BG: Clunkers,’ a classic government folly.

[Hubbs]

In a subset of very specific conditions where we limit the conversation to singluar and specific entities and items.

However that isn't really relevant to our current situation.

The conditions are not "very specific." The conditions, according to your own words, are merely that actions take place within "the US economy." That's hardly "very specific."

Stocks are much closer to their long term value (as measured by things like P/E ratios) than gold is to its long term value (as techboy likes to point out that long term the value of gold doesn't even keep up with inflation, and gold is well above its long term inflation adjusted mean or median value).

And again, you are comparing a single entity (gold) to multiple entities.

We're not talking about which investment is closer to its "long-term value," which I would note depends very much on which measurements you use. For example, the "long-term value" of bonds depends entirely upon the likelihood that the bondholder will receive money promised in the future. We're more indebted than we've ever been, yet bonds are also valued more than they've ever been. One of those things has to give. I could give you two guesses as to which it will be, but you only need one.

We're talking about what's "good for business." If you want to guarantee a stock market crash, you want people to become "irrationally exuberant" about stocks.

Each of the above have various real objectives.

But you've already said that the difference between paying someone to build a car and paying someone to dig a useless hole is that one gets you a car, while the other gets you a useless hole. So what do those projects get you? They get you studies about ebonics, news about condoms, and stories about how great the projects were.

The fact that a hole is useless can only be determined by how much society values the hole. Any given government could well label such a project as, "Putting People to Work Through Necessary Excavation." But no label is capable of changing reality, and if the reality is that all that's being accomplished is the digging of a useless hole, then all that's being accomplished is the digging of a useless hole.

"Stimulating" the economy by paying someone to come up with a story about how great "stimulating" the economy is may not be labeled as a useless hole, but that doesn't change the fact that it's a useless hole.

You should read what Keynes actually said:

http://www.businessweek.com/blogs/money_politics/archives/2009/02/stimulus_keynes.html

What Keynes actually said was specifically that digging useless holes does, in fact, have value. He said that building homes had more value, but that digging useless holes was better than nothing. To which I respond, no it's not. Digging useless holes is equal to nothing. If people would willfully pay $0 for those holes, then they aren't worth anything.

But nobody is talking about borrowing money to dig useless holes. Not even Keynes so this point is irrelevant.

Again, your link that you cited showed that Keynes talked about that very thing, and that he believed there was value in it.

Do you think that the CEO of Lehman brothers cared if long term Lehman brothers stayed in business (long term) after (while) he had made his 1/2 billion dollars?

For him to gain half a billion, other people had to lose half a billion. This sounds suspiciously like you would have suggested that investors not give their money to Lehman, but that would mean that they'd have to give their money to someone else - maybe a gold seller.

Just because they weren't making cars efficiently, at one particular point in time, doesn't mean that they can't.

That's what I want to hear when I give a company my money. "Just because our business model sucks, doesn't mean that it will always suck." Awesome. I smell profits.

Private industry is not an entity. They are run by people. People who frequently are ONLY worried about their next pay check, bonus, or quarterly earnings report.

The problem is that you think they're somehow separate. Without people, there would be no private industry. If a company is paying someone who's harming the company, that means that somewhere along the line a person is paying someone who harms the company. And that person, in turn, is being paid by someone else. Eventually, the owners of the company are somehow paying employees to harm the company. The fact that they're doing so means that other owners of a different company that performs the same tasks will be more successful.

Markets don't promise results. They promise opportunity. You have the opportunity to make money, and you have the opportunity to lose it. Nothing more. The only way this balance is upset is if an entity rushes in to try and allow someone to make money without someone else losing it.

Want to keep your money? Then keep your money.

If you put somebody else in charge of your healthcare that is worried about short term gains, don't be surprised if you end up dead because simple tests were to expensive.

Especially, if the person running your healthcare can make enough to from denying them to walk away very rich and live comfortably even if you die longer term.

Sounds like the stupid decision was putting that person in charge of your health care. If only we had a way to somehow assign a numerical value to people who would make better decisions....

Generally, the problem with the Austrian school of thought with business is that they treat companies like people that will long term look after their own well being.

Well, Austrians are pretty dumb, then. Everyone knows that companies don't get their money from people. They get it from the Money Tree.

Generally, people will do at least what they think is best for them long term based on their current means and needs.

Correct.

Companies though aren't entities.

Incorrect.

They don't think, and they don't act.

Way incorrect. Who runs a company?

People run them,

Oh! Glad you were quick with that answer. Again, if only we had a way to assign a numerical value to the work people do....

and what people think is best for themselves long term doesn't necessarily mean what is best for the entity that they work for long term.

But you just said that companies aren't entities. In fact, you were very specific about just how nonexistent companies are. They don't think, and they don't act, remember? People do. And people, as you've correctly asserted, think in their long-term interest.

Once upon time, when companies were generally smaller and largely owned/run by single families, this line of thought might have made more sense, but not now.

Sounds like you want things to be like they were "once upon a time." I'm telling you how they got to be that way in the first place, and I'm telling you what the fundamental flaw in our current way of life is. You're expressing it very well, over and over again. You want people to gain without other people losing.

so if CFC was such a smashing (no pun intended) success, why limit the credit/check to those involved to only $4500? Why not make it 10K, 15K, heck 50K? Wouldn't it be that much better?

This question will be dismissed, just like similar questions such as, "If a trillion in stimulus is good, why isn't two trillion better?" Or, "Why would McD5's plan to print $13 trillion not work?" Both plans rely on Americans gaining trillions of dollars without anybody losing trillions of dollars. And the designers of both plans wish very much for this to not be true.

[Hubbs]

are you honestly arguing that a graph showing a downward trend of the fed target rate across decades is in an indication of the fed pushing harder and harder to push demand continously, rather than, say, an appreciable improvement in the efficiency of capital markets, and their ability fulfil their role of measuring and allocating risk?

if your hypotehesis were true.. wouldn't inflation have risen ? (substantionally!)

Yes. We would have seen higher prices. You could even say that there would have been a bubble in prices. This bubble could, potentially, have been in the part of the economy that the BLS weighs more heavily than any other part in its inflation formulas. You'd think that sort of thing would cause those formulas to spit out larger inflation numbers. But if the BLS formulas were incorrect - if they measured that part of the economy in, say, rent instead of prices - then they would also give us numbers that were incorrectly small.

We can have inflation without knowing it if our measurement of inflation is wrong.

[mojobo]

Generally, the problem with the Austrian school of thought with business is that they treat companies like people that will long term look after their own well being.

Generally, people will do at least what they think is best for them long term based on their current means and needs.

Companies though aren't entities. They don't think, and they don't act. People run them, and what people think is best for themselves long term doesn't necessarily mean what is best for the entity that they work for long term.

Once upon time, when companies were generally smaller and largely owned/run by single families, this line of thought might have made more sense, but not now.

If that were true then there would be absolutely no need for private companies at all and we should switch to complete government control of all means of production. You would almost never see companies succeed more than the short term and there would be no investments in capital to better the company because the people would just take the money for themselves. The way you want to act on the market though is through government. And governments aren't entities... they don't think and they don't act. Just as you attribute the people running businesses acting in their own best interest, politicians are acting in their own best interests as well.

[PeterMP]

The conditions are not "very specific." The conditions, according to your own words, are merely that actions take place within "the US economy." That's hardly "very specific."

Gold is very specific, and the US economy is also specific (i.e. not the economy of any other country).

We're not talking about which investment is closer to its "long-term value," which I would note depends very much on which measurements you use. For example, the "long-term value" of bonds depends entirely upon the likelihood that the bondholder will receive money promised in the future. We're more indebted than we've ever been, yet bonds are also valued more than they've ever been. One of those things has to give. I could give you two guesses as to which it will be, but you only need one.

We're talking about what's "good for business." If you want to guarantee a stock market crash, you want people to become "irrationally exuberant" about stocks.

A stock market crash isn't good for business. Neither is people investing money in ineffecient manners.

But you've already said that the difference between paying someone to build a car and paying someone to dig a useless hole is that one gets you a car, while the other gets you a useless hole. So what do those projects get you? They get you studies about ebonics, news about condoms, and stories about how great the projects were.

The fact that a hole is useless can only be determined by how much society values the hole. Any given government could well label such a project as, "Putting People to Work Through Necessary Excavation." But no label is capable of changing reality, and if the reality is that all that's being accomplished is the digging of a useless hole, then all that's being accomplished is the digging of a useless hole.

"Stimulating" the economy by paying someone to come up with a story about how great "stimulating" the economy is may not be labeled as a useless hole, but that doesn't change the fact that it's a useless hole.

People care about news. They pay for news. They want to know how money is being spent.

It isn't the most worthwhile expenditure of money, and I don't think I would have funded it, but isn't useless.

What Keynes actually said was specifically that digging useless holes does, in fact, have value. He said that building homes had more value, but that digging useless holes was better than nothing. To which I respond, no it's not. Digging useless holes is equal to nothing. If people would willfully pay $0 for those holes, then they aren't worth anything.

It has value under very specific conditions from very specific sources.

And Keynes wasn't talking about borrowing money to pay people to dig useless ditches. Read the link again.

For him to gain half a billion, other people had to lose half a billion. This sounds suspiciously like you would have suggested that investors not give their money to Lehman, but that would mean that they'd have to give their money to someone else - maybe a gold seller.

How's that relevant to the point?

The business model fails because it reacts to slowly to changing conditions. It also fails because people take (their) short term interests into account (the businesses/societies) over long term interest.

The system isn't close to infinitely effecient. We aren't close to having all of the information.

(In fact, people make money from the system being ineffecient and information not being known.)

What numerical value do we assign to people that make better decisions (consider the CEO of Lehmans Brothers made 1/2 billion dollars)?

And, lastly, if people take your advice and keep their money (or invest in something like gold, which long term can't increase in value faster than inflation) because they feel unsafe due to the actions of certain people), our economy is in big trouble.

This question will be dismissed, just like similar questions such as, "If a trillion in stimulus is good, why isn't two trillion better?" Or, "Why would McD5's plan to print $13 trillion not work?" Both plans rely on Americans gaining trillions of dollars without anybody losing trillions of dollars. And the designers of both plans wish very much for this to not be true.

Again, nobody is claiming that the US debt is inconsequential or that there aren't issues with the borrowing of money to do this.

They are making an effort to walk a tight rope. Maybe they'll fail. Maybe they won't.

[PeterMP]

If that were true then there would be absolutely no need for private companies at all and we should switch to complete government control of all means of production. You would almost never see companies succeed more than the short term and there would be no investments in capital to better the company because the people would just take the money for themselves. The way you want to act on the market though is through government. And governments aren't entities... they don't think and they don't act. Just as you attribute the people running businesses acting in their own best interest, politicians are acting in their own best interests as well.

You answered your own question.

We need private companies because government also fails because the people there are likely to act in their own self interest.

By combining the two, you can create situations where they are complementary and failure is less likely.

(I will note, that I could turn the table and make the analogous argument. Control of the government is a free market. If free markets were so great, then shouldn't the government be great. If the government was great because of free markets, then we could just let the government run everything.)

[mojobo]

You answered your own question.

We need private companies because government also fails because the people there are likely to act in their own self interest.

By combining the two, you can create situations where they are complementary and failure is less likely.

(I will note, that I could turn the table and make the analogous argument. Control of the government is a free market. If free markets were so great, then shouldn't the government be great. If the government was great because of free markets, then we could just let the government run everything.)

I'm not saying government has no role to play. Government needs to enforce the contracts between citizens, provide a strong national defense, state clear property rights, prevent people from harming one another, and provide police and courts to fairly enforce the laws. Without this the free market could never prosper. With the government being so heavily involved in companies operations in turn companies have to be heavily involved in the government operations as working the government has become part of the competition. This is why so much is being spent on lobbying which has had harmful effects on the markets. With lobbying becoming vital to succeeding in order to enter industries so much has to be spent in order to make it. This is leading to less businesses and jobs.

[PeterMP]

This is why so much is being spent on lobbying which has had harmful effects on the markets. With lobbying becoming vital to succeeding in order to enter industries so much has to be spent in order to make it. This is leading to less businesses and jobs.

Why?

Don't lobbyists get paid?

The government isn't forcing companies to hire lobbyists, they are free market "invention".

[mojobo]

Why?

Don't lobbyists get paid?

The government is forcing companies to hire lobbyists, they are free market "invention".

The jobs aren't for any productive means. They exist to remove competition from their industry by making regulations favorable to their company instead of another. The money should be spent to either improve a good or service, advertise to reach new customers, or reflected in a lower price.

[PeterMP]

The jobs aren't for any productive means. They exist to remove competition from their industry by making regulations favorable to their company instead of another. The money should be spent to either improve a good or service, advertise to reach new customers, or reflected in a lower price.

Again, aren't lobbyists a free market invention?

Isn't the interference of the business in government a free market invention (I saw a piece the other day on the long shoreman on the west coast. For a little bit, they talked about the influence shipping industry had on local west coast politicians.)

Isn't there a much longer/greater history (that easily pre-dates FDR and the New Deal) of industrial leaders trying to influence politicians?

Doesn't the free market essentially dictate the potential of having the government interfere on your behalf is worth spending some money?

[PeterMP]

deleted post

[mojobo]

Again, aren't lobbyists a free market invention?

Isn't the interference of the business in government a free market invention (I saw a piece the other day on the long shoreman on the west coast. For a little bit, they talked about the influence shipping industry had on local west coast politicians.)

Isn't there a much longer/greater history (that easily pre-dates FDR and the New Deal) of industrial leaders trying to influence politicians?

Doesn't the free market essentially dictate the potential of having the government interfere on your behalf is worth spending some money?

I'm sure lobbyists have been around since government has existed. From the perspective of the specific business who benefits from having lobbyists change the rules in their favor and lessens the competition in their industry of course its worth spending money to do so. They don't have to improve their product, lower their price, or try to get their product to more people to improve their profits, the just have to change the rules to favor them. But how do we benefit from more products that are more expensive, lower quality, and less available to us?

[PokerPacker]

Again, aren't lobbyists a free market invention?

Isn't the interference of the business in government a free market invention (I saw a piece the other day on the long shoreman on the west coast. For a little bit, they talked about the influence shipping industry had on local west coast politicians.)

Isn't there a much longer/greater history (that easily pre-dates FDR and the New Deal) of industrial leaders trying to influence politicians?

Doesn't the free market essentially dictate the potential of having the government interfere on your behalf is worth spending some money?

Perhaps I don't know as much as I think I do (no, wait, that can't be right! ), but I believe a free-market is when the consumers control the markets (supply and demand) as opposed to a socialist/communist market controlled by the government or a Laissez-Faire market controlled by businesses.

[JimboDaMan]

Perhaps I don't know as much as I think I do (no, wait, that can't be right! ), but I believe a free-market is when the consumers control the markets (supply and demand) as opposed to a socialist/communist market controlled by the government or a Laissez-Faire market controlled by businesses.

"Free market" is usually meant to describe a condition free from government regulation. Businesses can and do control portions of a free market economy; without government intervention monopolies and oligopolies are not uncommon.

[PeterMP]

I'm sure lobbyists have been around since government has existed. From the perspective of the specific business who benefits from having lobbyists change the rules in their favor and lessens the competition in their industry of course its worth spending money to do so. They don't have to improve their product, lower their price, or try to get their product to more people to improve their profits, the just have to change the rules to favor them. But how do we benefit from more products that are more expensive, lower quality, and less available to us?

I'm not arguing that lobbying isn't ineffecient. I'm arguing a free market is essentially unstable because it is going to do try and do the very thing that you'll scream is going to destroy it- get the government involved in regulating businesses.

[deejaydana]

Maybe they could rename Cash For Clunkers: "College educator WH adminstration's latest idealist's adventure built upon a foundation of ivory tower dreams, ending in tears." ah well, it looked good on paper. How about this one: to revive the housing market we could burn down all existing homes and rebuild them from scratch, thereby employing millions in the process.

[PeterMP]

Perhaps I don't know as much as I think I do (no, wait, that can't be right! ), but I believe a free-market is when the consumers control the markets (supply and demand) as opposed to a socialist/communist market controlled by the government or a Laissez-Faire market controlled by businesses.

I'm actually unsure of the exact definition of free market. I was just going based on his other comments in terms of what he'd like to see the government do.

[PeterMP]

Maybe they could rename Cash For Clunkers: "College educator WH adminstration's latest idealist's adventure built upon a foundation of ivory tower dreams, ending in tears." ah well, it looked good on paper. How about this one: to revive the housing market we could burn down all existing homes and rebuild them from scratch, thereby employing millions in the process.

Again, it didn't fail. The OP is claiming it failed based on something that it was never supposed to do.

It was supposed to give a short term boost to the car industry at a time it was in trouble. Give the companies and people that work for them time to adjust to the changing economic times.

[mcsluggo]

Yes. We would have seen higher prices. You could even say that there would have been a bubble in prices. This bubble could, potentially, have been in the part of the economy that the BLS weighs more heavily than any other part in its inflation formulas. You'd think that sort of thing would cause those formulas to spit out larger inflation numbers. But if the BLS formulas were incorrect - if they measured that part of the economy in, say, rent instead of prices - then they would also give us numbers that were incorrectly small.

We can have inflation without knowing it if our measurement of inflation is wrong.

in theory, some particular baskets that measured inflation could over-estimate or under-estimate true inflation, depending on what commodities are put in the basket, but only if the basket somehow specifically is over-represented by stable-price or declining-price products, and has too few-rising price products....

...but... there are literally hundreds of different baskets that are consistantly measured and used to report inflation: many different measures of cpi, ppi, wpi.... etc... AND then there is always the GDP-deflator method of measuring inflation. It uses the entire GDP in period 1 as teh basket (and measures the price of THAT basket using period 2 prices), and it didn't show inflation over that time period either.

what your graph shows is NOT the fed pushing increasingly harder (with a lower and lower target ir) to attain diminishing returns... what your graph shows is essentially decreasing inflation. The Fed's target rate is a nominal measure, and the nominal interest rate is (roughly) the real interest rate plus inflation (plus some negligible cross product). Th graph specifically chooses 1980 as its base point... right when US inflation was at its peak AND right when the fed was SPECIFICALLY jacking up interest rates to KILL inflation.

INflation decreased ALOT after 1980, capturing almost all of the trend movement in the graph. It would be interesting to see what happened to the real interest rate (with inflation taken out) over that time period.