An Idea for the Economy that will Freak Out a lot of People
blogmaverick.com
blogmaverick.com
This sort of top down thinking is just toxic. It seems so great and tidy until you actually try to implement it and then you realize that your level of ignorance was greater than you could have possibly imagined. You can't solve a debt problem with more debt and you can't solve a jobs problem by just creating meaningless jobs. The only jobs that are sustainable are the jobs that produce something that other people actually want.
The whole idea of the price system is that we're given signals about the best ways to serve other people in society. The price system in financial and real estate markets is completely insane and basically non-functioning. We're all suffering with these zombie banks we've created for ourselves.
The real question shouldn't be how to create jobs but rather how to create a society where needs can be met by entrepreneurs and businesses. We've all seen that when people are having their needs met then jobs end up being created by the businesses that form in the process of meeting those needs.
That said Keynes's primary point was that governments should invest and spend money wisely to do stuff the private sector can't or won't do.
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You and I can agree that we'd love to live in a world where people pursue employment due to interest and/or a drive to make the world/economy better. That's not the world we live in, and I don't know how we get there from here.
Lastly, markets are manipulable and are manipulated, and governments aren't the only actors doing so.
I think this is why most public assistance programs in America have been tied to 'service' of one kind or another. It's why social security is at least partly tied to your taxes while you were working. We've got our pride; and yeah, I agree it's irrational, but that's just the way many of us are.
Actually, I got one of those hiring bonuses last year; I mean, I didn't know that I'd get it, and it was only a few hundred dollars, so it didn't factor in to the hiring decision, but I did make someone an actual employee, and my accountant told me I got a credit for it. (The guy was a contractor before, but he did get a substantial raise, and a steady salary rather than a varying paycheck based on hours worked.)
We do, and in fact it is necessarily so. See "Invisible Hand": (the following is a quote from http://en.wikipedia.org/wiki/Invisible_hand )
the invisible hand was created by the conjunction of the forces of self-interest, competition, and supply and demand, which he noted as being capable of allocating resources in society. This is the founding justification for the Austrian laissez-faire economic philosophy, but is also frequently seen in neoclassical and Keynesian economics. The central disagreement between economic ideologies is, in a sense, a disagreement about how powerful the "invisible hand" is.
"The only jobs that are sustainable are the jobs that produce something that other people actually want."
This is exactly it. You can not stimulate an economy simply by pushing up production on the supply side.
Mark Cuban's idea seems appealing on the surface, but he makes a serious assumption. He implicitly assumes a positive net benefit after you give these companies money and they create jobs with this money.
Look, if you transfer money from the government to the companies to the people then that is just a transfer payment. Moving money around like that does not create wealth within a country, and that is what we need right now. We need to spend money on things that generate positive net present value, and we need to curtail spending money on things that do not meet this criteria.
In order for Mark Cuban's idea to work, all of these companies must be employing the additional labor towards activities that are economically profitable. Here's a quick thought exercise. What is the likelihood of a company being engaged in economically profitable activities given that it is taking advantage of this program? (It is reasonable to assume that a company with a healthy balance sheet and a healthy income would not want to deal with government bureaucracy willingly.)
Also, as a side note, the following quote from the blog post is a bit inaccurate:
"(Stunningly, bailouts excluded)."
That the bank bailouts were repaid so handily owes very little to the bailouts themselves. Thanks to extraordinary measures taken by the Federal Reserve, the banks were able to borrow money at an interest rate of virtually nothing and then use this money to purchase U.S. bonds - effectively lending it back to the U.S. government. In addition to this, the Federal Reserve also took the unusual step of dramatically expanding its balance sheet (removing toxic liabilities from the banks themselves). That was the real bailout, and it was much larger than the pithy amounts that you saw reported by the administration.
To get a sense of the scale and size of the real bailout, please take a look at this graph:
http://economix.blogs.nytimes.com/2009/05/07/fed-balance-she...
Edit: Also, I forgot to mention one more thing. The current negative rates on U.S. debt would almost certainly change if we began to issue substantially more of it. As Europe is rapidly learning, the debt market is far from a static environment.
The point is that we have an opportunity to do responsible investing. I am sympathetic to the argument that the US government is incapable of doing responsible investing. So who is, and how can we get them to act on the US government's behalf so that we all benefit?
Is growth economics the only answer? What about creating a sustainable economy that isn't dependent on infinite growth of wealth?
In some parts of Europe, de-growth movement is quite popular and proposes to shift the focus of government policies from economic growth to population well-being (how this is reached lends itself to debates).
It doesn't mean to stop medical research or technical research, it means stopping to envision growth as being only economic growth. Growth can be seen as progress of human indicators, not the accumulation of things and economic growth for the sake of economic growth (which more and more benefits only rich people).
It originates in the simple fact that the economy can not grow infinitely in a finite world.
That is not to say working less is always a major goal, if someone was doing 20 hour work weeks for 30k they would probably rather have 20 hour work weeks that pay 60k than 10 hour work weeks that pay 20k. The great thing about free markets is they let people balance many of those less tangible goals. However, government policy can easily focus on progress that is out of whack with what people actually want so an understanding that the Chinese population might tolerate more pollution for more growth were an American population cares more about clean air than maximizing growth is nessesary to keep people happy.
The US searched growth in the 2000 at every price, even at the price of over-lending. That is where growth dominates everything at the price of well being, society consistency and eventually economy - see the 2008 crash.
And some people are so ingenious, they'll get richer no matter what you do. To make the typical voter's income at least stay even, the average has to go up then.
1) Bank owns asset of dubious value, classifies it as "Level 3 Assets" which allows it to value it using an undisclosed method that has no correlation with the reality of a burst housing/credit bubble. This also allows the bank to hide its true financial state by escaping writedowns.
2) Market for these assets is dead, especially since government bailed out Fannie and Freddie, driving investors to a new "low-risk" market (government backed mortgage securities) and away from non-government backed securities.
3) Fed offers PPIP to buy up this trash. As a side effect, this effectively lowers the risk of these dubiously valued securities
4) Security of dubious value increases in value, is sold to Fed for profit (sometimes even twice its original level 3 valuation, which already had nothing to do with reality). Fed purchased security using mix of private investor and US Taxpayer funds (such as the Treasury)
5) Fed refuses to reveal the method of valuation for securities, preventing people from knowing how much profit the banks made, and how much the Fed lost out (including US Taxpayer money)
Conclusion: Fed now owns toxic security, bank escapes consequences of poor decisions and/or fraud, Taxpayer money is wasted buying assets for a heck of a lot more than they are actually worth in the real market, barring a resurgence of the housing bubble.
I recommend reading the following article which talks about the failures of PPIP: http://www.nakedcapitalism.com/2011/01/richard-alford-why-ha...
Economics is more like politics, if politicians were any good at math.
Not because I think that his thoughts are necessarily the solution but because the lack of constructive criticism.
First of all I didn't read the post to say "this is to solution to end all solutions" but rather here is an idea could it work.
Second how is this a top down approach in any classical sense? His claims is that the companies who think they can create jobs with more money, exist out there and he want the find a mechanism to find them instead of simply distributing at large across the system and see what happens.
Third the US is probably the best country in the world to be an entrepreneur and business. There is very little in the way for anyone to find a need and then go out and build a business around it and there is a huge market for that. If your claim is that it can only be solved by making that part easier then the entire premise of capitalism seems flawed (I don't believe it is and I am not saying you are claiming that either)
The problem fundamentally is that you can only adjust your metrics so far before they become meaningless.
The first step to get the US out of their debt is to raise taxes. That won't make the startup environment better but it will start showing that the US as a country are ready to pay their bills instead of speculating their way out of it.
And before you start calling me a socialist and other nasty things let me just pre-empt this by the following.
I live in Denmark, a country with a progressive tax system +55% tax for the highest incomes and a sales tax of 25%. A car here cost 3 times the amount of a car in the US all because of taxes.
I am a member of the only liberal (in the european sense) political party and is fighting to get lower taxes.
So I am not saying raise taxes lightly. I am simply saying that the US have reached a point where the low tax is working against them not for them.
All systems have thresholds especially economic ones. To keep wanting more of the same ends up creating a self sustaining effect after you reach a certain point. The US have reached that now.
I think Cuban was right that we do have a spending problem. We spend too much on things that are not important. We should cut debt, but the debate around this issue has been framed as a false and confusing dichotomy by the two major political parties.
Someone have to pick up the bill and I have a hard time seeing who that could be besides the american taxpayers.
And just because it hasn't been done before is obvious no natural law
The money that you save by not having a military, can go to buying other goods that those ex-soldiers can provide.
Give anyone some money and they'll save it, not spend it. They'll save it because next week milk and eggs will be more expensive, while houses and electronics will be less expensive. on craigslist. nobody is buying new stuff when the guy down the street is selling his PS3 to make rent.
Essentials are increasing in price. Luxuries are decreasing.
What company is going to create jobs in this environment? And what if you did create jobs making more of X: now X is cheaper. Deflation.
We need inflation. And that means pissing off the Chinese.
We need to accurately price assets. And that means letting some banks fail.
Benanke did his disseration on the Great Depression and essentially stated that to fight price deflation they should have used monetary inflation. That's what we're doing. They don't even publish the M3 anymore but estimates are that the currency printing presses are going at full speed. The problem that Ben didn't anticipate is while rates are low and people want to borrow, banks -- flush with cash to lend -- don't want to. The monetary inflation can't keep up with deflation, which (you're right) is lethal.
The fed is, with QEx attempting to provide greater liquidity, thinking that this will cause price rises, and in turn spur spending and transactions. Of course its having no effect whatsoever. String pushing at its best.
Also: the only people who want to borrow right now are those who are borrowing just to stay fed. Rightly, the banks dont want to lend to them.
by "inflation" I mean "increase in prices", = price inflation
as opposed "greater monetary availability" = monetary inflation
You can't control price inflation/deflation, you can only control monetary inflation.
It doesn't matter why the banks don't want to lend, the point is, Bernanke's plan can't work until they do. (But let's be honest: it won't work in any case.)
I disagree. Gas prices go up when the dollar drops (not the only reason, but a guaranteed one). Make the yuan and the yen vastly more expensive, or just block imports at the port, and prices will go up. Maybe even to the point where it will be cost effective to pay americans to make them.
Most have 2 weeks of savings or less.
If you give somebody money who is already a saver and who already appreciates the virtues of saving -- like myself or probably you -- yes, I'd save it. But that's because I spend a fixed amount, have no debt, and save excess income.
If you give a small windfall (I dunno, $100 to $5,000) to most american families, that money will be spent. Probably a good chunk towards paying down household debt, and the rest to fixing things that have long been neglected. That could be the family car, a leaky roof, etc.
Savings should be the most obvious. You're not going to save your money by hiding it under your mattress. You're going to at least put it into a bank, of not invest in equity or debt instruments. In all of these cases, the money is going right back into the economy to be used productively. If you put it into a bank, they'll loan it back out to someone in a mortgage or such. Equity investment directly fund businesses. And so on. So when you're saving, you're really redirecting the money to someone who believes he has a use for it -- and who believes strongly enough that they're willing to pay for the right to try it. And this is actually what the OP wanted in the first place, but the current system has better controls for ensuring that the money is used productively.
If I spend the money -- say, on a leaky roof, as you suggest -- then that money is going to the roofing contractor, and thence to his employees and the producers of the shingles and other materials. Again, it's being used productively.
Less obvious is if I spend the money on a TV, for example. Some of that money goes to the retailer. But much of it is going to, say, a Chinese company that makes it. This gets into more economic theory like "comparative advantage", which I'm not going to explain here, but simply state that in the bottom line it still makes us better off. People will protest that this contributes to the so-called "trade deficit". In the case of this discussion (at the very least), that trade deficit is a good thing. If we (collectively, somehow, for the sake of simplicity) owe a Chinese company some money, that is precisely the same thing as them pumping stimulus money into our economy! Perhaps you buy a Japanese car; that "trade deficit" is actually executed by, say, Toyota using the "owed" money to build a factory in America, and that again is exactly what we want.
Except that they aren't.
http://research.stlouisfed.org/fred2/series/EXCRESNS
The banks just stuff them into a safe haven. Hence the phrase "Pushing on a string".
Your roofing contractor might pay his employees, or he might try to do more with less people and pay off some debt. Or they might pay of some debt.
As soon as that money enters the bank, its gone, as far as the economy is concerned. It used to be that money was passed along in a long chain of transactions. Now there is a non-zero probability that at any point in the chain, the money goes into a bank to pay off debt, and at that point, its gone for good.
How do we change the bank's behavior? We have to create an economy where loaning out money is the only way to preserve value, instead of the opposite.
Fixing things doesn't help with deflation either.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
Companies are flush with cash. The government can't figure out how to spend money productively. So, we're going to have the government borrow more money to give it to companies that don't need it, using its incredible inability to allocate capital to decide which of these companies to allocate capital to?
If the government can't productively allocate capital and companies have enough, why, in the terms of this post, exactly is it such a bad idea to have the government stop borrowing all the available capital and let the companies start allocating it instead?
(I italicize some words to emphasize that it is the internal issues with the logic of the post I am questioning. I may strongly disagree with it, but I am well aware of the liturgy for Keynesianism.)
2) If you dislike Cuban's target for investment (fixing unemployment, the purported goal of the Tea Party and GOP), then please, by all means, pick a different avenue by which the government could make a return on investment.
A WPA-type program to improve transportation, energy and communications infrastructure. Lot's of jobs across many sectors, from professional to artistic to skilled & unskilled labor, most of which can be in the private sector (contractors/contracting firms).
We tried that and can't do it today. Instead, we piss away large amounts of money and don't build infrastructure.
Policy recommendations should account for reality, not "if we do this right".
There are upgrades to be had: HSR (where it makes sense), more modern air traffic control, intelligent transport systems, multimodal facilities, high-speed internet, power generation (green or otherwise), smart grid, flood contro, seismic refits, etc.
But we don't even need to discuss upgrading the infrastructure, most of what we have now is subpar because of decades of deferred or non-existent maintenance. We will need to spend billions just to get our existing systems up to par,
When? ARRA was sold as that, but it became more about tax cuts and propping up state governments that a public works program.
> and can't do it today.
We're going to have to do it some point: http://www.infrastructurereportcard.org/
May as well do it now while people are out of work and interest rates are low.
> When? ARRA was sold as that, but it became more about tax cuts and propping up state governments that a public works program.
And your new program won't be that because ....?
We can also look at currrent infrastructure spending. It's basically all jobs program, starting with the Davis-Bacon requirement.
> We're going to have to do it some point: http://www.infrastructurereportcard.org/
> May as well do it now while people are out of work and interest rates are low.
Um, the facts that we need to do it and now would be a good time to do it do not imply that we'd actually do it.
We're doing a lot of infrastructure spending now. How about fixing it before embarking on an expansion? That way, we won't have wasted a lot of money that could be used when we're actually going to fix infrastructure.
Yes, interest rates are low now, but lenders want their principle back as well, so wasting money now can affect our ability to borrow and spend when we're serious.
Yes, I think perhaps maybe the government should not be doing what a business would do in this situation.
Again, I remind you I'm not actually trying to engage in a debate over proper economics in general (and trying very hard to carefully refrain from injecting too much of my opinion, it took me a few edits on the first message), I'm trying to work out what exactly this post is trying to say. It isn't clear to me at all how Cuban gets from the the government of today, which is incapable of allocating capital, to the government of tomorrow, which when presented with a menu of even more decisions than it has to make today, is then capable of allocating capital intelligently in an even tougher decision-making environment. Why would the government not simply fail in the ways it is failing already in the allocation of capital? What's the connecting step?
So, what would you do when faced with an investor who's a complete fucking idiot, but can borrow money cheaply?
What is a fail-proof investment plan for this trustifarian?
Why can't we find a plan, or demand that our government do something with this opportunity? There is a hack to be had in here. Who can we trust with this opportunity that the government can farm it out to? What would the terms have to be in order to ensure that the government can make a return?
btw, upvotes for you, thanks for the conversation :)
... tell him not to borrow money?
Is that really such a strange idea?
In fact... how can you seriously entertain any other answer? (In this case, limited to the investor case, not the investor as a standin for the government. This may or may not apply to the government, but what is this metaphor supposed to be proving, anyhow...?)
One of the human irrationalities is a belief that for any set of constraints there must be a solution, but that's not true. An "idiot" investor has no winning solution (virtually by definition in this case), and therefore the answer is not to play. There is no force in the universe that says there must still be a way to invest and prosper anyhow.
Instead, they are the scorekeeper and it seems by the current debate that there is many people that doesn't understand this.
TODAY. However, do you really think that interest rates will remain low until that money is paid off?
So, er, yes, sounds like that might be a reasonable assumption?
The point that others have brought up is that if the US Government borrows an incredibly large amount of money and pushes up the Debt/GDP ratio, future, additional borrowing will become more expensive. But if today's borrowing is used efficiently, it should drive up GDP and reduce some of the need for future borrowing.
TIPS aren't fixed rate, but I don't know what fraction of new US debt is TIPS.
More to the point, you're assuming that we won't have to roll-over that debt, which only happens if we're not running a deficit. Since we are for the forseeable future....
Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest.
According to that reasoning, interest rates almost never change because they're typically a given premium to inflation.
We don't accept that reasoning because you repay what the note says, not the relationship between that number and some other number.
> Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest.
Umm, no. Borrowing now at 0% and rolling that over later to a new loan at 10% is not better than simply borrowing later at 10%.
Yes, borrowing now is better if you do something useful now with the money, something that you'd delay by borrowing later.
However, there's little evidence of that occurring. We're running up lots of debt on dumb spending. If you want to do some smart spending, take the money from dumb spending.
For long-term lending, as long as the Fed doesn't change its stance, the rates will only go up if the economy recovers. If the economy recovers, government won't have to borrow that much anymore.
And if you were still unhappy about the interest payment of government, the government could just change the way its monetary policy is implemented and push down the yields of long-term bonds as well. After all, the government administrates the US$ monetary system. Operationally, they would just instruct the Fed to target long-term yields as well, and then the Fed would change them in the same way that it changes short-term yields (by doing open market operations).
--> infrastructure projects!
If it is a given that money can be borrowed for basically zero interest rate, why not invest it at long term low yield infrastructure projects such as: roads/bridges, high speed trains, electrical distribution networks, or my personal favourite: scientific research.
Just because a business is generating profit (has 'enough'?) doesn't mean that investing more into that business wouldn't make it more profitable and generate a big positive return.
In fact, investing into already successful businesses to help them grow faster (seems to be what Mark is advocating) seems like a great investment strategy if you can get hold of the cash to invest cheaply.
"The committees would then look at the submissions, starting with the ones that promised the most jobs at the least cost."
Yoiks. Investment by government committee. Way to allocate all the wrong money in the wrong place
If you want to create jobs, how about companies under 10 years pay zero taxes. Zero costs to incorporate, and all licenses are free. No costs to access secondary equity markets, and access to an entrepreneurship courses. I don't think they want that many jobs tho, might shake things up.
Cuban is just trying his hand at central planning and it's not well engineered.
Considered the market needs to flush itself of some of these mid to upper sized companies. Some just exist because their stock maintains, while costing society valuable talents and resources. Just something to consider.
Actually Mark Cuban suggested this as well -
http://blogmaverick.com/2008/07/28/how-to-jumpstart-the-econ...
For someone like Microsoft its cheaper to to issue debt in the United States (hey, AAA rating is hard to come by nowadays http://www.businessinsider.com/microsoft-low-bond-yields-thi... ) than transfer the cash from Ireland to the US.
Tax holidays are not the solution the the US debt, or better use of the US's fiscal resources (and yes the ability to borrow money cheaply is a resource).
They would have to. How could an older company compete on such an uneven pitch?
1. What work could be done that would create a better world for us?
2. Why isn't this work being done? Is it regulatory paralysis? Insufficient coordination amongst stakeholders? Are the rewards difficult to capture by the people doing the work? Are there not enough people with the requisite skills?
3. Can we stimulate or coordinate the private sector to organize labor and capital to get this work done? If not, why not?
If you've thought about these questions for a while, it is absolutely shocking to listen to the economic debate going on around us today. We have two camps who are both way off -- some people (e.g. the author of the blog post) assume that throwing money at anyone who asks for it will work, but it doesn't (they just waste it). Others think that letting people keep the money they have previously earned and staying outta the way will work, but it doesn't (they just hold on to it or waste it).
I don't know what the solution is.
The problem is not, "how do we create more GDP" (forever and ever and ever) it's "is there demand which is not being met by supply." At the core, that's what a recession is. The answer is clearly yes in some industries (health care comes to mind) and is clearly no in other industries (real estate and retail comes to mind).
You can't just will an economy of 300m people to a certain state. If people spent more time thinking about optimal long term outcomes and then spent their time removing impediments to those outcomes, instead of pretending like there's some magic incantation that is simply being _blocked_, we'd be having a much more productive national conversation right now.
Twitter: http://latimesblogs.latimes.com/technology/2011/04/twitter-g...
Datacenters: http://www.computerworld.com/s/article/9217259/Apple_Google_...
Ford Tax Breaks: http://www.huffingtonpost.com/2010/05/24/fords-to-invest-135...
1) Companies don't really need cash, currently.
2) This is easily gamed. (Hire people for the minimum amount of time, fire again)
3) It excludes major sources of employment - the majority of gross job gains comes from companies with less than 50 employes.
4) Jobs worth creating require qualifications. People are not interchangeable cogs, you would need to create jobs that actually fit unemployed people.
"Plus our federal government loves to hire people."
This isn't true. As <a href="http://www.data360.org/dsg.aspx?Data_Set_Group_Id=228>th... data set shows</a> (and it's similar to data I've seen in civics textbook, the number of non-Census federal employees has stayed more or less constant for decades.
If you want to know the biggest portion of future federal debt, look for Medicare entitlement spending.
Back to HN: the other problem is that merely "hiring employees" isn't the same as productively using employees. He's deploying a variation on the broken windows fallacy.
Instead, America is trying to destroy any expertise or knowledge that the government has, and keep anyone with experience out of government (look at the ridiculous confirmation battles over the past 5 years).
The problem is that our current politics won't let the US government act on societal principles, or on business principles. The US Government is so hobbled that it can't act to succeed.
You could pretty much stop right there.
[Edit: lest someone thinks i'm being needlessly flippant; The US has to do something about the federal debt. That is not in question. Democrats and Republicans all agree on this. There are external actors who will act and events that will take place if the US does not deal with it's debt (for instance, a downgrade by 2+ rating agencies). So there is no question about whether we must act or not. We must act. It is merely whether we will try to cut our way to prosperity (ha), or whether we will try to actually balance our books while trying to preserve as much of our society as possible.]
The real way to solve complex societal problems is through many small-scale experiments, not a single top-down proposal imposed by a central authority. Tim Hartford's TED talk on this is well worth watching:
What sort of processes do produce good solutions to complex problems?
And if you can outline such a process, what prevents a government, or a polity (i'm more than happy for citizens to do stuff rather than the government) from performing the processes that do produce good solutions?
As analogy (imperfect though it may be), it's like trying to fix a bug in a program that consists of trillions of lines of code, except that you don't have access to the source code or a debugger. Instead, you have just a few high-level variables you can adjust (which may or may not be useful).
In summary, the issue is that there are some problems that have a scale and complexity for which a top-down approach is really beyond human comprehension.
Government is a massive bureaucracy, no doubt, but then so are large companies. And large companies can partner with smaller organizations, or buy them and use their knowledge and expertise to make money.
Look at what Disney did with Pixar.
Since the government's actions may not be subject to the pressures of the price system, a government solution is less likely to reflect economic reality as described by the price system. In more than a few ways, this means the government's actions are not likely to succeed, because the primary motivations for experimentation won't be economic, but political.
Individuals and groups without the power of force must create solutions that can stand up to the pressures of the price system. In this model, shifting experimentation to the scope of individuals and groups by liberalizing (if necessary) or fine-tuning economic policy is what works.
Of course, this explanation requires an well-functioning price system, and making the system function well is a subject in itself. There's also the question of how often actors in the price system actually act rationally, given the information they receive from the price system.
"The nervous system is a total waste of calories! It's total overhead! All it does is tell the muscles what to do!"
Politicians from both parties loved photo ops where some entrepreneur was creating jobs, especially in a distressed area in exchange for state money. Even if all the promised jobs never got created.
Then it got to the point where a con man showed up who never intended to create any jobs.
http://record-eagle.com/opinion/x908934006/Editorial-MEDC-ou...
There are ~6M firms in the USA but only ~90K with revenues of 100M+ so his pool is very small to start with. Firms with 100+ employees count for 1.8 percent of employment and capture 65% of total payroll and something like 2/3 of total revenues. I think ANY company that is pulling in 100M in revenue has probably got things figured out already. The vast majority of employers in this country are small firms so why not try to help small guys turn into bigger guys.
So I think if anything, there should be more investment in firms with less than 100 employees, less than 100m in revenue and less than 10 years old.
There's a reason the federal government can borrow at 0% short term and my hypothetical auto parts manufacturing company can't. I am a default risk; the federal government is not.
IRL, banks essentially borrow at 0% from the federal reserve. They do exactly what Cuban is suggesting the federal government do. They have lots of money. Their mission is to lend that money to businesses who will "create jobs" with it. They price those loans at an interest rate which The problem right now is that not enough businesses see good investment opportunities that justify taking out a loan at rate X, and not enough banks see businesses who are not so risky that they can justify making the loan at a price they would pay. We're in equilibrium, but it's a lowish one.
At the margin, we can increase some of that activity by either (a) making the loan cheaper for business or (b) making the risk lower for the bank of (c) both. In this case, the federal government acts as a guaranteeing middleman between a bondholder (the "bank") and a business. Because the bondholder doesn't have to worry about a business default, the lending takes place at essentially 0%. So this plan boils down to having the federal government guarantee loans to businesses, only instead of saying, "I'm guaranteeing a private loan to a business," they're going through the process of actually initiating the loan themselves (with a website?? please.)
The idea of federally guaranteed loans is not new. Organizations like Fannie Mae and Freddy Mac literally do exactly that; subsidize loans to achieve some kind of social good (in that case, home ownership). The problem is that -- unsurprisingly -- people default, and the programs end up going hundreds of billions of dollars in the hole. And then the taxpayer is on the hook. And that's, kind of what we want to avoid here.
More oddly, Cuban is making the assumption that not only should the federal government subsidize the loan, they should originate and (probably) administer it, which only makes sense if you believe the federal government has a better eye for businesses that will actually succeed and "create jobs" (I suppose) than the many thousands of banks that do this professionally. Color me skeptical.
Yes, money is cheap. But disintermediating the entire corporate paper industry is not a solution here.
I am interested in drilling down deeper on your comment about Fannie & Freddy. I don't view their failure as a criticism of the idea of loaning for the public good. I definitely view their failure as a lack of oversight combined with perverse incentive structures and a truly mind-boggling denial on the risk of loans.
But what befell Fannie and Freddy also blew up Wall Street. So the deeper underlying question is if there are people out there who are better at assessing loans who the government could use as intermediaries for taking advantage of the low credit available to the gov? (yes that's predicated on this being feasible at all in the first place, which i don't take for granted)
What it does prove is that you (the government, industry, or general population) shouldn't pour too much money into areas that show all the signs of a credit bubble.
It might be a highly efficient way of developing new technology, but prizes don't immediately generate large amounts of new employment.
Think about it: most X-Prize-type competitions rely on the intelligence of a few highly skilled people, and even then only a few of them will actually win. The other teams generally make a loss, and so have to rely on "investors" to pay the bills.
To fix employment you need to employ 10,000 ex-auto workers, who at best have some machinist skills if you are lucky. Then you need to do it ten more times. Then ten more. Then you need to do the same for the construction industry, for hospitality and for agricultural workers[1][2]. What's more, you need to do this fast - in months, not years. I cannot imagine anyway to structure a X-Prize to do that.
[1] See the unemployment rates by sector: http://www.bls.gov/news.release/empsit.t14.htm
[2] To be fair, the hospitality industry will probably pick itself up once employment improves in other sectors so you might only need to generate a few 100K jobs instead of a million.
Nurses, care-takers: Unemployment rate = 5.9%, with 1.2 million (already trained) people unemployed
Welders, electricians: That would be either the construction sector (Unemployment rate 13.6%) or the manufacturing sector (Unemployment rate 9.2%).
Re-training will help some people, but isn't immediate and will never help the majority.
There seems to be a weird view that manufacturing in the US will be dead in the future because it is struggling now. It's probably worth noting that rich, first world countries like Germany have huge manufacturing sectors, employing large number of people, and yet have to compete directly with countries with low wages. It isn't clear at all why some people believe the US is fated to lose its manufacturing sector but Germany isn't.
It is just that there will be a lot less jobs in the future.
There are and have been all kinds of stimulation policies in Europe. If you are looking for ideas, have a look at which of them where successful and which were not.
For example in 2008/09, the German gov't paid companies a part of wages if they abstained from laying off people. Was a win-win a year later. The companies saved money because they did not need to re-hire tons of employees when the economy recovered, and the gov't saved money on all kinds of welfare expanses they could avoid paying.
There are many other such programs around, some successful, many not. But it would probably be better in the hands of the US states and not the federal gov't.
Individuals now have debt = to about 119pct of income vs historical levels of .17pct in the 40s, 55pct in the 50s , 65pct in the 60s and a high of 133pct in 2007)."
This is clearly wrong. Never mind cutting taxes, that's much too indirect. New plan - the government borrows as much as it can at negative real interest rates until it bids those rates back down to 0. Then it just mails checks to every American. Some will spend the money (probably with great efficiency! They know what they need!), but most will use it to pay down debts. This is a feature, not a bug. The debts that Americans owe have positive, and in some cases substantial, real interest rates. Bam! You have just accomplished to biggest interest rate arbitrage play in history.
We already have this incredible sophisticated and involved system for creating jobs -- its called the startup market. Each year, tens of thousands of folks come up with ideas to do things people want, and that always means creating a job, if only for the founders. Each year folks invest, or not, and those folks get a shot at succeeding.
So we have tens of thousands of highly-motivated folks putting their own lives and money on the line to make jobs. How could this possibly stack up against BigCorp getting subsidies to create busywork?
The Tea Party used to be non-partisan, at least in theory. Probably never really were, though. But there's a critical non-partisan meta point that you have to acknowledge before you spin off with a bunch of creative top-down ideas: we've been here before. Every time there's an economic problem people come out of the woodwork with all sorts of totally awesome ideas. Some of these work, some don't. The only difference between these implemented ideas and the startups I mentioned is that these ideas are huge things and we can only do a few at a time as a nation.
I think this creative problem-solving is great, but you have to face facts: been there, done that. Whatever we do, we have to have a system that continues to let us come up with and fund these ideas when we need to. Running huge deficits and debt loads over 100% of GDP doesn't let us do that. [insert argument about how I exaggerate when exactly we become limited in our options, but note that at some point even the hardiest Keynesian must realize that the time has arrived.] So debt arguments are not necessarily about philosophy for how to run the economy and create jobs, they can be about the simple ability to do so.
If you ask me, we need to talk about policies that are going to create millions of failures from the bottom-up, all trying to build things to help folks. Not trying to pick among the hundreds of great ideas for the top 3 or 4 that we then throw hundreds of billions of dollars at. It might feel great all rallying around one or two cool ideas, but this is a numbers game. We need to play it intelligently.
Starts to sound awfully like Fannie and Freddie, which made sense when there was no national banking or mortgage market, but tens of thousands of banks with no access to capital. But later they become pure rent-seeking bureaucracies monetizing an implicit Federal guarantee doing nothing a national bank wouldn't do. (not blaming Fannie/Freddie for the crisis although they didn't help matters, and based on bank behavior banks arguably would have done an even worse job).
Could be creating a monster that never goes away and distorts the market.
Cuban's proposal is also paralleling oil policy in the 70s - deregulate 'new' oil and put a 'windfall profits tax' on already discovered oil.
In theory it promoted drilling - in fact it also promoted game-playing to launder 'old' oil into 'new' oil. Similarly, this would be limited to employers who can navigate the paperwork, and it would make economic sense to use this for projects they would have done anyway or somehow laundering existing jobs into 'new' jobs by transferring work to new entities.
Good idea to study why people aren't hiring and provide appropriate incentives to reduce the costs and risks of hiring. The payroll tax holiday was a good idea to reduce cost of employees; extra deductions for training programs to increase productivity, maybe tax credits for hiring long-term unemployed. The more broad-based and the less paperwork the better. I'm not sure the reason companies aren't hiring is related to access to credit.
There are labor economists who spend their lives on these problems, Cuban should probably talk to some of them, they might have a lot of ideas, some of them might even be politically feasible, and make sense to a business guy like Cuban who can get support for them.
I normally love Mark Cubans blog, but this is a terrible idea. If a company cant afford to keep employees it shouldn't hire them. This would be almost as bad as the bailouts were.
This would send inflation skyrocketing.
What happens to all of those small companies that don't have the connections or legal know-how to get the government money? They go out of business because they would not be able to afford the new inflated cost of hiring.
What happens to the people who can barely scrape a living out of their current wage when the inflation this would cause sends food prices sky rocketing?
Because if you look at the data, current inflation doesn't seem to be out of line with inflation prior to the 2009 economic collapse:
http://www.fintrend.com/inflation/inflation_rate/CurrentInfl...
More to the point, the whole point of borrowing to invest, is that if done successfully, your business grows in a sustainable manner, and you can continue to pay that person money for the business you have built.
This is how business loans are supposed to work. You start with nothing, you get a pile of money, you build something that will earn that money back, and hopefully have built a stable company in the mean time that will continue generating wealth even after the terms of the loan come due.
This shouldn't seem foreign on a startup and entrepreneurship site.
From what I've read, inflation isn't a problem in the current economic climate because even with the increased money supply, no one is actually spending any money (or more accurately, most consumers don't have the money to spend) so there is no reason for prices rise since demand is low.
I have no idea how Cuban's idea would affect inflation.
Of course this is HN, so for all the knowledgeable people out there, please correct me if I'm wrong.
Inflation control is (like most economic problems) a balancing act. In my opinion way too much attention was paid to potential inflation problems in 2009/2010 instead of the real problem: unemployment.
Food prices are going up universally. It's not a matter of shopping for groceries, it's knowing how much other nations are paying.
Energy prices are 50% off their all time highs. When they were high, it was a demand story, not an inflation story. Likewise, with food.
In any event, even if all of those statements were true, that's not what inflation means. Inflation is not "things get more expensive", it's "money gets cheaper". There's a big difference.
Inflation is low. Very low. Too low, in fact. If inflation were a couple percent higher, and nominal GDP were also a couple percent higher, the economy would look a lot better than it does right now.
Wasn't cheap money from the Fed supposed to do this a couple of years ago?
I think it's time for people to start to accept that money supply alone doesn't cause inflation.
It has done it. Food prices are at all time highs and causing global social instability. Gold is at an all time high. Energy and commodity prices are very high.
You are mistaking an inflationary depression for equilibrium.
There is a range of causes blamed:
Initial causes of the late 2006 price spikes included droughts in grain-producing nations and rising oil prices.[4] Oil price increases also caused general escalations in the costs of fertilizers, food transportation, and industrial agriculture. Root causes may be the increasing use of biofuels in developed countries (see also food vs fuel),[5] and an increasing demand for a more varied diet across the expanding middle-class populations of Asia
Oil is down in price since 2008, not up.
Increases in the Gold price isn't a measure of inflation, it's a measure of the lack of confidence in other investments.
Once upon a time the total money in a country was $1. Then the guy with the $1 put it in the bank. The bank lent the money to another guy, and that guy then owed $1.10 to the bank after interest. That guy happened to be a car dealer, and the bank owner bought a $0.10 car from him for the interest he earned. Everyone is happy.
Now imagine this scenario:
Once upon a time the total money in a country was $1. Then the guy with the $1 put it in the bank. The bank lent the money to another guy, and that guy then owed $1.10 to the bank after interest. That guy happened to be a car dealer, and some other guy bought a car from him for $0.10. That guy got the money by lending it from the bank. After a couple of years of this stuff, through interest, the total money owed to the bank was $2. So the interest these people have to pay in total is $0.20 that year. There is no way that all money can ever be paid back to the bank, unless the bank owner spends a lot of money. If the bank owner spends say $0.10/year, the total money owed to the bank is bound to increase. Everyone is now a debt slave to the bank. People are going to have to default on their debts, there is no other possibility, because there simply isn't enough money in the world to pay back the bank.
Is it possible that we are in scenario #2?
Imagine Mark and Adison, two neighbors. Both are living happily and have 10 hours a day of free time. Mark can plant trees, while Adison can do house decoration. Both of them are idle. Both of them are jobless. Why? Because Mark can't plant trees, he doesn't have a land. Adison had already done decoration for his home.
One day Adison comes to Mark and suggests that he does home decoration for him. In return, Mark will plant some trees for Adison. Trees are like a long term investment for Adison and house decoration is an improvement in the living standard of Mark. Now both of them are working full time. No money is required.
For the economy, the living standard of the population had increased. Did we require money? No!
So what's wrong? It's not about the money. We need to enthusiast people with a fair, free and open system and they'll start working.
Directly trading one luxury for another doesn't help when what you need is a way to feed yourself, pay the rent, heat the house, etc.
>> Both are living happily and have 10 hours a day of free time.
Forget about the bill and currencies. These are abstraction layers we made to make small exchanges possible and fast.
In any economy, millions of individual buy/sell decisions affect the system. One central committee will never be able to mimic that complexity and then accurately plan for it.
PS to the OP. I wouldn't say it's high taxes that are hurting jobs as much as it is stifling regulations. Our system is basically a 200 year-old Windows computer that has had its kernel and registries tweaked and changed so much that the machine is slow and a pain to use. Not to mention the malware (think lobbyists)...
If we could re-boot from source in the US and just end most regulations jobs would come back more quickly than any other scheme. Or perhaps we just need a new OS.
The problem right now is that this system is generally highly political, unfair, and non-transparent. Cuban implicitly identifies this problem with his idea that the decision-makers should have not made political contributions for five years.
Additionally, states routinely fail to put an enforcement mechanism in place, and they're shocked, just shocked, when they discover they've been fleeced.
Anyway the reason to cut taxes isn't to create jobs, but because taxing anymore than what is required to fund basic government services is immoral.
EDIT: And how do you define 'basic'?
The more I think about it, the solution might make the problem worse in the near term but I think the solution is to clean the slate so we can start over with a new playing ground to make our compromises on. Let's make a flat tax for all businesses and then a flat tax for all individuals, price it to balance the budget and put a 5 year holiday on new tax law. Then in 5 years we can start making our compromises again and recomplicate the tax code to let companies game the system and try to coerce culture changes and what have you. In the mean time, all businesses pay x% and all individuals pay y% on all income, period. Perhaps graduate the tax for incomes below $50k, maybe. And perhaps instead of 5 years, we do it until the AAA rating is restored or the debt shrinks to some number or something. Just radically simplify it all.
I'm just tired of all the unintended consequences and how complex the tax code is. I can't see how we can make it better by trying stuff like this and it seems easy to game without some sort of oversight. (Could you hire your 3 year old and give them a salary no the government's dime? Could you hire a bunch of people for really cheap wages and skim?)
True, but the treasury can't borrow at a negative rate. Actual yields are positive [1].
So called "real" yield is the actual yield minus a forward inflation component as implied by the TIPS (Treasury Inflation Protected Securities) curve. All this means is that the return you earn on owning the bond is _likely_ to be less than what inflation is projected to be. And from the Govt perspective, they will still be paying back more than they borrowed (yields are positive) but that the payback is likely to be devalued to a "real" value less than today's value.
http://www.treasury.gov/resource-center/data-chart-center/in...
We actually have this system in place, VC's, Incubators and Angels. They verify opportunities and fund them. Startups are our future, whether you like it or not. And yes many will fail, but those that don't will provide long-term macro growth.
The biggest winner in about 10 years will be DST, they get it.
If the government wants to solve this issue lend capital to startups directly or via VC's, Incubators, Angels, or whatever. Maybe only lend it to those seeking C rounds to verify a companies stability and to prevent a bubble.
You would have better success by finding businesses that would hire and retain people. These won't be a company that has been around 10+ years. Those companies would put this money to better use.
Also it would be a crazy bet to give money to any business that has only been in business for a short time.
If you're really looking to freak people out, put your presidential candidates on American Idol and see who gets the votes. Why not just make a push for a resource based economy? Not THAT would really freak out a lot of people.
Good article :)
Cut taxes. Tax cuts give VCs, banks, and other lenders/investors more money to invest. Tax cuts also make employment cheaper for everyone (since they get taxed less, you can pay less and they will still get as much money). And they will invest in the things they think are going to be most successful, which I would argue the government would not be good at doing.
Stop giving the government money. They have already proven they do not spend it well, and they create more debt than value that they add.
Remember green jobs? They aren't happening. So here's an alternative. Cut sales and income tax. Impose heavy carbon tax (enough to get gas to $10 gallon in 7 years). Impose carbon-linked tariff on imports. No subsidies to energy research, only to verifiable carbon sequestration. The realignment needed to adjust to that will be very US-labor intensive. And people will feel great about meeting the challenge of fixing the world's biggest externality. Some of us will anyway.
Something more specific than "Win the future", and ideally something most people can believe in.
It seems like an implicit goal is world peace. The US spends a ton of money on defense, but the problem is our current methods involve lots of killing. It's hard to feel good about mass murder. I think we should still spend tons of money on defense, but just explicitly give more money to non-lethal technology.
We should be very clear that our goal is world peace and come up with very specific subgoals we want to see.
But savings bank are being dismantled in Spain now, and in many places like Brazil 10+ years ago. Why? Because politicians need money for their campaigns. Politicians control these savings bank. Eventually the savings bank money makes into the ruling parties friends pockets and financial supporters. Or into senseless investments, investments a private bank has a much lower probability of making since private banks have shareholders and higher stakes that make them much more accountable for their actions.
Government should not lend money directly. That's what banks are for. Government should not replace the private sector. Ever.
Government already has enough resources to incentive the job market: tax cuts for companies that hire new people. Deregulation of the market. Interest rates. Money printing. Hiring public workers. Starting public projects. Declaring wars in foreign countries.
Creating jobs with loans is currently available anyway: companies can show a plan to banks and investors, so they can decide to grant the loan or not based on things like risk and profitability for both parties. Risk aversion and accountability is something that Government overlooks considerably. Private loaning and investing is a very flexible system: the company may then chose to use the money to cut down on its work force, replacing people with robots. That's great, because it makes companies more competitive. That's more important down the road. Lending money, as the OP suggests, to companies so that they can just go out and hire is reinforcing a negative behavior: become less productive first, then see if you can catch up. That's just creating a country of sweat shops.
Recessions can actually be a positive thing for the economy when good, functioning companies (who have cash flowing) have better choice to hire great people (who became suddenly jobless). So don't inflate the job market artificially and mess it up for the well-managed companies and deserving people out there.
Yes, let's have the business of government be exactly that of venture capital / angel investment.
The government is bankrupt because special interests and incompetence makes it an unprofitable business. I'm actually glad that the federal reserve is relatively immune and separate from the government. That way maybe we won't have a catastrophic failure when the government finally becomes illiquid.
I don't know logics, but that doesn't seem like a natural good conclusion, when the positive negates the whole.
Regardless, the answer isn't jobs, but transitioning people from being skilled in trades that no longer matter, and becoming skilled in modern trades, such as programming, design, etc.
How do you calculate the return on health care for old people, or school lunches for kids, or clean water in your faucet, or adding a lane to a congested highway?
If congress has to act on this, yeah i think it's DoA, regardless of how good of an idea it is. But why couldn't the Federal Reserve do this?
Why can't the Obama administration who's still sitting on a pile of stimulus money team up with the Fed to do this? Grants + loans?
The Fed absorbed a huge amount of weird shit (assets like houses and such) in the aftermath of Lehman Brothers collapse. I would be interested in what they would have to change to set something like this up.
EDIT: http://en.wikipedia.org/wiki/Works_Progress_Administration
Looks like the executive branch should have enough power to do this on its own.
http://en.wikipedia.org/wiki/Works_Progress_Administration
The difference in what Cuban is suggesting is that he's just asking why the government can't loan directly to businesses to hire.
funding seems like a sort of crucial detail to me.
The problem is the political fallout. Far-right will scream about socialism, far-left (and I'm one of them) will at least be concerned about the potential for abuse by corporations, and pretty much everyone will be asking why we should trust the Fed to do this right when they've done a lot in recent memory to erode any trust they had.
This is potentially a great job to give a central bank, but maybe not for the current US central bank.
Let's fix it and demand accountability. I want a government that functions, and even if you are of a different political persuasion, I would hazard to guess that you probably do too.
Let's make politicians act in ways that are accountable.
What the government needs to get better at is extract money from the economy in a way that creates, rather than destroys economic value. This is what almost every business does, why can't the government?
What's wrong with THAT?
Do nothing.
Let the bankers steal from the middle class. Let federal reserve steal more money from its citizen. Let the government accumulate more debt. Let the jobs go overseas. Let inflation run rampant. Let people go deeper and deeper into housing/student debt. Let small businesses die.
In fact, encourage it.
Why? because the current system/society, as it stand, is dying body that cannot be healed. It is too old. Too lazy. Too morally corrupt. Too broke.
Because common citizens will wake up one morning. They will be out of a job. They will be losing their house. They will be in massive debt. And they will not be able to afford even the most basic food/gas.
Then they will be truly angry. Not angry as in chatting about it online. Angry as in massive protests in the capitals. Angry as in shutting down major websites. Angry as in rioting. Angry as in burning down houses. Angry as in everywhere.
Only then will there truly be changes.
Just as tempting and probably just as reckless, I think.
I suspect that the changes you would see under your scenario are closer to 1789 than 1787.
Who cares about 300 million citizens suffering through a total economic collapse, as long as The System improves? It should be encouraged, they should sacrifice themselves willingly to the idea of a better System.
Of course, I am very tempted to see 'what happens' if we just let everything continue on the path of destruction. Follow your suggestions, vote for a Trump/Palin/Bachmann trio of president/v.p./secretary of state (not necessarily respectively), etc.
If I read this post within a week of finishing Atlas Shrugged, I would agree wholeheartedly! Maybe even throw in a couple of ideas on how to fight the System.
Objectively speaking (if that is even possible), many good things did come from revolutions.