same manner 'unearned' is biased towards those who use their heads instead of just muscles.

So let's there there are two guys, one just blows his money, the other ponders some investment that will give him some return like a dividend. Is the first more virtuous to you?

USPS?
Not many people even try to stick up for the post office anymore, especially when we see how they have been privatized in a bunch of countries and actually make money and give better service.

Yet in a sector that needs no government involvement at all you would still stick up for them.

This is another example of how you are not a 'common sense' guy, but a big government statist.

Was I "sticking up" for the Post Office?
I really don't think so. I just reread my post-- and it looked to me like I was making suggestions that would make it run better.

Beyond that, I was just describing how it did work. Which I'm quite sure was news to you.

Other than that, I did criticise the Cask for Clunkers program. Was that also "sticking up" for all government programs?

The inert investor
Your comment brings to mind the old cartoon about the worhtless brother-in-law, asleep on the sofa when the husband comes home from working all day.

The husband says "Don't you feel guilty, not doing a damn thing all day?"

And the brother-in-law replies "What do you mean, doing nothing? I was thinking about making a million dollars!"

It sounds like all you're doing is deciding where to place your bet. And that's just totally unproductive. It would be very different if you used startup capital to actively build a business. But somehow I don't see you doing that.

sticking up for USPS
I agreed with the other dysfunctional programs that you mentioned like clunkers. But to defend the USPS in any manner is to stick up for it.
I know a lot about it too. Remember I was the guy that used to complain about the postmaster general being appointed by the prez, into that job as a political payoff, maybe it was the next ten guys too.

And I proposed then that we check to see how many articles the USPS loses compared to FEDEX UPS and all the others. It turns out the guy I challenged couldn't do it because it's a state secret about how much they lose. In the UK it's millions a year, so it must be even worse in the US.

invalid brother in law example.
For every guy who was successful, like the kids that started Google, Bill Gates, all of them, I contend that they put a lot of thought into it, even before taking their first actions.

But I admit some brother in laws only talk while they mooch off you; they are the losers.

You didn't address my specific question though about it being more virtuous just to spend you money, or invest it. Is the first guy more virtuous to you?

To answer your question...
"For every guy who was successful, like the kids that started Google, Bill Gates, all of them, I contend that they put a lot of thought into it, even before taking their first actions."

Surely, even someone of your intelligence must realize that everyone occasionally dreams of being some kind of kazillionaire. The thing that distinguishes a Bill Gates is that he DID something about it. And did it right.

Obviously, by betting on the stock market instead of your local Lotto, you see yourself as somehow being akin to Bill Gates. I don't buy it.

"You didn't address my specific question though about it being more virtuous just to spend you money, or invest it. Is the first guy more virtuous to you?"

I'm thinking more often than not, the first course of action does our economy more good.

When you spend a hundred bucks, you boost someone's sales. That means they turn a little more profit, so the company is that much more prosperous and stable. Therefore they are less likely to lay off help and more likely to hire new help. It's a healthy way for the economy to grow.

Now when you put that hundred bucks on one of the squares down at the stock market, what happens?

Well, you subsidise a company whose game plan apparently depends on borroed funds-- as opposed to earnings. That doesn't sound too healthy.

And by competing against millions of other people, all bidding to buy those same stocks, you collectively bid up stock price. That is, the share price rises without regard to any increase in the actual worth of the company.

That's pretty much the definition of forming a bubble-- the price rises due merely to more demand for the investment, not due to actual increases in profitability. And it seems to me that such an activity actually makes the economy LESS stable, by putting air into it.

Roy's answer
It's good to hear you agree with me that it's a product of people's minds rather than pure muscle power that get's a lot done. Of course I wasn't at all talking about the people who do nothing; I don't know why you would mention it.

About the question, this tells us a lot about your politico/economic thinking, and gives further evidence of your Marxism/Keynsian bias, not common sense as you try to disguise it.

On the one hand you have the same 'aggreget demand' fallacy as Keynes, and the same bias against investments like marx.

So in my example, the one guys blows his extra funds on wine, women and song, and you approve of that because it contributes to those sectors of the economy.

And those guys are more virtuous to you than the guy that thought he would put that same amount of money into the Ford motor company when Henry Ford went around trying to get investors, or the Google guys, or the lady down the street who needed some startup money and took out a loan from you and promised to pay back with some interest.

It's commone that when people start up companies they try to get some extra money, since they don't have enough in order to start production, or research etc. Often you can just afford startup or expansion via your own savings, but try to make use of the savings of others.

Savings are important to an economy and help to grow it by increasing production more than just aggregate demand for existing things.



Being the money partner
That's exactly the point I was making. If you're the money partner and you join someone who's the idea partner, you're performing useful work. It's not like you're some couch potato ordering up trades online instead of working for a living. You actively contribute toward the success of the company by being engaged.

But investing in Ford today doesn't fit that bill. Before you buy your next shares of Ford you should ask yourself why it is they need to still be borrowing money. Have they never been able to turn a profit?

I have every confidence that you, in real life, would be an example of the second kind, the trader, and not the first, the money partner.

partners
It's the same thing whether it's the woman down the street, or somebody down the street from my brother in another city who tells me about her, or somebody or company that I've studied about and made a decision to invest in.

If a guy invest in Apple computer when it was way down some years ago, and now profited, that's also the same. If a guys reckons that now is a good time to invest in the beaten down Toyota company, that' s the same thing.

That you try to make a distinction between investing in somebody you , or somebody unknown is an invalid distinction. You're still taking a chance with your own money, and one investment is just as ethical as the other.

That you don't think so is more evidence of how you are not a capitalist, but should call yourself something else. And you can't just try to say you're a common sense guy, because I've have trashed that phoney stance many times already.

Capitalist virtue
"That you try to make a distinction between investing in somebody you , or somebody unknown is an invalid distinction. You're still taking a chance with your own money, and one investment is just as ethical as the other."

You're still trying to fool yourself into thinking that a guy (you) sitting on his ass, playing with his eTrader, is contributing as much to society as is the guy who gets up every day to weld seams in a fence works-- so you can have the privilege of being able to buy a black iron fence.

It's plainly not so. Idle investors are just warts on the backside of our economy. They should be rewarded (and celebrated) appropriately.

virtues
Yes capitalism is more virtuous because it emphasizes freedom, rather than force as you prefer.

But you never mentioned what you must call yourself since we've shown that you're not a capitalist, but something else.

You are still the one who is deluding himself into thinking that muscle work contributes more to society than someone who works with his mind.

It must be terrible to you how Warren Buffett has made so much money yet has never welded anything, nor dug a ditch.

Paul Allen must make you feel like puking, remember him, the guy who convinced Bill Gates to drop out of school? Apparently Allen hasn't ever installed driven a bulldozer, or hoisted bales onto ships.

When you say it's 'plainly not so' that is just the view of socialists and it's also very ironic because so many of them don't do any manual work but mostly feed at the public trough like state schools and colleges, and other govags.

Muscle work
Muscle work absolutely contributes more to our productivity than does brainpower not actively realized. Anyone can have a bright idea-- and bright ideas do have value and should be rewarded. But the bright idea is worth exactly nothing until labor is applied, to make it a reality.

Hence my example, you have iron in Minnesota and coal in Appalachia. Add labor (plus, of course, your bright idea) and presto! you get America on wheels.

However in this thread we're not just talking about the genius of Henry Ford, who after all did the actual work of management in making his dream a reality. We're also talking about the ennobling of mere speculators.

In my thinking, these people have a deservedly low esteem in the great pecking order because they add value nowhere. All they do is identify a prey object, latch themselves to it (buy into it) and suck some of the profit out of it. In this they are much like a lamprey, looking for a fish worth attaching himself to.

Such parasitic activity actually weakens capitalism, because unchecked speculation always gives rise to bubbles, in which value is lost every time the edifice topples. In a healthy economy this avenue toward easy wealth would be hedged about by sensible sanctions.

Moving right along, Warren Buffet would be a hero in my opinion in two ways. First, he built and guided Hathaway, an enlightened company that did well for its work force, for its customers (by crafting quality shirts) and its owner, by making him justly wealthy. The other way I admire him is that since stepping down from hands-on management he has used his collected wealth for good. He's a hero of mine.

"But you never mentioned what you must call yourself.."

I wasn't exactly a capitalist, in that the company I started relied more on the deployment of skilled labor than on the concentration of startup capital. But I ran a shipshape operation for a number of years, made a decent profit and paid my employees as well as the business could afford. Why don't you offer a word that defines that kind of life?

Also, in your last paragraph you describe socialists in less than glowing terms. I believe what you may be thinking of is low-ranking civil servants, who fill government desks while giving no apparent value to the community in return for their pay.

I agree. In that sense, government should be made smaller. Wasted efforts should be cut. I just don't see cutting the meat along with the fat. We could have saved ourselves trillions in lost wealth, in the bubbles of 2002 and of 2007, not to mention the S&L debacle, Long Term Capital Management, etc, if we had only retained sensible regulation and strong enforcement of reasonable rules against deception and thievery. So pennies spent on effective government could have saved speculators as well as the rest of us, countless trillions in wasted investment capital.

So I do support government, when it's sensibly employed to save us from the wolves of the world. That's not the same as saying I support government waste. Let's say what I endorse is SENSIBLE government.

I also support giving one's work force the wages they deserve for helping build one's operation. That way the boss doesn't end up being a parasite on their efforts.

muscle work
Even your phase, 'identify prey' is totally biased against a free economy wherein a person might want to invest in a company because he believes it has a future.

In a previous message I mentioned the story of a company where less than 10% of the costs of production were labor, so the guy used the most expensive labor in the world for swatch watches. It was the idea that was important.

Unskilled labor is easily replaceable, and trained for low level jobs, but it's the idea of the project that is more valuable. Thus you could have the same labor of say, chinese peasants, mexican indians, medieval european peasants, etc. but to build those cathedrals it took an architects idea, or the project wouldn't have gotten done, no matter how many laborers. Same with the pyramids, your could have ten million slaves, but without the architect or engineer you just have a pile of rocks. Same with a Lamborgheni car, or anything else.

If a company wants to expand and doesn't have enough retained profits to get all the plant etc. it's reasonable to do an IPO and hope to get enough investors; those guys are then part owners, and it's just as ethical as investing in somebody down the street, or across the world.

If you want to pay your workers more than the market clearing rate, capitalism has nothing against that, it's your money.

The measure of all things
Your pyramid example is very appropriate. I'm sure you will have no trouble at all building pyramids with mind power only, no labor.

Your example of the initial public offering is an instance of a company in need of venture capital. I approve of such activities. That's a good use of sound capitalist principles.

Now let's take a look at Ford Motors. Do they fit this definition? Are they starting up? Expanding plant?

So why, then, would one ever buy into Ford Motors? Aren't you just speculating that their CEO will be able to squeeze a little bit more juice out of the orange than he was squeezing the year you bought into the company?

That's an example of a company whose leadership has adopted wrong principles. He's no longer managing effectively for long term growth, but only for short term marginal gain.

"If you want to pay your workers more than the market clearing rate, capitalism has nothing against that, it's your money."

If money is your yardstick by which to measure all worth, such a decision would be a clear mistake. This would be the same error we might make if we walked by a car with the windows down, saw an open purse on the driver's seat, and failed to pick the purse up.

But in fact that's what I did. I spread the money around according to what I saw as the principle of fairness-- fairness to myself, to my employees and to my customers in like degree. I balanced the gains so that each party to the transaction gained in something like an equal amount. The prices I charged were fair, the wages I paid were fair and the profits I retained were fair.

That's because I solved the puzzle for fairness.

measuring all things
Your first comment about the pyramids is invaled because I mentioned that you also needed laborers when I said it didn't matter how many of them you had. Then I said it was really easy to hire unskilled laborers, but really hard to find a guy that knows how to design a pyramid or lambourgheni car. That's why people get paid more for ideas than they do for labor.

I'm glad you changed you mind about investing in a company being some sort of, what was it? blood soaked predatroy slave masters, or whatever. But still you seem to make a distinction between an IPO, and an established company.

That's a false distinction of a few levels. First, if you don't allow investment in companies like Ford, or any such established companies, you can't say you have a free economy, or capitalism.
Second, there are many, not just one reason for investing in such a company. Your reason was that a guy might want to speculate on squeezing a few more ounces of juice, but that's just your anti-capitalist bias. A guy might also see that a company has been unfairly beaten down on price because of some scandal, or false journalists reports, etc. So he might see that as a good entry point to get the stock at a 'value' listing price, rather than the previous overpice. An example would be when Apple company was really down for years; some people checked them out and saw that it was an innovative company that would come back and they would be proud to own, so they buy at the low price.
In fact that's what the value investor Warren Buffet does as his main strategy, and you claim to like him.

Another reason to invest in an established company is because it might have a new idea about re-inventing itself, or getting into some new field, or product, etc. So you believe in that cause, and want to become involved. For example some old companies are trying to get into solar energy, so some guy might want to get in on that.
Or another old company like Nokia, over 100 years old, keeps reengineering itself, from paper products, to army boots, to cell phones. There is nothing wrong with investing in this company that is supposed to be Finnish, but makes it's products in China, and most of whose investors are Americans. Everybody benifits, Finns, chinamen, and americans. You you think if I invest in that company I'm some sort of enemy of the people.

Something must be missing in translation
You're actually not able to follow a single one of my arguments, are you?

I go to all this trouble to put things in such a way there can be no misunderstanding. Then when I get your response it's always something about how much I love big government. Which if you would ever actually follow my reasoning you'd see I don't.

Incredible.

incredible & direct responses
My responses were directly related to what we were talking about, pyramids, companies like Ford, the false labor theory of value.

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