I’m being lambasted again, this time in the comments to a post at OTB for having the temerity to suggest that we might think about something other than fiscal stimulus to increase aggregate demand as an approach to dig us out of the hole the economy is in. I can’t help but think that the difference in views isn’t just ideological or political but exhibits the difference between the way a staff guy views a problem and the way an entrepeneur does.
Staff: There isn’t enough demand.
Entrepeneur: Sell more.
These are fundamentally different ways of looking at the same circumstances. Yes, taking steps to sell more involves risk. That’s the definition of being an entrepeneur. IMO that’s one of the big changes in the U. S. over the last several decades. Nowadays we’re looking for sure things; we’re extraordinarily risk-averse. We have outsized expectations on what we should expect in the way of return. That’s supported by the much slower rate of business formation.
It occurs to me that there are probably dozens of such differences. I’m taking suggestions in comments.
Dave,
The commentators over at OTB are largely liberal, which I find interesting. Some of their posts are weird like John Persona’s post about how companies have data…yeah big companies, but probably not small companies. Or if they do have the data it isn’t in a format that makes analysis easy nor do they have the skill to do the analysis.
I’m also skeptical of the standard response, boost demand and investment will follow. In looking at past recessions investment came back hand-in-hand with PCE–i.e. investment is coincident with demand. And even if there is a lag we are well over 2 years into the expansion. PCE has returned to pre-recession levels and ecxceeded them. Why is investment “stuck”.
I have no explanations, although I do find the uncertainty explanation some what compelling. Obama care could very well make people skittish about investment and expanding (and hiring people) because they don’t know what their per unit health care costs are going to be. Could that be a factor? What about the stimulus, could that be having an adverse effect. I know everyone is saying it should be having a beneficial impact, but there is nothing that says the multiplier has to be greater than 1. If it isn’t, then stimulus spending could be having a negative impact.
I know many who do empirical economics thinks the stimulus had a positive benefit, but they are relying on models that also said unemployment wouldn’t go above 7.x% and we are still above 9% 2 years into an expansion. Then there is the work of Rogoff and Reinhardt that suggests when debt goes above a cut off point the economy grows slower. Could the stimulus not have worked like it was supposed to because that spending pushed us across that threshold?
Too many want to believe in vulgar Keynesianism, government will spend money and the economy will get better.
Well, yes. I think that quite a number of the commenters (just like any number of NY Times columnists) are so desperate to believe that, if only fiscal stimulus were large enough, all of our problems would be solved and that the primary impediment to prosperity is ideologically-motivated, know-nothing, science-scoffing Republicans. I’m more skeptical of economic engineering as a general principle.
I don’t think the Russians were stupid. I think that if economic engineering could work, centrally planned economies could work, the Soviet Union would have worked, and we’d all be speaking Russian.
I think that our problems have been brewing for a very long time, they will take a long time to solve, and those who’ve benefited by the way things are will fight to the death to keep things the way they are. We persist in subsidizing large companies. Unfortunately, large companies have been shedding employees for decades. Old, established companies don’t create new jobs. Indeed, they eliminate them if they can.
New companies create jobs. What do you do to help new companies? I think one of the things you do is make a space for them to grow. That means pruning back the old, deadwood companies.
18% of Fortune 50 CEOs are lawyers. That’s a sea change from a point in time in which lawyers were relegated to the law department and were considered inappropriate for management.
I was talking a few months ago with a lawyer that used to work for the state 40 years ago, and he thought one of the most significant changes in state government since his time were the number of lawyers in management positions. When he worked for government, they mimicked corporate practice.
To me that evidences a trend towards competing, at least in big, established businiess on the basis of regulatory compliance and advantage.
When you add the accountants to the tally of CEOs and, not only that, when the path to top management isn’t sales or production but one of the staff areas, dwindling entrepeneurship becomes increasingly understandable.
I also think that the utility of management in the abstract is pretty limited but that’s a subject for a different post.
BTW/ Did anybody notice Obama’s statement on the ozone regulation: “I have continued to underscore the importance of reducing regulatory burdens and regulatory uncertainty, particularly as our economy continues to recover.”
But what he did was merely delay imposing the ozone standard until further review of related standards. IOW he extended uncertainty in order to reduce short-term regulatory burdens.
Good point about the accountants; I would also consider them staff.
I rely on the Apple store. (For so very much, but that’s another story.) You can walk through an empty mall and the Apple store is still packed. Why? Because they made something someone wants. Obviously there’s plenty of demand for iPads.
If you build it, someone will buy it — if it’s cool and it works and it does something useful.
I go back to us being topped out on stuff. Too many houses, plenty of cars — cars that have a tendency not to rust through or fall apart like GM cars used to do. You don’t make me want to buy a TV by stimulating me, you do it with a cooler, better TV that also makes coffee. Make something I really want, I’ll buy it.
Michael, what you’re describing is a company designing, engineering, and producing products (more acccurately: having them produced), creating an image, and marketing over the period of decades. That didn’t happen by waiting for demand to increase. It took years of intelligence, effort, money, and patience.
Me too, not because it fits nicely with my libertarian leanings, but because the economy is more like a living organism. An adaptive organism. Engineering works great…on things that tend not to be adaptive. A bridge, or engine wont suddenly start using a different strategy to accomplish its objectives. If you are looking at that last sentence thinking, “WTF, strategy, engine, bridge, goals…is Steve drunk?” But that is precisely the point. A bridge and an engine do not have a goal, nor do they have a strategies either. They obey fairly well understood physical laws.
A group of 10 million people on the other hand are not going to follow well understood physical laws when it comes to pursuing their own happiness/well being. They will select strategies for improving their situation. If a strategy stops working or doesn’t work as effectively some or all of the people using that strategy might change. They might all pick the same new strategy or some might go off in directions others don’t want to try. It is much, much more messy.
The idea that a policy can be crafted to influence 10 million people engaged in various economic pursuits in a predictable way is laughable to me. It is from that point that I find the libertarian views more amenable (not the other way around).
” Obama care could very well make people skittish about investment and expanding (and hiring people) because they don’t know what their per unit health care costs are going to be.”
But, I try to make this point all of the time, we never know what our health care premiums are going to be next year. One year our insurance company wanted a 25% increase, another 42%. We end up changing insurers and passing on costs to employees, which means eventually increasing their pay. It adds expenses for our employees and, in the long run, means they will have worse care. IOW, we already have uncertainty. Maybe because I read and write health care I am less concerned.
“Nowadays we’re looking for sure things; we’re extraordinarily risk-averse. We have outsized expectations on what we should expect in the way of return.”
Est, est, est. If people want to make big bucks, they go work in the world of finance. They do not start new businesses. They gamble with other people’s monies.
“The idea that a policy can be crafted to influence 10 million people engaged in various economic pursuits in a predictable way is laughable to me. It is from that point that I find the libertarian views more amenable (not the other way around).”
Would that also include a laissez faire policy? Doesnt that require centuries of insight into how people actually behave? What did Adam smith say happened when two or more businessmen get together?
Steve
Which supports the point I made. Look at how the size of the financial sector has exploded over the last couple of decades. Some of those bright, talented people used to start companies that made things, produced services that people bought, and employed people.
Actually, I think you’ve got that sort of inside-out. People are inclined to do what they’re trained to do. As more MBAs have made their way into top management, they’ve transmogrified the great corporations more in the direction of finance.
IMO the large corporations have become so adroit at rent-seeking that they’re successfully preventing start-ups from becoming future competitors.
It took years of intelligence, effort, money, and patience.
Yep. The vision thing.
Or if they do have the data it isn’t in a format that makes analysis easy nor do they have the skill to do the analysis.
Smaller companies probably don’t have large enough data sets to analyze. At that point it helps to have people in charge who are actually in touch with clients and potential clients so as to make decent decisions. That also helps regardless of the amount of data you’ve got to analyze….
“IMO the large corporations have become so adroit at rent-seeking that they’re successfully preventing start-ups from becoming future competitors.”
I just wonder if this is not an insoluble problem. Perhaps it’s just in the nature of things that when an economy reaches a certain critical mass, as a result of the success of large corporations, rent-seeking (and moral hazard) on the part of those corporations is the natural consequence, with the attendant downside for startups. I once argued against size-limiting. Now I’m not so sure.
And if Obama Care makes it even worse? You seem to think, we have variability of level X, so going to 2X or 10X is no big deal.
Which is considered as sure a thing as you can get. After all, when you gamble big enough with other people’s money Uncle Sugar bails your ass out when you bet wrong.
The answer should be obvious, no. You are hung up on controlling outcomes and thus people’s lives. You are afraid of the negative outcomes and thus you really can’t get your head around the concept of laissez faire.
That they try and screw the consumer by restricting output and raising prices. But this highlights again a short coming on your part. Natural monopolies are damn rare. Two firms that are not natural monopolies trying to restrict output to raise prices will simply be doing all the other firms in that industry a big favor. Even if you got a cartel going the problem there is the incentive to chisel is very strong (see for example the history of OPEC). The absolutely best way to screw over the consumer is to use the government, the one entity that can legally use force and violence on its own citizens. Couple the greed of the businessman with the awesome power of the State and you should be very, very afraid. Much more so than when dealing with a simple monopolist even if one were to exist. In fact, I would argue that a monopolist will only exist for very long with government support, without it, their monopoly position will erode over time.
“. Even if you got a cartel going the problem there is the incentive to chisel is very strong (see for example the history of OPEC).”
Yes. In the long run, we are all dead. In the meantime, the oil cartel can produce a severe economic shock that leaves the world superpower sitting in gas lines. The financial cartel can create a banking crisis that create trillions of dollars in worldwide losses. Cartels do not need to be complete or last forever to ruin markets and destroy lives. What was the effect of Enron, one energy company?
I also think that you are unduly influenced by the economics written many years ago. The velocity of money and the speed of transactions have changed far beyond what von Mises, Hayek, Keynes, etc. would have ever thought possible. Trade is also international on a scale they never saw. Take pharmaceuticals, since I know the area a bit. An international blockbuster generates so much money, that it pays out in billions if a company can collude with others to maintain its patent price for even a short period of time.
“You are afraid of the negative outcomes and thus you really can’t get your head around the concept of laissez faire.”
From my POV, it looks like you ignore past bad outcomes in the hopes that some idealized version of your preference would produce better outcomes.
Steve
Musings –
“like John Persona’s post about how companies have data…yeah big companies, but probably not small companies. Or if they do have the data it isn’t in a format that makes analysis easy nor do they have the skill to do the analysis.”
They do after we own them for 9 months.
I echo sentiments of Reynolds and others, its not “sell more,” its find product and service attributes that people want.
My experience differs from others, I guess. I don’t know companies where staff types run them. Its the old saw: “make it or sell it, but don’t count it, if you want to get to the top.” As a metallurgical engineer coming out of college I only considered companies where that mattered: steel, aluminum and superalloys.
“If people want to make big bucks, they go work in the world of finance. They do not start new businesses.”
I know this is a popular meme on the net and in beer halls. But the number of business owners dwarfs the number of high income finance guys. Now ask yourself why Obama is coddling finance, and castigating and saddling with costs the operating businesses……………oh, that’s right. Campaign contributions for subsidy.