BRIC+ News & comments

Discussion in 'Business & Economics' started by Billy T, Aug 10, 2008.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I now add some bold to what I had said in post 875 as you seem to have missed it: "when it comes to making major long-term investments. They are centrally planned. High capital cost things like high-speed rail, new ports, the N/S water transfer project, new cities, subways, dams, power plants. etc."
    Yes if you want to open a shoe factory, etc. which will be returning income in a couple of year and are not able to fund it, it helps if you are well connected politically in China. But I spoke of major capital investments with decades before there is income return on their invested capital.

    For example, the NS water transfer project started in mid 1950s, cost 62 BILLION dollars, and only now (2015) is delivering water to the greater Beijing area. - US can not do anything like that, as Congressional funding would be required and Congress men must run for reelection. Need to show their voters some benefit before they die or retire. It moves slightly more than half the Nile's annual flow more than 1000 miles! For 1/3 that cost and in only three of so decades California could have fresh water to spare from Washington State's excess that just flows, unused into the Puget Sound.

    Same is true of the 17,000 Km (and still growing) of high speed rail and a few hundred high speed trains (including a few dozen of the four generation locomotive's - for world's fastest trains, moving at least three times more passenger miles than domestic airplanes do, with much less energy use and pollution, and ticket prices about 10% of the airplane ticket price.

    AFAIK, Columbia MD, where I lived for ~30 years, is the ONLY new city* in the US, with population of > 100,000 that private industry has built - The Rouse Company, which also re- did Baltimore's Harbor area.

    You claim Private industry can do these high capital cost (say > a billion dollars) long term ( three decades or more) That Congress can not do for reasons given above. Can you name even one?

    * Some company tried to make such a new city near Dulles Airport, VA (Reston, I think it was called) but it went bankrupt, twice. Now, AFAIK, it is just a developed suburban area of Washington DC, indistinguishable from other nearby communities, but I could be wrong as my information is nearly three decades old.
    Last edited: Oct 9, 2015
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  3. CptBork Valued Senior Member

    The primary examples of long-term private capital investment that initially come to my mind are the projects involving Alberta oilsands and coalbed methane, and US/Canadian shale oil and natural gas developments, which all took several decades to achieve profitability. The Channel Tunnel operating between Britain and France could be taken as another good example, although the planning and construction took less than a decade and its cost was initially underestimated by a factor of 10. I'm sure I can come up with countless other private investments of similar scale and duration when given time to research it, as well as specific details on the fossil fuels investments mentioned above. First though, I'd like to illustrate an example of how private markets can accomplish these investments and profit on them in reasonable time spans.

    Suppose I own a construction company which has done extensive market research and determined that if I build a giant pyramid, there will be a massive market demand for it upon completion which will pay for its weight in gold. But the problem is that this pyramid will take 100 years to complete, which means none of my existing shareholders will see it through to completion in their lifetimes, let alone the profits from operating or selling it. Nor are most of those shareholders interested in leaving a generous inheritance to their grandchildren, and they don't feel particularly charitable towards society at large. What do we do, how do we motivate my company to build the pyramid and allow it to see a profit within reasonable timespans?

    Fast-forward to 100 years in the future. We know at that point, investors will be willing to pay a fortune for shares in that pyramid, and therefore there will also be plenty of investors willing to buy in 10 years in advance at a slightly cheaper price, to hold stock options and collect their profits at the time of completion. If there are investors willing to buy in after 90 years of construction, that means there will be investors willing to buy in at an even cheaper price 10 years prior to that, and we work all the way down the line back to my company. My company is therefore able to invest in constructing this pyramid for 10 years and, should our shareholders choose to cash out at that point, we can sell what we've completed to date to another company which will continue the construction, and make a healthy profit from the sale even though we only get a fraction of the returns we would otherwise see if we waited 100 years.

    You may object that such an investment scheme requires that investors from the market play their roles accordingly and trust that the future demand will indeed be there when it's supposed to be there, but this is how stock markets are valued in general and it seems to work well enough; if investors suddenly stop buying Google shares at any price, the stock value instantly plummets to zero, and yet no one in the market acts as if this is actually going to happen. If I'm making a long-term investment and decide to cash out partway through only to find the market in a state of panic and unwilling to buy, I can always wait it out longer while having full confidence that my investment will still pay out in spades once it's eventually completed, and that rational investors will eventually come to the same conclusions once things settle down. It's schemes like this which allow China to build massive ghost towns filled with uninhabited shops, homes and condos and not feel an immediate crunch from the lack of demand; Chinese investors are still buying those properties at high prices with the expectation that they'll eventually be worth something in the not-too distant future (it could backfire badly if the demand never materializes or if the properties become outdated or uninhabitable in the meantime).

    Governments can certainly help businesses to operate smoothly within the framework of society and to provide the social services which most individuals might be too selfish to provide on their own initiative, but it's not a government's business to be in the business of business. There's no market opportunity whether present or future that can only be identified by governments and not private corporations, and indeed when governments attempt to anticipate and create such demand, it often leads to useless white elephants and billions of dollar in waste.
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    The Channel Tunnel is a nice try, but with final cost of 4.65 billion and completion in six years, not quite my idea of multi-decade high capital cost (IE only 7.5% of the cost of China's NS water transfer project, which took 10.5 times longer before first benefits were realized.)

    Also it avoided bankruptcy only by English & French governments increasing its operating license by 34 years. (That increased greatly the Eurotunnel's capacity to borrow more.) Finally England at least would have been economically better off if it had never been constructed.

    On shale / tight oil, note it is very polluting. - It burns a gallon of oil to produce two! Should be made illegal; But private companies protect their profits, even at the expense of the environment - they have strong lobbies to do this. Coal bed methane was not an energy investment. It was a safety necessity, that could mainly pay for its self in most locations.
    Oil sand projects do have multi-decade life expectancies but begin selling oil in a couple of years - not too hard to finance with private capital. Most deep water oil projects take longer before any of their oil is sold. - Nothing like 6.5 decades before "first benefit."

    SUMMARY: I see no reasons to revise my statement that private capital can not make large (> billion dollars) project with first income more than three decades into the future; but China's central planning can and does do this. Why their city-to-city travel is by high speed train, with much less energy used and less pollution and cheaper ticket prices than via airplanes.* Why Beijing area now gets more than half the annual flow of the Nile River and why California will desalinate sea water at much higher cost per gallon and much greater volume of coal burned to power it too. China can do the multi-decade investments and avoid the less efficient more polluting shorter term until first benefits ones that are all the US can do.

    * US is stuck in an obsolete, expensive, highly polluting, inefficient, city-to-city passenger transport system that China has "ultra-passed." Open your eyes - see the truth.
    Last edited: Oct 10, 2015
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  7. CptBork Valued Senior Member

    As I said, it's only one example. The oilsands and shale investments were much larger than this and occurred over a several-decade timespan. In any case, near-bankruptcy or not, the Chunnel was privately financed, constructed and operated with little government intervention. It's not like the cost would have been any cheaper if the British and French governments had undertaken the project instead, and I have no idea why you think it's negatively impacted the British economy, as if isolation for a trading nation were a good thing.

    I just gave you a perfectly reasonable mechanism by which private markets can finance and quickly profit from long-term projects that last decades or even centuries, provided the expected demand holds up at the project's completion. Such mechanisms are used all the time on shorter time frames, such as in futures contracts for products that don't presently exist in tangible form. As far as my understanding goes, several decades and tens of billions of dollars were invested by private companies into developing Alberta's oilsands before those companies finally began to see meaningful returns on their investments, let alone turn over the enormous profits they've generated since.

    If I own a company that commences a long-term project of any duration, investors on the market agree that my project will hold significant value when it's completed, and the project runs along smoothly without any significant cost overruns or other roadblocks, my company share value will increase over time from making the investment and owning the associated assets under construction, and I can cash out for a profit any time I want. The money I pour into a project doesn't simply disappear from my company's asset list and then magically reappear the day it's completed.

    I'll throw the ball back into your court: can you name me one long-term project that economists and private companies in the US agree will be lucrative upon completion and well worth the startup costs several times over, but that they've been unwilling to invest in because of the required duration?
  8. CptBork Valued Senior Member

    While we're on this subject, I ought to mention that not only are centrally-planned economies doomed by a lack of bureaucratic foresight to create and manipulate artificial supply and demand to the detriment of the people, but by the same token, Western democracies such as Canada and the US should end government interventions in the economy as much as possible even for short-term investments.

    Canada's federal government spent something like 40 billion propping up the faltering economy during the financial panic of 2008, whereas most economists argue now that we only avoided recession at the time because of a strong, cautious private banking industry and a strong oil industry. The tens of billions have apparently thus far produced nearly no tangible long-term economic benefits, and led to more than 100 billion of new federal debt over the years from continued stimulus spending. To my understanding, the United States spent similarly proportionate amounts propping up crappy car makers, bad airline managers and vacationing bankers taking irresponsible risks, with little long-term impact in an otherwise healthy and diverse economy and a series of near fiascos over the US debt ceiling.

    Why should governments throw tax dollars at failing over-supplied industries, when they could throw those same tax dollars at public infrastructure, desperately needed social services, or leave them in taxpayers' pockets to spend on under-supplied industries and products in high demand? Why do voters in areas that don't get campaign visits not punish the candidates who throw money around at the swing voters, and why do opposing candidates fail to hammer the point home to those who've been left out because their vote was taken for granted and they got nothing?

    Governments to date have been vitally important in regulating industry standards, but there are also private organizations holding a great deal of clout, such as the CSA (Canadian Standards Association), which develops safety standards and other measures of product quality, provides a seal of approval to those products which meet their standards, and publishes catalogues detailing the track record of various companies' performances. There are also organizations such as the BBB (Better Business Bureau) operating in both the US and Canada, which tracks both complaints and compliments provided by customers regarding various local and international businesses, and thereby holds those companies accountable by helping consumers and investors decide who to deal with. Ideally, businesses that engage in harmful or anti-competitive practises should be boycotted by the general public and left to rot out of sheer inability to guarantee reliable, affordable and ethical services, rather than spending enormous sums of government money investigating and prosecuting such companies and erecting ever-increasing quantities of red tape against everyone else.

    Lastly, while there may be extreme situations in which a free market society isn't capable of making responsible choices, and must be molly-coddled by the nanny state into making certain economic decisions, I can't really think of many off the top of my head. Even in the case of a John D. Rockefeller corporate trust scenario, one natural defense would have been for competing companies to sign long-term price contracts with customers eager to avoid Rockefeller's outrageous price swings, as well as for regional governments to assert the peoples' ownership of the oil in the ground and to refuse to lease oil properties to companies which refused to commit to steady output from those properties. Notice I did mention a role for government in there, as a forum representing the peoples of the land and their joint ownership and stewardship over the natural resources therein, but it's a far more natural and efficient role for governments to play as opposed to judges stepping in and deciding when a company gets too big or what an economy-class airline ticket to Japan should fairly cost.

    Even when it comes to international trade, ethics and environmental issues aside, restrictions on foreign trade ultimately cost a nation's consumers more than they benefit the nation's industries, and therefore all nations should remove their trade barriers and protective subsidies as much as they can without compromising their moral and environmental stances, even when the nations they trade with refuse to remove their own barriers or end their own subsidies. Why prop up the status quo with inefficient industries receiving government money and protection, when all that capital could be invested in things that are actually being demanded, and new jobs can thereby be created for those who've been displaced, along with re-training opportunities for those who require new skills? Then as a bonus, you can spend all that extra cash on the cheap subsidized products produced in foreign markets from tax dollars buying swing votes.

    I'll say it once again, governments have no business being in the business of business.
    Last edited: Oct 10, 2015
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  9. joepistole Deacon Blues Valued Senior Member

    Ok, you are good all the way up to centrally planned, but then things begin to breakup. There is a difference between “centrally planned economy” and government interventions. A centrally planned economy determines what will be produced, when and how it will be produced and what it will sell for and who will purchase goods and services. That’s not what we have in most of the world today, including the US and Canada.

    A government intervention is what we saw during the Great Recession of 2007-2009. The cause of that recession was a liquidity shortage which endangered the world financial system. Capital is the life blood of economies. Without capital, economies die. During the Great Recession of 2007-2009 capital stopped flowing because owners of capital panicked. Their capital was in jeopardized because financial institutions became illiquid. They didn’t have enough cash to keep their doors open. They had plenty of assets, but they didn’t have cash and they needed cash to keep their doors open. As a result, banks stopped lending. Investors stopped investing. Businesses laid people off. That began what is tenderly referred to as a death spiral. More laid off people lowered demand for goods and services which required businesses to lay off more people and the cycle repeats over and over.

    That’s why governments intervened. The US government intervened by lending financial institutions money. It also required banks to recapitalize (i.e. raise capital reserves). But that wasn’t enough; it had to stop the death spiral and it did.

    There is more than a century of economic data to support and justify government interventions such as those we witnessed during the Great Recession. Since government intervention periods of economic growth have been more frequent and longer. Periods of economic recessions have been fewer and shorter in duration. That is what the hard data very clearly demonstrates. And that is why government intervention is accepted and commonplace.

    Canada spent 35 billion dollars on stimulus. That was about 2.6% of Canadian GDP. The US spent 6% of GDP more than twice the amount spent by Canada and that doesn’t include the liquidity provided to the markets which was subsequently repaid. And it was more than a panic; it was the greatest recession since the Great Depression. And actually, Canada didn’t avoid recession. Canada’s economy shrank by 11%. Its GDP went from 1.5 trillion dollars to 1.37 trillion dollars. Most “economist” don’t argue Canada avoided recession because it didn’t. What Canada did avoid was the liquidity crisis because Canadian banks had laws similar to what existed in the US prior to the repeal of Glass-Steagall. Canadian banks were not involved in derivative trading.
  10. joepistole Deacon Blues Valued Senior Member

    Well if what you were saying were true, then yeah. That makes sense. But foundation, your thesis, has some pretty big holes in it beginning with a failure to understand the problem. As I mentioned it existed in 2008 was a liquidity crisis. Financial institutions didn’t have the money they needed to keep their doors open. They became insolvent. Under normal circumstances, businesses in need of money could obtain financing through the equity and debt markets. But the circumstances which existed in 2008-2009 were not normal. Fear and the inability to quantify risk caused the traditional sources of private industry financing to dry up. In those instances it is perfectly acceptable and it is the duty of responsible government to provide that liquidity, to become the lender of last resort, and that is what happened.
    Hmm, there are a couple of problems with your beliefs here. First, you are relying on “after the fact actions”. Governments monitor proposed mergers to prevent monopolies from forming. In order for your boycott to work monopolies have to form first and then you assume consumers will have perfect knowledge which they do not have in order to identify a monopoly or anti-competitive practice. You expect the consumer to do all the things government does investigating businesses…seriously? Most people don’t have that much time, much less interest and ability. Most people are busy with their careers, families and lives. They don’t have time to read all the required journals on every product or service they purchase, and if it is a commodity like oil, it won’t be easy to use an alternate product. Do you know how many journals everyone would need to read in order to make your beliefs work? The BBB doesn’t investigate anticompetitive business practices or monopolies and they have virtually no legal powers to seek remedies for injured parties.
    Well, if you cannot think of a good reason for government intervention, then you missed the whole Great Recession, because that was an obvious crystal clear case for government intervention, which is why governments across the world intervened.
    Conceptually you are ok here, but free trade has become a very convenient way of exporting pollution from developed advanced countries to developing countries. Typically the most protective economies are those of developing countries (e.g. China, Russia, et al). Most advanced economies already have low tariff structures.
    And once again you would be wrong. There are legitimate cases where government intervention is required of responsible governments. The internet is a case of government intervention. The internet was developed by the US military. Most basic research is funded by the US government. Government in the US often forms partnerships with private industry to develop new products and negotiate trade agreements. The Great Recession is a crystal clear demonstration of appropriate government intervention. The reason the banking system is sound, is because it is regulated by government and backed by government. Without government regulation and backing banking would be chaotic and capital would be allocated very inefficiently. People would be stuffing mattresses again with cash.
  11. CptBork Valued Senior Member

    Governments including the US and Canada still engage in degrees of economic central planning, largely as a means of buying votes. Far too many failing industries being propped up as if business owners and workers in other regions weren't also suffering just as badly.

    I didn't say there were no cases where government intervention might be warranted as in extreme emergencies, only that I don't find the arguments very convincing. On a \$617 billion investment by US taxpayers in October 2008, the US government has now made its money back with a \$56.3 billion net profit to date. That's under 10% profit on 7 years of investment to date, and as far as I can tell, it factors in neither inflation nor the cost of servicing \$617 billion in additional US federal debt, which when factored in likely makes it a net loss. As you likely know, the historical, conservative average stock market gain is 10% annually, after factoring in both the booms and the busts, so those \$617 billion could have been nearly doubled by now with more sound investments, or leaving that money in the private market rather than borrowing or taxing for it.

    Between 4-6 million Americans still lost their homes despite the bailouts, because the banks still had to foreclose on bad loans in order to meet their own commitments. What Americans bought with their \$617 billion in tax dollars was a preservation of the status quo while delaying the necessary market correction which by itself would have led the economic decline to bottom out. Inefficient businesses and wasteful corporate managers, misguided investors, outdated carmakers, all bailed out and allowed to keep running, with a great deal of the cash going to protect the lifestyles and assets of America's wealthiest rather than the jobs or bank accounts of its lower and middle classes. That's not classical Democrat fiscal policy, it's plain old supply-side corporate welfare Reaganomics, justified with the excuse that lots of rich people would go bankrupt without it, and their wealth would theoretically stop trickling down to the great unwashed (assuming it ever really did in the first place).

    We're not talking about a couple of small handouts here, we're talking about \$617 billion coming out of the US treasury and all handed out on a preferential basis to failing mismanaged businesses, all basically borrowed off the same private bond market that could have been used to provide the required liquidity for those banks and enterprises still reasonably fit to operate. Vulture capitalists would have otherwise been well-positioned to invest in those struggling banks and other industries which showed the potential to yield sustainable profits upon restructuring, and bankruptcy courts could have been invoked in that restructuring process as well, in order to protect the most vulnerable investors and debtees. And if there truly had been a situation where absolutely no one had cash in their pockets to buy or loan anything, which clearly wasn't the case when the US went and borrowed \$617 billion on the bond market, the simplest and most efficient solution would have been to print more cash and lower central bank interest rates in order to refinance those banks lacking liquidity, not to buy shares in their failing enterprises.

    Was the US bank bailout successful in halting or mitigating the Great Recession? Yes, it successfully preserved the status quo, but I'm not in any way convinced that the handouts and preferential investments and loans were the most efficient and productive ways to achieve it, nor am I convinced that the existing status quo was something worth fighting for tooth and nail and that there won't be continuing aftershocks from propping up inefficient businesses. Meanwhile from the Canadian perspective, the increased federal government investments and bailouts led to virtually no new sustained economic activity, and the minor recession Canada endured for two or three fiscal quarters was already over by the time most of that money was ready to be spent, leaving Canada with about \$100 billion in extra federal debt and little to show for it. Meanwhile look over in Europe; they're struggling mightily with the aftermath of their bailouts and the resulting liquidity crises they've created rather than prevented, with countries like Greece on the verge of leaving the Euro altogether and even mighty Britain considering a pullout.

    What you attribute to government interventions, I attribute far more to stock market corrections and the resulting evolution of the modern investor. You can cite examples such as the 1929 Great Depression to justify government spending, but the US economic recovery began in 1933 just prior to Roosevelt's election, it dipped back into a mild recession in 1937, and direct government interventions in the US economy were utterly insignificant compared to the role it plays today in any case. On the other hand, I can cite examples of leaders such as Margaret Thatcher vastly reducing the role of the British state in its economy and watching the national GDP nearly double in the subsequent decade, which is probably why she has a significant place in history even though practically everyone seems to hate her on a personal level.

    I think your economic data is somewhat skewed, and I'm guessing you based it on the figures cited by the World Bank. Stats Canada's data on the other hand shows barely a scratch to the economy in 2008, followed by the usual levels of healthy growth in 2009 and beyond.

    I'm thinking the World Bank stats for 2008 were skewed heavily by currency fluctuations at the time, since they evaluate everything as priced in US dollars, and investors punished the abnormally strong Canadian dollar far more disproportionately than the US dollar at the time, because Canada's banks weren't recognized internationally for their stability and sound management. If you don't believe that, then you believe that Canada's economy underwent an 11% contraction in 2008 followed by an explosive 18% expansion in 2009, before the government stimulus ever had a chance to enter the market.

    Canada took a mild hit from the drop in exports associated with the recession occurring in other countries, but we adapted fairly quickly and market currency revaluations helped to expedite that process. To my knowledge there really weren't that many restrictions on Canadian banks investing in derivatives markets prior to 2008, and Prime Minister Stephen Harper was pushing very hard at the time for the existing restrictions to be loosened in accordance with other major economies. All the news reports I've read since then credit Canada's major private banks with choosing on their own initiative to make conservative investments despite being pressured by the federal government to take greater risks, and ever since the recession ended, Harper's been talking it up as if he himself held them back.
    Last edited: Oct 11, 2015
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  12. CptBork Valued Senior Member

    Addendum to my previous post, since I went over the 10,000 character limit or whatever:

    I would argue that, at least in a healthy economy in which mature, knowledgeable investors are making sound decisions, the need for government intervention is little to none (note: I'm in no way talking about cases of fraud and criminality, which I'll address in my next post). If we do need the nanny state to tell ordinary consumers and investors what sorts of economic decisions to make, that simply means these consumers and investors aren't being properly educated and informed. If insurance companies provided bankruptcy insurance for cases such as the 2007-2009 Great Recession, priced to factor in occasional losses and panics, that alone would have provided a great deal of the stability and liquidity required to calm the situation, just as they've been extraordinarily helpful in stabilizing disastrous situations ranging from house fires to 9/11 to Hurricane Katrina. There are many more private market mechanisms which can either be created or that already exist, which can further supplement or replace the function of governments in the economy with greater efficiency, and I'll start describing some of them in my next post.
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  13. joepistole Deacon Blues Valued Senior Member

    Well, and that is where you would be wrong. Investors are not knowledgeable (i.e. not all knowing) and don't make sound decisions. People are humans and subject to all sorts of emotions and the sometimes irrational decisions which may follow. Humans are not automatons. Investors are not automatons. Nor do humans, and that includes investors, know the future. Markets are frequently irrational because humans are frequently irrational and markets are a manifestation of human behavior. And if you are a student of the markets it should take you long to see the irrationality.

    I suggest you read the Paradox of Thrift:

    What is rational from the immediate perspective of an individual may be ultimately destructive. Healthy economies are not always healthy. Just as with cars or anything else, economies require maintenance. What you and those like you believe in is the economic equivalent of the perpetual motion machine. It doesn't exist in the real world.

    Additionally, no one company can sustain the risks involved. There isn't one company or even combination of companies which can sustain the risks required, in part, because no company or combination of companies has that much capital. No could it liquidate that capital as would be required and not cause severe economic disruptions. Governments can. Governments have done it (e.g. Great Recession of 2007-2009).

    Unfortunately for you and your friends, government does have a role, a valid and important role to play in economics. The government is the lender and buyer of last resort. It's that old Keynesian thingy, and it works. There is more than a century of hard economic data which says it does. That's why virtually all countries including former communist countries now recognize that fact and ascribe to it.
  14. CptBork Valued Senior Member

    Oh I see, so I'm not an informed student of economics because I don't agree with you. Thanks for illuminating my humble ignorance. Now I'll explain to you where your own reasoning falls short: you expect elected bureaucrats to run businesses and industries rather than what they're primarily elected for, i.e. making laws, prosecuting criminals, aiding the poor and vulnerable, regulating the environment, national defense... You falsely presume that these bureaucrats are more knowledgeable than the rest of society as a whole both in sum and in part, and would be easily capable of establishing their own successful business empires if they weren't so busy on the campaign trail and making laws.

    We live in the age of information. There are plentiful ways for investors and consumers to be informed, for the market to wean out bad corporate practises, for economic troubles and manipulations to be anticipated and countered. There are plentiful ways for the little guy to stand up to the big guy when the big guy attempts to game the market (i.e. long-term contracts), and it only requires that enough investors are willing to compete for those opportunities when they arise. You use governments for those essential projects which don't offer meaningful economic gains, like the Manhattan Project and whatnot (certainly we don't want private companies pursuing nukes for profit, at any rate).

    Blah blah blah. This is some really patronizing stuff, Joe. I know plenty about Keynesian economics and have long been a believer in them and still am to a degree, and none of the arguments I've been making have in any way been about consumers piling money under their mattresses. Governments are responsible for regulating fiscal policy and deciding how much cash they should inject or remove from the economy at any given time, and thereby hold the main levers controlling inflation and deflation. With healthy levels of inflation, individuals generally park their excess money in banks which invest the money and generate steady guaranteed returns, or they park the money in homes and other appreciating tradeable assets, or they loan it to friends, go on a spending splurge, establish a college investment fund for the kids, etc. etc., all good things for the economy.

    You know what's really good for preventing thriftiness? Low taxes.

    So then where the hell did the US treasury get those \$617 billion from? And what were those guys with cigars and fedoras going on about back in the day when they'd appear in the newsreels saying "Gnaw, buy bonds to fight the Nazi scum!"

    Uhm, which "friends" are you referring to here? It can't be the (present-day) libertarians, because I've clearly stated I believe governments have substantial non-economic roles to play in their respective nations, and they need large sums of tax revenues to finance these roles. It couldn't be the Republicans, because most of my complaints have been about the Reaganomics policies of handing out money to wealthy people who f---ed up on one too many spending binges.

    Did Keynes ever talk about taxpayers paying carmakers to make shitty cars, or Nebraska farmers wasting their time growing too much corn? The Canadian election campaign is in full swing now and now we're the ones being flooded with stupid campaign promises, money thrown around to swing vote communities and industries that clearly weren't doing a good job with the money they already had. It's really frustrating to watch this stuff. My feeling is that a biochemist's job in Manitoba is at least as if not more important than a fisherman's job in Newfoundland and that the former ought not to be taxed or deprived of government assistance in favour of the latter, but apparently most Canadians have long felt that the fisherman's job is more important as long as he screams loudly enough.
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  15. joepistole Deacon Blues Valued Senior Member

    No they don’t. As previously pointed out, central planning requires they mandate production, supply and consumption, and they don’t do that. What they do is manage their money supply ensuring that their economies have a sufficient supply of money. They negotiate trade agreements. They provide the infrastructure necessary to sustain and grow their economies. That isn’t central planning.
    A couple of things, one it is quite apparent you are confusing two very different programs. The US had two programs to deal with the Great Recession. The first was TARP, the program which you just referenced. It is sometimes referred to as the bailout. It provided liquidity to financial institutions so they could keep their doors open and pay their bills, so workers could get paid, and businesses had the money they needed to conduct normal business operations. As you point out, it has been repaid, and the government has profited from TARP. What you appear to be unaware of is most of that money was repaid within one year. In part because executive and stockholder compensation was restricted until the government had been repaid. So your using a 7 year measuring stick is deeply flawed. If you want to measure rate of return as a basis for comparison you should use a one or two year rate of return stick, not a 7 year measuring stick. Additionally, US government debt has been virtually zero or very near zero, and when inflation is factored in negative.

    And finally, you need to factor opportunity costs into your cost benefit beliefs. What would have been the cost of inaction to the US government? The costs of inaction would have dwarfed the cost of TARP and the 800 billion dollar stimulus package. US deficit spending soared during the recession because as economic activity declined and more and more people were pushed out of jobs and onto the social safety net, government tax revenues fell while government expenses increased (e.g. increased unemployment insurance and welfare benefits).
    Last edited: Oct 11, 2015
  16. joepistole Deacon Blues Valued Senior Member

    So you would have preferred a Great Recession 2.0 with a 10 year plus recovery? So you would have preferred a 25% to 50% decade long unemployment rate and a return of soup lines and millions of homeless? Well most folks don’t share your preferences.

    Europe didn’t immediately follow the American recovery path. They chose a path more in line with your ideology. They didn’t immediately recapitalize their banks as we did here in the US. Europe didn't intervene as we did in the US and nonintervention failed in Europe. Belatedly and after replacing a central banker, Europe decided to follow the US and is now in the early stages of recovery. And Greece has nothing to do with the Great Recession. Greece’s problems were not and are not related to The Great Recession. They are directly attributable to fiscal incompetence and Greece’s use of the Euro. That is in no way comparable to what happened in the US or Canada. The UK has never really mustered the courage to leave the Pound and I don’t see that changing anytime soon. The UK has been very cautious, and rightly so, in abandoning the Pound. But again, that has nothing to do with the Great Recession or government intervention in the economy. So you are comparing apples to horses.
    Ah no. The fact is that since the advent of government economic intervention, recessions have been fewer and shorter; periods of growth have been more frequent and longer. That’s what the data shows.

    "The National Bureau of Economic Research dates recessions on a monthly basis back to 1854; according to their chronology, from 1854 to 1919, there were 16 cycles. The average recession lasted 22 months, and the average expansion 27. From 1919 to 1945, there were six cycles; recessions lasted an average 18 months and expansions for 35. From 1945 to 2001, and 10 cycles, recessions lasted an average 10 months and expansions an average of 57 months.[5] This has prompted some economists to declare that the business cycle has become less severe.[31] Factors that may have contributed to this moderation include the creation of a central bank and lender of last resort, like the Federal Reserve System in 1913, the establishment of deposit insurance in the form of the Federal Deposit Insurance Corporation in 1933, increased regulation of the banking sector, the adoption of interventionist Keynesian economics, and the increase in automatic stabilizers in the form of government programs (unemployment insurance, social security, and later Medicare and Medicaid).
    I think you need to check your own reference. Your reference shows Canadian GDP was 1.583 trillion dollars in 2008. In 2009 it shows Canadian GDP of 1.54 trillion dollars. Contrary to your assertion, that is a recession. Canada’s economy shrank. Your measure is in Canadian Dollars so there are no currency conversion issues.
    Last edited: Oct 11, 2015
  17. joepistole Deacon Blues Valued Senior Member


    Do you now…perhaps you can show me where I said that you were an uninformed student of economics because I don’t agree with you. Your accusation reeks of personal insecurity. What I did say is you were wrong and I gave you the reasons why you were wrong.

    Hmm, who are these unnamed bureaucrats exactly? Our law makers come from a wide array of backgrounds. Most are lawyers, some are businessmen, some are political consultants, some our activists, some are physicians and nurses. Their knowledge and training is varied. So while lawmakers may not have extensive training in business or economics, they do have access to and the advice of the best business and economic minds in the world. You should listen to congressional hearings and in particular you should listen to the Federal Reserve’s Humphrey-Hawkins testimonies to congress.

    These “bureaucrats” are the best trained economic professionals in the world and their success is measured by their results which are very public and unfortunately for you, are very credible and very good.

    Yes we live in the age of information. As I wrote before, people don’t have the time or will to research everything all the time, nor are they qualified or capable of understanding all they read or hear. You being a case in point and not everything you read on the internet are credible or true. And as I previously pointed out your idealized solution to manage monopolies occurs after monopolies have occurred and your solution is a boycott. And also as previously pointed out to you, depending on the monopoly consumers may not have much choice (e.g. gasoline and oil). Government prevents monopolies before they occur. Government employees have the training and the skills and the information needed make these decisions. Your average Joe SixPack doesn’t. And for those reasons and more as previously given, your beliefs are just not supported by reality. They aren’t practical or reasonable.

    Patronizing….? Based on your post, I don’t think you understood it. You believe everyone will act rationally all the time. And that simply isn’t the case per my previous post.

    And you think any of that makes sense….? As previously pointed out the US Treasury borrowed money to support TARP and stimulus that is one reason why our deficit was 1.6 trillion dollars in 2009. And as previously pointed out, it was at near zero interest rates and actually negative interest rates when you factor in inflation. The average Treasury Bill rate in November of 2009 was .268%.

    And as previously noted, TARP money was quickly repaid for many reasons including the fact that executive and stockholder compensation was severely restricted until those loans had been repaid in full. That has nothing to do with Nazi’s or news reels. It’s just a matter of fact.

    And you think this is relevant?

    And you have evidence government has paid carmakers to make shitty cars? If you do now is the time to show it. You are making stuff up. What the government did was provided funding (i.e. liquidity) in the form of loans and equity purchases to carmakers to keep people employed, to keep them paying taxes and keep them out of the social safety net. As previously mentioned, under normal circumstances automakers would have been able to get that funding through equity markets and banks. But equity markets and banks weren’t available. There were NO new public offerings because investors were not buying equity and banks were not making loans. So the government stepped in and provided services which would have normally been available to automakers. This may be a surprise to you but, businesses including banks need loans to keep their doors open. It doesn’t mean they are bad businesses. It’s the efficient use of capital at work.

    As for Nebraska farmers, I don’t know why you want to pick on Cornhuskers. Though I have no special love for Cornhuskers seeing how the trounce Kansas athletic teams on occasion. There are many more states more heavily dependent on corn production. The rational for corn supports is to protect an infant industry (i.e. ethanol fuel production). But that rationale long ago stopped being applicable to corn and ethanol fuel production. It’s a subsidy that should be terminated, but that is a political issue not an economic issue.

    I don’t disagree. But those are political problems, not economic problems. We have similar problems in the US. I think special interest money needs to be weaned out of our political system posthaste. Unfortunately some of us are influenced by political advertising and political advertising can sway elections.
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    First let me agree that INPRINCIPLE large, potentially profitable, capital investments with first return of income decades into the future conceptually could be done by private industry selling stock, etc. but IT HAS NEVER BEEN DONE.

    You are asking me to name one that has never been done. - I can't, nor do I know how to respond to: "Have you stopped beating your wife?" When asking me about things that have never been done you should not expect any reply and my not giving one, does not support your POV.- You need to do that yourself by giving an example of a large capital investments with first return of income decades into the future conceptually could be done by private industry selling stock, etc.

    I was sincere when saying "nice try" about the tunnel channel. It is not what I asked for, (about 10 times faster to completion) and only 6% of the cost of China's NS water transfer project - a large capital investments with first return of income decades into the future, but the closest I can think of too. - only miss both cost and term requirements by huge factors.

    I don't have all the needed facts, but the Erie canal, as it was manually dug, might have been a good "nice try" also but also missed requirements by a huge amount.
  19. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Please give (by quoting me, not your re-wording of my post) at least one example of my "misinformation."

    Or better yet, just try to support your false statement that: "The US is the largest importer of goods and services." In services, perhaps, more that US anyway, but I said that exactly in post 875.
    Here is a reputable source telling China, not the US, is world's largest trader:
    Here is first paragraph of Bloomber's article, in full:
    "China surpassed the U.S. to become the world’s biggest trading nation last year {in 2013} as measured by the sum of exports and imports of goods, official figures from both countries show."

    In post 875 I said: "Not true {Captbork's China is tiny fraction of the US} of manufactured goods. China is the world's factory; but of services, like insurance and global banking, yes it is true. Even England provides more of these "paper work" services."

    In what post did I contradict my self as you have stated I did?

    Unlike you, I don't just make claims, I quote sources / show pictutes. A few may be telling something false, I can't check everything.
    Last edited: Oct 11, 2015
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Partially true, (tens of illions of dollars were invested "up front" but not by private firms.). Private companies would not put up the capital to see if that tight oil could be profitable until Canada invested in that researchfor 46 years:
    I. e. your example supports my statement: All the significant* up front money for exploration and oil separation technology was supplied by the Canadian government from 1921 until about 1967 -a total of 46 years. Then private, Sunoco dominated GCOS was formed and in less than a year, was selling oil, with first profits in mid 1970s. (Less than a decade from when GCOS's first dollar was spent!)

    Thanks for yet another example that only governments will fund projects with 4.6 decades before any return on the investment is achieved.

    * No doubt a few chemist has been playing around in their labs for a hundred or more years on the separation problem, but that is not large "up front" capital investment (The billions of dollars that Canadian government spent.)
    Last edited: Oct 11, 2015
  21. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I agree, except when they must regulate some limited capacity service, like RF spectrum for TV, or natural monopoly, like one local electric power company. Then I have no objection to the government selling the rights to use that naturally limited asset to the highest qualified bidder - making a profit.

    This is quite like real estate taxes - they force the use of a piece of land (does not get more limited supply than that) to be permitted, on long term average, to its highest economic use.

    As far as "central planning" the US has a huge amount of it, mainly via regulations and the IRS's rules. It does not need a bunch of planning bureaucrats making individual plans about factories, production etc.

    The home mortgage deduction is one of the most efficient examples of "Central Planning" any government has ever had, USSR included. For a long time the government believed home ownership was essential for a good society, and we made "liar loans" "no money down loans", "Balloon loans" etc. in support of this centrally planned "objective." - it caused economic disaster, and now there are more renters than before.
  22. joepistole Deacon Blues Valued Senior Member

    Except that isn't true. Unfortunately for you BillyT words do have meanings.

    "DEFINITION of 'Centrally Planned Economy' An economic system in which economic decisions are made by the state or government rather than by the interaction between consumers and businesses."

    Your assertion is either a reflection of profound ignorance or an outright lie.
  23. joepistole Deacon Blues Valued Senior Member

    My pleasure:

    We have had this discussion many times before BillyT. Your assertion that China is the largest importer of goods is blatantly false. And if you had taken just a few seconds to validate your assertion you should know that. Also, as has been repeatedly explained to you, China's self reported economic numbers are suspect, they cannot be believed, because China is known to fudge its economic numbers to make them look better than what they really are.

    You are mixing two very different things here BillyT. You are mixing domestic consumption with foreign exports. And has been endlessly discussed with you, the US economy is much larger than China's. That's the unpleasant bottom line for you. China is the world's manufacturing hub for one reason and one reason only, cheap labor. Chinese per capita GDP is less than 12k per year.

    Additionally you are deeply discounting the value of services. This is a habitual theme with you. Services are no less valuable than manufactured goods.

    ...just as soon as you point out where I said you contradicted yourself.

    Please Register or Log in to view the hidden image!

    Yeah you do just make up claims and you do promulgate conspiracy nonsense (e.g. US told Germany it couldn't return Germany's gold reserves because the US had loaned Germany's gold out to unspecified borrowers). And you do engage in data dumps and quote sources but those data dumps are either specious and/or irrelevant to the cause your are attempting to sell. And that is one reason why your predictions are so often wrong, especially your big ones, like the collapse of the dollar last year on Halloween which you have since revised to Halloween of this year.

    What you have repeatedly and consistently done and continue to do is white wash and ignore China's faults and hype its state propaganda.
    Last edited: Oct 11, 2015

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