We can't borrow and spend our way into prosperity

[Ivan Seeking]

We can't borrow and spend our way into prosperity - a favorite Republican mantra, as expressed in this interview with House Republican Minority Leader, John Boehner.
http://www.abcnews.go.com/ThisWeek/Story?id=7373578&page=4

In that light, recall the Bush was proudly called "America's CEO".

So if we are to view the US as a business, as the Republicans prefer to do, then tell me what successful company has not borrowed and spent it's way into prosperity? This is how business is done. Doesn't John Boehner know that?

We have a country in desperate need of reorganization, which is precisely what Obama is doing - reorganizing the company to be successful. He is also borrowing money which is then invested so that the nation can prosper. He is doing what any businessman would do if handed a failing company and failed economic policies.

He also rejects the notion that prosperity can be primarily a function of service-based industries and excessive consumer spending and debt. In other words, you can't run a company that has janitors, management, a cafeteria, and a gift shop, but no workers - no production.

One point that has occurred to me lately: Historically, we can link GDP to population growth, but we only look at the growth here in the US. In a global economy, and if we can restructure as a competitive company, it seems inevitable that GDP can be linked to emerging markets and the population abroad. We do this by building a trade surplus.

Note also that oil imports account for about half of our trade deficit, so by targeting energy, Obama is targeting for growth in the GDP in three ways. Firstly, he is targeting for growth by reducing oil imports. Secondly, he seeks to rapidly expand green industries, which would result in fewer imported green technologies needed to meet the demand for these technologies, domestically. Thirdly, he is targeting for exports of green technology.

 

[humanino]

Please forgive my naive question, but it may be appropriate in the present context

view the US as a business

If I were to believe in completely free markets to the point were even the nations should be considered as businesses, then what happens when the nation(s) fail ? Shall we hope that Canada or Venezuela would buy the country !?

It is appropriate that a business fails when it is not suited to the market. It is not appropriate that a full nation can fail. I think everybody agrees on that. Admitting that there should be a list of essential services for a nation to sustain its existence, such as energy production, health protection, banking systems, what would be the appropriate measures to adopt so that those essential services can not be challenged by a few irresponsible individuals ?

Sorry if I hacked your thread with socialist prejudices.

 

[TheStatutoryApe]

Please forgive my naive question, but it may be appropriate in the present context If I were to believe in completely free markets to the point were even the nations should be considered as businesses, then what happens when the nation(s) fail ? Shall we hope that Canada or Venezuela would buy the country !?

It is appropriate that a business fails when it is not suited to the market. It is not appropriate that a full nation can fail. I think everybody agrees on that. Admitting that there should be a list of essential services for a nation to sustain its existence, such as energy production, health protection, banking systems, what would be the appropriate measures to adopt so that those essential services can not be challenged by a few irresponsible individuals ?

Sorry if I hacked your thread with socialist prejudices.

A nation can fail. It happens.

In most free market capitalist style corporations each division is responsible for its own profits and livelihood. If it fails it is gotten rid of.
Some more circumspect corporations realize that there are sectors that have a value above and beyond the profits they make and may even save or prop up certain sectors that are not particularly profitable (money wise) for the good they see it does the whole. Isn't that a somewhat socialist idea? Its not incompatible with capitalism. A good capitalist is circumspect and looks beyond short term gains.

 

[russ_watters]

So if we are to view the US as a business, as the Republicans prefer to do, then tell me what successful company has not borrowed and spent it's way into prosperity? This is how business is done. Doesn't John Boehner know that?

He most likely does know that. The key is that businesses are constrained by the judgement of banks in determining how much they can borrow because banks want to make sure the businesses are capable of paying them back (otherwise the banks go under - that is what caused the financial downturn!). The government, on the other hand, sets its own debt limit. The question isn't really "should we" borrow (we've borrowed for generations, and at least a little borowing is a good thing), but how much? IMO, a doubling of the amount of borrowing with no near-term projection for stabilizing the balance sheet is a very dangerous thing.

We have a country in desperate need of reorganization, which is precisely what Obama is doing - reorganizing the company to be successful. He is also borrowing money which is then invested so that the nation can prosper. He is doing what any businessman would do if handed a failing company and failed economic policies.

You have it precisely backwards, Ivan. When a businessman is handed a failing company, and they are talking about "reorganizing", that's bankrupcy, caused by too much debt, and the reorganization is about shedding debt.

Perhaps more on point, are you saying that you think Bush didn't do enough deficit spending?

Toward the end of that interview, there was talk about the number of Americans who don't pay taxes and those who pay very little. If we are to run our country like a business, what would that mean for those workers who contribute little or nothing to the successful operation of this business? Or are the American people clients instead of workers? What do you do with a client who you do thousands of dollars a year in work for, who then never pays you?

 

[ExactlySolved]

Whether or not we model the government as a business, it is an economic fact that government spending increases aggregate demand which increases GDP (the only question is to what extent the increase in GDP is merely inflationary). Furthermore, decreasing taxes also increases GDP in the same way. Correspondingly, increasing taxes or decreasing government spending will decrease GDP; a recession is defined by decreasing GDP.

In the history since the great depression the US government has usually taken a balanced approach: republicans want to lower taxes (increase GDP) and decrease spending (lower GDP); democrats want to increase spending (increase GDP) and increase taxes (decrease GDP). George W Bush broke the trend by massively increasing spending (increase GDP) and massively decreasing taxes (increase GDP). Investors are collectively finding out to what extent the increase was merely inflationary.

Perhaps more on point, are you saying that you think Bush didn't do enough deficit spending?

The difference between inflationary and real growth in GDP depends on the slope of the aggregate supply curve: if we are fullying employing our resources then any increase in the money supply clearly does not lead to any more real production. This is the economic difference between spending on defense and spending on infrastructure. More specifically, investment in infrastructure generally leads to progress (real GDP greater than or equal to pre-investment levels) while investment in defense is only nescessary at the hands of a genuine enemy to prevent regress (real GDP less than or equal to pre-investment levels). Nobody thinking about post-WW2 politics expects a war to increase our quality of life, only to prevent our current quality of life from being decreased by our enemies.

 

[humanino]

A nation can fail. [...] If it fails it is gotten rid of.

When did it happen ? How does it happen ?

 

[TheStatutoryApe]

When did it happen ? How does it happen ?

I think usually the government is overthrown when the people get tired of joblessness and lack of money/food/ect. Didn't that happen in France monsieur?

I don't know that nations have ever been gotten rid of though they have split, dissolved, and occasionally been subsumed.

 

[humanino]

Didn't that happen in France monsieur?

I guess I lost all credibility (again)

 

[misgfool]

I haven't seen a single good model of a country as a business. Does anyone have one?

 

[Vanadium 50]

I haven't seen a single good model of a country as a business. Does anyone have one?

Republic of Venice?

 

[misgfool]

Republic of Venice?

Could you provide the relevant material?

 

[Vanadium 50]

Not sure what you want - Venice at it's peak was something between a mercantile nation and a plutocracy, perhaps a little like a keiretsu with territory. Any history of it will describe how it operated. Many elements parallel modern businesses. Some don't.

 

[misgfool]

Not sure what you want - Venice at it's peak was something between a mercantile nation and a plutocracy, perhaps a little like a keiretsu with territory. Any history of it will describe how it operated. Many elements parallel modern businesses. Some don't.

I was referring to a more abstract model of causes and effects of different policies. But if you do have a good source on the Republic of Venice, let me know.

 

[mheslep]

... More specifically, investment in infrastructure generally leads to progress (real GDP greater than or equal to pre-investment levels) ...

According to who? It may be so, but I don't take it for granted. Arguments against include, e.g.,
http://en.wikipedia.org/wiki/Crowding_out_(economics ), and the inefficiencies of central planners.

 

[WhoWee]

He most likely does know that. The key is that businesses are constrained by the judgement of banks in determining how much they can borrow because banks want to make sure the businesses are capable of paying them back (otherwise the banks go under - that is what caused the financial downturn!). The government, on the other hand, sets its own debt limit. The question isn't really "should we" borrow (we've borrowed for generations, and at least a little borowing is a good thing), but how much? IMO, a doubling of the amount of borrowing with no near-term projection for stabilizing the balance sheet is a very dangerous thing. You have it precisely backwards, Ivan. When a businessman is handed a failing company, and they are talking about "reorganizing", that's bankrupcy, caused by too much debt, and the reorganization is about shedding debt.

Perhaps more on point, are you saying that you think Bush didn't do enough deficit spending?

Toward the end of that interview, there was talk about the number of Americans who don't pay taxes and those who pay very little. If we are to run our country like a business, what would that mean for those workers who contribute little or nothing to the successful operation of this business? Or are the American people clients instead of workers? What do you do with a client who you do thousands of dollars a year in work for, who then never pays you?

There is one more thing. When a business borrows and spends...they make various investments in property, plant, equipment, research & development, IT, and marketing. All of these investments are expected to produce a specific return on investment (some short term and some long term) and are typically outlined in a business plan or finance documents. But a well-run business never makes an investment in a new division or hires people just to create jobs.

The administrations primary argument is that jobs will be created. But when government jobs are created...the government has to find a way to pay for them...which means raise taxes or borrow more money.

I guess the exception would be a toll highway or bridge that can generate revenue and create jobs? but, I also remember a toll booth in Richmond VA a few years ago that was staffed around the clock and only charged $.05...it was in a remote area with very little traffic.

 

[mheslep]

Comparing government to business in the since of the OP greatly over extends the analogy. The comparison only makes sense in terms of efficiency, that is to show government where it falls short. It is brought up so often because of the stark contrast: businesses by and large pay severe penalties for avoidable inefficiencies where as government seldom seems to do. Other than that, they are two completely different things. One assuming the risks of enterprise and thriving only by providing value or dying, government by its nature is not accountable in this way. Its meant only to provide a framework of laws allowing business to take place.

 

[WhoWee]

Comparing government to business in the since of the OP greatly over extends the analogy. The comparison only makes sense in terms of efficiency, that is to show government where it falls short. It is brought up so often because of the stark contrast: businesses by and large pay severe penalties for avoidable inefficiencies where as government seldom seems to do. Other than that, they are two completely different things. One assuming the risks of enterprise and thriving only by providing value or dying, government by its nature is not accountable in this way. Its meant only to provide a framework of laws allowing business to take place.

Another way to look at it is this...if the employees of a company voted on the board members (instead of shareholders) and (to make the point) executive officers...do you think there would be pressure to increase wages and benefits for the "voters"?

Unless the employees owned stock, do you think they would vote for anyone wanting to maximize profits and growing the business for long term prosperity...or do you think they would vote for their self interest?

Maybe we need to make an Amendment that only TAXPAYERS can vote...that would be interesting.

 

[mheslep]

Presidential economic adviser Larry Summers in the 2001 PBS 'Commanding Heights' interview:

The idea that a huge spending program is the way to stimulate the economy, or the idea that the way to get better at high tech is for the government to take over the technology industries, these kinds of ideas basically have become passe because they've been disproven. They don't represent a reading of experience.

Citing his respect for conservative economist Milton Friedman and his observation of the evolving world economics of recent history, Summers also said:

There is something about this epoch in history that really puts a premium on incentives, on decentralization, on allowing small economic energy to bubble up rather than a more top-down, more directed approach, that may have been a more fruitful approach in earlier years.

http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_lawrencesummers.html