AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (224 comments)

  1. I have often written about the DE-mulitiplier effect, in response to those who argue for government spending, and cite “the multiplier effect.” This is variously set at 1.7 to 7 times the original “investment,” said to stimulate other areas of the economy. One part of this fallacious reasoning is that these positive effects are mostly to the LOCAL economy, not the economy generally.
    The second even more telling blow to this line of reasoning is that government projects tend to cost double what an entirely private project would cost. In many cases, it is worse than that. BUt on net, approximately 2 private sector jobs are destroyed to create on government “stimulated” one.

  2. And when you consider that the overhead cost of forcibly transferring $1 out of the pockets of taxpayers is an additional loss to the economy of 30 to 50 cents on the dollar, the inefficiency of such transfers should be glaringly obvious even if we foolishly believe the federal government is capable of spending Other Peoples’ Money without wasting a single penny of it.

    In contrast, the cost to raise $1 of private capital to do most things, i.e., the “cost of capital” is more typically under 10%. Charity Navigator shows that top-performing charities are able to fund-raise for less than 10 cents on the dollar, with B-level charities doing so for 10-20 cents per dollar raised. Thus, both the for-profit and non-profit sectors are typically superior to government in terms of their ability to efficiently raise resources to do good things.

  3. The simple act of building a bridge (infrastructure) does not guarantee economic growth. That infrastructure must lead to or be connected to a new business in a factory or office (or home for that matter in the internet age.) Otherwise, you are just digging holes and filling them up at taxpayer expense. This is the main fact lost on the Progressives.

    1. I believe it was Helicopter Ben himself who said to drop the money from the air if necessary. That would have been preferable to how it was distributed, as the rich and politically connected always seem to get the first bite and most benefit.

  4. PeakTrader

    Ronald Reagan proved Henry Hazzlit wrong with his huge tax cuts and huge military build-up, which not only gave us a V-shaped recovery, it gave us the longest peacetime expansion, from 1982-90, until the expansion from 1991-01.

    The point of expansionary and contractionary fiscal policy, like accommodative and restrictive monetary policy, is to smooth-out business cycles to achieve maximum employment over time.

    Government should borrow from the future when the country is below full employment and save when the country is at full employment.

    When the country is beyond full employment, e.g. in the second half of the 1990s, taxes should rise or spending should fall to slow growth to a sustainable rate.

    Monetary policy has been much more effective than fiscal policy, because politicians control fiscal policy. They’ve failed to coordinate fiscal policy with monetary policy, particularly in economic expansions.

    1. PeakTrader

      In “The General Theory of Employment, Interest and Money, published in 1936,” Keynes believed an economy won’t necessarily self-correct for a long time. And so, a “Lost Decade,” or two, wasn’t necessary:

      “Keynes advocated what has been called counter-cyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays.

      He argued that governments should solve short-term problems rather than waiting for market forces to do it, because “in the long run, we are all dead.””

      http://www.martinfrost.ws/htmlfiles/keynesian_economics.html

      1. Keynes was most aptly described by Mises as a monetary crank. Indeed, in the long run we are all dead, but today we suffer because of the Keynes-inspired economic idiocy. Keynes did not envision the lack of foresight and greed of politicians who more than willingly demogogued about the “good” they do with other people’s money, without even a thought to the bad effects of these policies, much less the lack of discipline of pols to engage in the countercyclical thing when times got better.

        Nor did he envision the unintended or at least unannounced consequences of government interference in the economy. Keynes did not save us from the Great Depression. Following big government policies deepened and lengthened the depression, contra Keynesian theory.

        And today we have the Krazy Keynesianism of Krugman to screw up the present day economy. You would think by now that even NY Times would recognize snake oil when they see it.

        1. PeakTrader

          You’re as political as Krugman. How can you blame Keynesian economics when people don’t follow it?

          Krugman is a NeoKeynesian, who has biases in using Keynesian economics, regardless of changing economic conditions.

          Laissez faire not only caused the Great Depression, it caused frequent and severe boom/bust cycles, which created real hardship and suboptimal growth, to a large extent.

          1. hitssquad

            Laissez faire […] caused the Great Depression

            …Then why have most people never heard of the Great Depression of 1920?

          2. Laissez faire not only caused the Great Depression

            Troll, while you claim to have a degree in economics (but fail to show any understanding of basic economics), you clearly do not have a degree in history. Your above trollish claim is as ignorant as claiming WWII ended the Great Depression.

          3. BS. Read Austrian theory on business cycle. The FED caused the depression by feeding money to the economy. While consumer prices were held low by increasing productivity and competition, the money fed the market manifested itself in higher real estate and asset prices, including stocks. Prices got to where they were unsustainable, and corrections and price adjustments NEEDED to occur. EVerything FDR did to help made matters worse.

            Even before the FED, the banks created more notes than the had gold to back them up, creating booms with their own version of counterfeit money. The banks witha adequate reserves survived, the biggest fraudsters were wiped out, as they should have been. Before the FED came along, rare was a “panic” that lasted more than 18 months. Tell me, how long did the Great Depression last, and how long have we been in the one we have not quite recovered from?

            Remember to 2 most significant reasons for creating the FED:
            1. To stablize the value of the dollar
            2. to stabilize the economy.

            Today’s dollar is worth about 4 cents in terms of 1913 dollars and we have had at least 17 significant downturns (busts) since then. Boy have they done a great job.

            Me political? Is that why I chewed on the GB’s as vigorously as BHO and Slick WIlly?

          4. PeakTrader

            Ken Van Doren, so, now you want to change the subject from fiscal to monetary policy. How do you explain the feasts and famines or floods and droughts before the Fed?:

            List of recessions in the United States – Wikipedia

            Recessions in the Industrial Revolution – 1871-1914

            Period – Percent Decline of Business Activity

            1873-79 – 33.6%
            1882-85 – 32.8%
            1887-88 – 14.6%
            1890-91 – 22.1%
            1893-94 – 37.3%
            1895-97 – 25.2%
            1899-00 – 15.5%
            1902-04 – 16.2%
            1907-08 – 29.2%
            1910-12 – 14.7%
            1913-14 – 25.9%

            We’ve had a hundred years of faster per capita real growth, since the Fed was created in 1913, because of smoother business cycles. Purchasing power has increased substantially, since 1913.

          5. PeakTrader

            And, there were many deep and long depressions, before the Fed.

          6. morganovich

            peak-

            will you ever tire of this sad, debunked attempt to conflate coincidence with causality?

            what, the only thing that changed in the last century was the fed?

            the move from an agrarian economy to a manufacturing and then to a services economy did not matter?

            electrification? communications? modern transport?

            give it a rest.

        2. PeakTrader

          American mainstream economics:

          Neoclassical synthesis: “Keynesian in macroeconomics and neoclassical in microeconomics.”

          Keynes: “His vision was one of reformed capitalism, managed capitalism — capitalism saved both from socialism and from itself…The bulk of decision making would remain with the decentralized market rather than with the central planner.”

          1. Problem is, the planners ALWAYS seek ever more power, and freedom is snuffed from both markets and life generally. To call what we have or even what we have had in the recent past a Free market is remarkably ignorant.

    2. Givemefreedom

      You are as clueless about this as you are about investing. According to your website you turned 100,000 dollars into 50,000 from June 2007 to October 2013. Clueless and delusional are a potent combination in you Peakloser.

      1. PeakTrader

        Givemefreedom, I never posted my website on this blog, and I explained in detail to you about that portfolio.

        Yet, you dismissed it, along with what little you know, just to personally attack me.

        1. First, fiscal policy and monetary policy are inextricably related. FEDGOV spends about 40% more than it collects and most of the money represented by that debt is inflated into existence, out of thin air. No fed to create the $ and interest rates would have to be higher to attract investors, and our dollars would be worth far more. OK there is no “reply” under your last comment, so re: your list of recessions. Panics they were called then, and I believe I explained it. Banks created their own notes, often far in excess of their gold deposits. This WAS inflation (increase in money supply) that caused a boom that collapsed when folks lost trust in the bank notes. YOU REPEATEDLY ignore the artificial runup, which could not be maintained. the banks which were most honorable tended to be those that survived. With more disciplined banks, the business cycles would not have been as pronounced, things would have run on a more even keel.The banks that could not cover the “run” failed, as they had not enough assets. And FEW were the Panics that lasted longer than 18 months.

          AND the increase in wealth is entirely due to the increase in productivity brought about by more productive capital investment, not by inflating the currency-ala legal counterfeiting.

          1. PeakTrader

            The Fed creates and destroys money. That productivity wouldn’t exist without maximum employment over time.

            You can thank the Fed later.

            The Fed preempts inflation (and deflation). Price stability is the Fed’s main target.

        2. Oh, my little Arthur, I am merciless. If you saw a picture of me, you would see no love in my eyes. And if my cold hard little heart were to fall on your head, it would split it. You’re not telling me anything new about myself.

          Stop crying. Find your balls, grab hold of them and try to be a man.

          I do very much understand everything I need to understand about my various strategies and how they do and don’t perform in various market conditions against their appropriate benchmarks and what part is skill and what part is dumb luck. See, when you have real investors (not the pretend ones or dumb retail guys you have) and they are also very successful traders, then you’re raked over the coals before they give you a dime.

          I can also understand what’s stupid and what isn’t. My investors would have left me for dead if I lost as much money as you did.

          Help me help you. Since you posted your failure online for all to see, explain wtf you did to get whacked like that. I may be able to help you. Your embarrassing performance is already out there. The best you can do now is learn from your failures. Tell me what happened.

          1. Oh, my little Arthur, I am merciless. If you saw a picture of me, you would see no love in my eyes.

            I *thought* I recognized you on Wednesday. :)

            By the way, that makes a great wallpaper on your smartphone if you have a need to frighten small children.

          2. That’s not me, Ron. I don’t look that friendly.

      2. PeakTrader

        I never posted my website on this blog. You’re like a stalker. Even worse. What do you call someone who keeps coming back to lose in a sport and gets so frustrated, he finds where you live and spray paints your house?

        1. givemefreedom

          While your delusions and overinflated ego leads you to believe your stalking b.s., I don’t care anywhere near enough about what you post here to ever bother making an effort to find out about your other online postings.

          I stumbled across your site when I was looking for some background information and I had googled a comment made by another poster. Lo and behold I found whole sections of the comments from this blog pasted onto your site, by none other than one Peaktrader, Administrator. Even found some comments made by myself.

          Seems that after you take a good beat down on this site, you continue the argument on your site to give yourself the impression that your have won the argument. Talk about delusional.

          The only loser here is obvious to everyone.

          1. morganovich

            http://www.peaktrader.com/phpBB2/viewtopic.php?t=21049

            lol.

            peak liar.

            for the record, i am not marque, nor have i ever posted here under another name, your bizarre persecution fantasies non-withstanding.

            get a grip arthur.

            there is no conspiracy, nor am i using aliases to attack you.

            but by all means, keep on claiming it is so.

            every time you do, it proves without a shred of doubt to some new poster that you have accused of being me what a deluded liar you are.

            nice portfolio btw.

            you seem to trade options about as well as you understand econ.

            was that a down 20% month?

            watch that theta. it’s a killer.

          2. morganovich

            omg.

            i am still laughing so hard.

            http://www.peaktrader.com/phpBB2/viewtopic.php?t=21026

            look, i even get my own headline on the peak blog!

            you absolutely nailed it GMF.

            “Seems that after you take a good beat down on this site, you continue the argument on your site to give yourself the impression that your have won the argument. Talk about delusional.”

            of course, peak is now going to accuse you of being me, which is just going to make this funnier.

            that’s some serious editing you do on your site arthur.

          3. givemefreedom

            Funny and sad at the same time.

            But what is amazing is how consistently he is wrong in both economics and in investing. Though there might be some value in those investment recommendations as pure contrarian indicators. I am thinking of getting the paid membership to the site.

          4. morganovich

            “I am thinking of getting the paid membership to the site.”

            hold out for one of these “easy money” stocks that provide 100,000% return in just a few months.

            you want to get your money’s worth.

            “PeakTrader.com provides the best combination of financial market information: Economics and Portfolio Optimization, similar to the methodologies used by the billionaire speculators.

            PeakTrader.com also reveals big winning stocks (which are rare), and will explain in detail how to capture the greatest gain, while managing risk, and avoiding mistakes. It’s normally possible to turn a few hundred dollars into a few hundred thousand dollars in a few weeks or a few months (however, these stocks, which represent “easy money” normally appear every one to three years).”

            i always love claims like this.

            so, assuming one did possess the ability to find such a stock once every 3 years or so, why would they share that secret with anyone? i mean, drop in $10k, get back $10 million in a few weeks or months, and spend the next 2.5 years buying a private island.

            then repeat with a million.

            but no, instead, you try to sell it for $19.99 a month.

            that’s about as plausible as government stimulus working.

          5. PeakTrader

            Morganovich, I never said you’re Marque. who knows much more about economics than you and the other clown, Givemefreedom, has ever shown.

            You two just don’t realize how stupid you are not only in economics, but also in making money.

            My website was built for free by a classmate at CU-Boulder, who majored in Computer Science.

            The trading portfolio, you cited, is not a retirement account (my retirement account is doing just fine), it’s a high risk account.

            Your responses show you don’t understand how to hit it big, e.g. buying RMBS calls a month before it rocketed, from 70 to 470 in three weeks, or trading IMCL calls for six months making over a 40 times return, and getting out at the right time.

            Moreover, you never had over 200 clients where your expenses were less than $5K and your revenue was well over $100K for several years or managed private accounts for big fees (I still have five StoresOnline unused licenses, for example, that I can use to link my site again, although that’s not where I got most of my clients).

            Your responses reflect more ignorance in your pathetic lives.

            Yes, I’m going to save your comments and mine to show what type of people you are and cut & paste periodically. Also, I’ll add more detail to reveal the extent of your stupidity, and pathetic lives, particularly at making money, although you do a great job of that yourselves.

          6. morganovich

            lol.

            more peak lying.

            your own site says:

            “”Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.””

            now you describe that account as “high risk”.

            what happened to “minimize risk”?

            so why are you using this “high risk” account (and i agree, the risk looks pretty high, the returns, well, those speak for themselves) to market your wonderful strategy of maximum reward and minimum risk?

            your site is a clownish attempt at stock promotion and a miasma of bad claims.

            so you maximize return and minimize risk at the same time?

            i doubt that very much.

            i’m not even sure it’s possible.

            you do not even seem to understand the notion of risk adjusted returns, or, from looking at your track record, the notion of positive returns…

            you have repeatedly accused me of being other people on these threads. you change your tune on it so often it can be difficult to keep straight. but, when i ask you to tell me just which other poster i am supposed to be, you will not. put up or shut up artie.

            your claims are as fraudulent as your purported investment model.

            your calls claims would be more impressive if your returns were not so bad.

            1. 40 times return does not “turn 100’s of dollars in to 100’s of thousands in weeks ” it turns $100 into less than 5k. so, are you innumerate or just lying again?

            2. if you are so good at finding and making such trades, how is it you are losing your short so badly? i would think that even one 40 bagger would have really turned that performance around.

            trading a chart from a year ago is easy.

            if you did, in fact, make that trade, then you must have made dozens and dozens of bad ones to give it all back and then some.

            the fact that you would brag about making that kind of money is hilarious. (and pathetic)

            and who mentioned retirement accounts?

            speaking of pathetic lives, what can one say about a guy who takes non representative excerpts from blog threads, edits them to make it look like he wins arguments and that people agree with him, and then posts them on his own site where he gets not a signle response.

            it reminds me of this:

            http://youtu.be/JchKa8Ox3Hs

            go back and play with your imaginary friends peak.

            i’m sure cylde frog will be there to support your economic crackpottery and tell you what a great investor you are.

          7. PeakTrader

            To be more accurate, RMBS shares rose from 70 to 470 in three weeks, not the next month call options, which some rose from $6 to $33,000 per contract in three weeks.

          8. PeakTrader

            Morganovich, you’re just proving you’re more ignorant and more pathetic. I know over 99.9% doesn’t work in the market and know the less than 0.01% that really does work (although, maybe not all). I’ve hit it big several times, and I’ll research stocks again when I need to.

          9. PeakTrader

            Morganovich, your statements are also illogical. LOL

            You’ve been playing games, since you’ve been on this blog.

            And, I’ve never posted my website on this blog. You felt, like Givemefreedom, you had bring my site on this blog just to attack me with your ignorance and incompetence.

          10. morganovich

            peak-

            yes, i can see from the size of your accounts that you have hit it big.

            and no, i do not believe you that you can nail a 1000 bagger every 3 years or so.

            if you could, you’d be very well off, not some guy trying to flog bad technical analysis for $99 online.

            i’m not disputing that such a move is possible in options.

            i am disputing that you have the ability to find such a move that is “easy money” every 1-3 years.

            surely since 2007, your posted trades would have one by now, heck, it ought to have 2 or 3. instead you’ve lost 55%.

            there is no “easy” 1000x return in a few weeks unless you are insider trading.

            your grasp of risk and reward seems to be about on par with your grasp of economics.

            you can talk about alleged past glories all day.

            but you are a known and proven liar, so i am not going to believe you. sure, you can pretend that was you PL, but if you had put even $1000 into that trade, you would have made over $5 million and we both know that you didn’t, don’t we artie?

            guys who made $5 million in 2000 would have far more now if they were such good investors. they would not brag about making 100k.

            sorry peaky, but you are simply not credible.

          11. PeakTrader

            Morganovich, then you’re more ignorant than I thought, and that’s very ignorant.

          12. morganovich

            “And, I’ve never posted my website on this blog. You felt, like Givemefreedom, you had bring my site on this blog just to attack me with your ignorance and incompetence.”

            lol.

            hey, if i had a website like that, i’d try to hide it too.

            you are the guy who is constantly trying to bring up credentials and use them (without showing us yours) to try to appeal to your own authority.

            it appears that now that we can see what you’ve been up to, you’re embarrassed about it.

            well, i can’t say i blame you.

            though if you truly were looking for privacy, perhaps you should not have made so many appeals to authority you would not back up and then used the name of your website as your handle…

            oh, and cutting and pasting our comments without permission? (or even our knowledge)

            that’s certainly quite dodgy and might even be illegal (depending on the terms for this blog).

            way to keep it classy artie.

          13. PeakTrader

            Morganovich says: omg. i am still laughing so hard. he he he.

            You really have character. Do you spray paint houses of people you don’t like for more giggles?

          14. morganovich

            “Morganovich, then you’re more ignorant than I thought, and that’s very ignorant.”

            this would appear to be about as good a contrary indicator as your options trades, so i guess i can take it as a complement.

          15. morganovich

            “You really have character. Do you spray paint houses of people you don’t like for more giggles?”

            no, but when a blow hard know nothing keeps clogging thread after thread of blog with economically illiterate nonsense while calling everyone and idiot, falsely accusing them of using fake names to gin up consensus against him, and making claims about expertise that he does not have, well, i’m only too happy to take him down a peg and to demonstrate what a liar he is.

            no one is spray painting your house.

            i’m just pulling apart the tissue of lies you have been trying to sell around here and exposing you for the dishonest charlatan that you are.

          16. PeakTrader

            I wasn’t trying to hide my website. I didn’t believe people like you would bring it here just to attack me with so much ignorance. I guess, you’re a 13 year old at heart (and of course at head).

          17. morganovich

            you certainly tried to hide your credentials.

            now we see why.

            and hey, if people want privacy, that is their business and i would respect that, but to make constant appeals to one’s own authority and then being unwilling to support it at all, well, that’s not going to fly.

            you do not get to make appeals to your own background and then not share it.

          18. PeakTrader

            Morganovich says: “i’m just pulling apart the tissue of lies you have been trying to sell around here and exposing you for the dishonest charlatan that you are.”

            You’re only proving that on yourself, which you do constantly anyway with your irrelevant and illogical statements.

          19. PeakTrader

            Very cute. Let me know when you grow up.

          20. morganovich

            i am still laughing so hard.

            If you think that’s funny, just imagine a busy office with people working hard to maintain and operate a big time investment website where everyone, including the registrant, admin and tech are identical clones named Arthur.

          21. PeakTrader

            I should’ve saved Morganovich’s comment when he said my stocks go up many multiples more than the market, and when the market goes down, I hardly lose anything. I’ve been outperforming the market by many multiples for over 10 years. LOL

            I don’t try to find new fools like Morganovich. The people who invested with me knew what they were getting into, i.e. risk little to make lots or lose little. And, almost all of them hit it big at least once.

            Do I hear more shrills of “liar” “fraud” “cheat” from Morganovich yet? LOL

          22. PeakTrader

            Here’s Morganovich’s comment about himself, which he’s full of:

            “i beat the market over the last 10 years by several multiples, after fees. i know lots of guys who did.

            it’s not luck. it’s skill, talent, and hard work.

            fama’s (the guy who won the Nobel Prize and contradicts everything Morganovich’s says) “you cannot beat the market on a risk adjusted basis” is false. you can, lots of us do it.

            construct a pool of assets that provides multiples of the return of the dow over 10 years while having maximum drawdowns of less than half of those experienced by the market.

            so yo uget much bigger gains and much smaller losses.

            i run one and we did just what i described.

            you seem pretty determined to prove that fish can’t swim.”

            http://www.aei-ideas.org/2013/10/investment-fact-of-the-day-in-honor-of-eugene-fama/#comments

          23. PeakTrader

            And, Morganovich, I didn’t, and wouldn’t, go outside of this blog to talk about things I didn’t understand and make up a narrative.

            Moreover, you can’t fool me, because I actually worked in corporate investing and mutual funds, along with running my own investment business.

            Just because I haven’t done stock research in years, because I don’t need to, and the closed site is basically on autopilot and used to save info, doesn’t mean I don’t understand your comments are BS.

          24. Arthur,

            You are a sad little sack. Morganovich is being kind to you. You should have seen what we were saying about you on email. He’s holding back, man. Say “thank you”. I’m not that nice at all.

            By your own admission your already itty bitty portfolio is down by half. Dude. I read what you wrote about investing (on yours and the safehaven site) and after everyone on my desk finished laughing, we could see why you’re losing. There’s no edge in any of your trades.

            I can’t even make out what you’re saying about your portfolio. Nobody who trades options for a living talks like that – except the monkeys trading in their Ameritrade accounts from laptops on their kitchen tables.

            As far as I can tell from your scribbles, you’re basically long, long and longer. And you’re long options, which means that the worst that can happen is you lose the premium. How the hell did you manage to savage your portfolio like that? What the hell were you doing in 2007 and 2008?

            You are clueless on economics. The best you can do is regurgitate the same Keynesian drivel I have written in my undergraduate intro Macro class notes about the marginal propensity of Lord Keynes’s masterful ability to tame the animal spirits and all that nonsense. It’s like you swallowed the textbook and never processed any of the information. Never had a thought deeper than what choice might await you in the deli for lunch.

            You’re even more clueless about finance. What exactly does “optimizing an options portfolio” mean to you? All you’re doing is taking directional bets and increasing your leverage by doing it with options instead of the underlying. That’s just….dumb.

          25. PeakTrader

            Methinks, like Morganovich, you don’t even realize your strategies can underpeform as much as outperform the market.

            If you don’t believe me, maybe you’ll believe Fama, who won the Nobel Prize, although I doubt it.

            You’ve never said anything of value. So, I can only assume you’re not worth much. Maybe, you should look for a real job, rather than playing zero sum games, at best.

            What you have in common with Morganovich is no class and lots of disrespect. You’re just two pathetic people.

          26. PeakTrader

            And, you’re not only delusional about investing, you’re delusional about economics. You’d be crying after every quiz and test, while Morganovich will be taken away on a stretcher after his first class.

            LOL

          27. Methinks

            – except the monkeys trading in their Ameritrade accounts from laptops on their kitchen tables.

            Wait a minute! I resemble that remark. :)

          28. PeakTrader

            Anyway, no one can correct all of the Morganovich family delusions. So, have fun with your delusions :)

          29. Oh, my little Arthur, I am merciless. If you saw a picture of me, you would see no love in my eyes. And if my cold hard little heart were to fall on your head, it would split it. You’re not telling me anything new about myself.

            Stop crying. Find your balls, grab hold of them and try to be a man.

            I do very much understand everything I need to understand about my various strategies and how they do and don’t perform in various market conditions against their appropriate benchmarks and what part is skill and what part is dumb luck. See, when you have real investors (not the pretend ones or dumb retail guys you have) and they are also very successful traders, then you’re raked over the coals before they give you a dime.

            I can also understand what’s stupid and what isn’t. My investors would have left me for dead if I lost as much money as you did.

            Help me help you. Since you posted your failure online for all to see, explain wtf you did to get whacked like that. I may be able to help you. Your embarrassing performance is already out there. The best you can do now is learn from your failures. Tell me what happened.

          30. Crying at every quiz?

            Good Lord, Arthur. Have some dignity, man. Snap back to reality. My quizes have long been passed without a tear. It’s too late to get me to cry except in your disturbed imagination. Aren’t you a little old to have ‘tween fantasies about defeating imaginary enemies?

          31. Ron,

            You trading your portfolio on a laptop in the kitchen does not a monkey make.

            If you were, say, posting your dumbest trades on the elite trader message boards and screaming what a badass you are and pretending you knew more than you do (like where the market is going and that shorts are screwing you out of money and other garbage), then you’d be a monkey.

            Speaking of which….hey Arthur! One more thing:

            If you are so intimately familiar with Fama and such a devotee of his, then you should already know that you can’t time the market. So, that kinda works against your hilarious claim that you knew when to get into those RMBS calls.

            RMBS is not terribly illiquid, so to say you new it was worth more than 70 would mean that you knew more than the whole market which was pricing it at 70. There’s only one of two ways that could happen:

            1.) Fama is wrong (and he’s not)

            2.) You’re trading on material inside information (in which case I’m going to place a call to an examiner at FINRA)

            Which is it?

            You can’t claim that Fama is right AND you can time the market.

            The more likely explanation are:

            1.) you made a bet and won by sheer dumb luck.

            2.) That trade never happened and you’re just foolishly trying to impress people who know more than you do and can see through your swamp of bullshit.

            My money’s on #2.

            This is fun!

          32. Givemefreedom

            Lol, I can’t stop laughing. Peak it has been a long time since I have seen someone take a beat down like that! Methinks gave it to you nice and hard, wow.

            Careful Methinks, you are going to end up on peakaboob’s website if you keep this up. He’ll edit your comments to make you look like you took the beat down!

          33. Methinks

            Oh, my little Arthur, I am merciless. If you saw a picture of me, you would see no love in my eyes.

            I *thought* I recognized you on Wednesday. :)

            By the way, that makes a great wallpaper on your smartphone if you have a need to frighten small children.

          34. GMF

            Careful Methinks, you are going to end up on peakaboob’s website if you keep this up. He’ll edit your comments to make you look like you took the beat down!

            But who would know? Arthur doesn’t appear to have any readers, as he doesn’t have any responses to his posts, and it appears that most of his members are Russian spammers.

          35. Methinks

            This is fun!

            Yes indeed! :)

            It’s just possible that Arthur is pleased with the big spike in traffic on his website these last several days.

            “Look at these stats, Maude!”

          36. mesa econoguy

            We seem to have fielded the best team of economic knowledge in a while…

            Crowdsourcing, anyone?

            :)

          37. Holy shit. Arthur just sets himself up.

            I’ve never seen a pinata hang itself before.

            Ron,

            that’s what I was thinking. Arthur is the only one on that site – except people who don’t speak English. If you can’t understand what he’s saying, he probably seems brilliant.

            And, Arthur dear, you did this to yourself, buddy. You can get away with arrogance if you’re really something, but you’re a LD trying desperately to pose as a BSD. That crap might work in the little regional banks where you toiled away in a cubicle, but on the trading floors of New York and Chicago you would have been brought to tears every day until you learned your lesson. Which is probably why you stayed in your cubicle.

          38. mesa econoguy

            He’s trying to maximize return and minimize risk at the same time?

            He’s found a newer, betterer CAPM, with hyper-optimized vols (run by his mom).

            Tighter normalized distribution.

            LMAO.

        2. mesa econoguy

          Not to throw water on a grease fire here, but Peak, you just divulged nonpublic personal account information above.

          That’s a definite no-no.

          1. morganovich

            mesa-

            it’s ok, his imaginary clients are unlikely to sue.

            and btw peak, you can find our results on hedgefund.net (assuming you are an accredited investor, which, alas, i doubt)

            but if you are who you say you are, you should have access.

            go look it up.

            a nice big serving of crow might do you some good.

    3. “Government should borrow from the future when the country is below full employment and save when the country is at full employment.”

      How exactly does a government save money?

      Government should spend (even borrow) when it becomes necessary to do so, war, infrastructure etc. and tax less when those things aren’t necessary. Save? I don’t think so.

      1. PeakTrader

        Government saves by collecting more taxes and spending less money, e.g. through full employment.

        1. That’s a chicken and egg argument. Does the government spend more to create economic growth, thus creating full employment and the ability to lower tax rates? Or does government lower tax rates and maybe loosen the regulatory state in order to stir investment and create growth that way? I’ll opt for the latter. You’ve already reminded us of what happened when marginal rates were lowered during the Reagan administration. And we have the history of the mother of all stimulus programs the New Deal and WWII.

      2. Even if this worked. Taking money from the private sector during a recession and giving it back to the private sector when the recession is over (that sounds so backwards to me, but I will go with it) Even if it works, there is no government that has the discipline to cut back during boom times.

    4. “Ronald Reagan proved Henry Hazzlit wrong with his huge tax cuts and huge military build-up, which not only gave us a V-shaped recovery, it gave us the longest peacetime expansion, from 1982-90, until the expansion from 1991-01.”

      Hmm. Ever here of “supply side economics” or the “Laffer Curve”? You’ll find them next to PeakTrader’s “Optimal Minimum Wage” model in most econ textbooks. 2 years after Reagan’s tax cut federal income tax revenue exploded as investment in corporate R&D.

      1. PeakTrader

        You ever hear of budget deficits or deficit spending?

    5. You make a mistake here. Most folks don’t realize government receipts doubled under Reagan. Problem was the government decided to spend faster than the money came in, which is why we had the perpetual deficits.

      I don’t think the deficits were responsible for the boom.

      1. Moreover there is another aspect to the fallacy bought into by “peak”. That is, he looks ONLY at the short term, and not the long term effects of deficit spending. I criticized REagan in real time, saying that his deficits effectively stole from our children. People laughed back then, not so much when the same suggestion is made today. But even that understates the impact of REagan’s deficits. They set a precedent, or more exactly, continued and “validated” the idea of deficits, and the phony boom he presided over some day HAD to bust, which it did in 1987-88.

        But alas the economy can not continually be run with an eye only to the short term effect on the few, but should be run with a long term view of the impact on everyone. Well the long term is here, and the economy sucks, largely because we have too much government and too much debt.

        1. PeakTrader

          You’re full of fallacies. Keyensian economics (when used properly) results in faster growth. So, how can we steal from “our children” when we’re working?

          A “Lost Decade,” or deep and long depression, steals from our children, like the one we’re in the middle of now, not a V-shaped recovery and sustainable expansion.

      2. PeakTrader

        Keynesian economics raised government receipts, and how can you blame Keynesian economics if politicians don’t follow Keynesian economics?

    6. TROLL FEEDING TIME … nom nom nom…

  5. Benjamin Cole

    Hazlitt may be right, although he chise a horrible example—bridges are useful, economy expanding implements, unlike military outlays that properly classified as parasitic.
    To stimulate, the government can also simply buy government bonds thus putting cash into the private sector where private citizens can spend or invest as they see fit…

    1. Bridges aren’t useful. They merely can be useful if carefully planned. Look at all the bridges to nowhere the government builds. May as well throw that money in a hole.

      And the last stimulus was used to keep state government officials employed about 2 years longer than they should have been, effectively wasting the whole wad. May as well have built a bridge to nowhere.

      1. hitssquad

        Look at all the bridges to nowhere the government builds.

        I can’t think of any offhand. What percentage of bridges are Bridges to Nowhere?

    2. bridges are useful

      Some bridges are useful and bridges don’t need government to be built. Many aren’t. In fact, if you have resort to force to obtain the resources you need to build anything, you are probably not do anything that is “economy expanding”.

      unlike military outlays that properly classified as parasitic

      And yet, lefties to this day continue to claim that WWII ended the Great Depression, when any fool can see that this is pure tripe.

      To stimulate, the government can also simply buy government bonds

      HAHAHAHAHAHAHAHA!!! So let me get this straight. First step, tax the private sector, keep a little for yourself, then buy bonds with whatever is left over and this is “putting cash into the private sector”? HAHAHAHAHAHAH!!!

      1. Ken

        So let me get this straight. First step, tax the private sector, keep a little for yourself, then buy bonds with whatever is left over and this is “putting cash into the private sector”?

        It’s even simpler than that. Just buy bonds through your central bank using money you have created out of thin air.

    3. unlike military outlays that properly classified as parasitic.

      Utter bullshit. Security and prosperity are mutually reinforcing. Best example of that is Colombia where, under the great Alvaro Uribe, the Colombian military unleashed holy hell on the FARC, relentlessly hunting them and exterminating their leaders. Foreign investment began to flood in and the stock market soared. Do you also think police and fire department are parasites?

      Now, if you want to say our military is beyond the necessary level of security, I would agree with that.

      1. Vic Volpe

        Game Theory might suggest that our military preparedness be at the level that it is.

        If A>B, and B>C, but B+C>A; then, if A is not to be stimmied by B+C…

        c

        1. If A>B, and B>C, but B+C>A; then, if A is not to be stimmied by B+C…

          LOL! Are you struggling with game theory too?

          Try again…and what is “stimmied”?

          Please try harder to make sense.

      2. Vic Volpe

        Game Theory might suggest that our military preparedness be at the level that it is.

        If A>B, and B>C, but B+C>A; then, if A is not to be stimmied by B+C…

        c

        1. I’ve already responded to that comment. Please quit posting comments twice.

  6. The article is a bit simplistic, but essentially correct. The government can overspend 3 ways.

    1: Either by overtaxing, which takes money out of the hands of people and into the hands of government. Keynes said this was great because people only spend 90% of what they earn and the government spends 100% – Fallacy here is that the 10% are wasted. The 10% goes to banks to loan out for new investments. If the government takes this money we lose private spending plus the new investment loans.

    2: The government borrows the money. This sounds great, borrowed money can be used to spend on things – but where does the borrowed money come from. Yes the private sector. And then the private sector can’t borrow the money to create new investments and research new ideas. We saw this the first 4 years of the Obama administration, where the government set it up so banks found it prohibative to invest anywhere but in government bonds. businesses left and right were complaining they couldn’t get loans.

    3: They print money. A lot of this is happening as well. Free money to spend on things. But this steals from us by causing inflation – or reducing deflation. Inflation steals money from us and gives it to the government – deflation is the same. But wait the fed has been pumping money like crazy and I don’t see much inflation – that is because the velocity of money crashed and never recovered and banks felt compelled to double their loan loss reserves which cut the money supply significantly as well. Is deflation bad – it is now that everyone has been encouraged amass great amounts of debt. In the 1950’s it would have helped as peoples savings became more valuable.

    My two cents.

    1. PeakTrader

      What an ridiculous, false, and biased article (including ignoring “sticky prices,” “the paradox of thrift,” generating economic growth, etc.).

      I wrote the following in Feb ’09 [the tax cut should’ve been $5,000 per worker for the 150 million workers at the time or $750 billion]:

      1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.

      2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.

      3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

      1. Troll getting fat today… nom nom nom…

        1. I wasn’t writing to anyone in particular – it was an independent post. And writing non non mom over and over is.also a form of trolling. Personally I think morgonovitch and Peak enjoy the squabble.

          1. mesa econoguy

            Ken’s on the team, don’t worry marque.

        2. @mesa Econoguy: So you and ken are also in the morganovich brain time share :P

          1. mesa econoguy

            Lately, I’ve been a bit sluggish, so they’ve probably been borrowing bandwidth.

  7. John Dewey

    Professor Perry,

    I understand (I think) what Henry Hazlett writes, and I agree with it. What about the case of a government sponsored toll road or toll bridge? The toll road authority issues bonds to pay for the initial construction. Those bonds are paid off by tolls collected from the users of the road or bridge. Assuming that tolls are sufficient to pay for the bonds, future taxpayers are not burdened by the debt incurred in the present.

    I guess the problem with government sponsored toll projects could be the government guarantee of the bonds. In return for that guarantee, governments receive a lower interest rate than would a private enterprise. If all goes according to plan, the toll road is funded ultimately by its users, and the cost to the users is lower due to the lower interest rate on the bonds.

    If all doesn’t go according to plan, and the usage of the bridge or road is insufficient to pay off the bonds, then the future taxpayers take a hit. I think this happens more with public convention centers and government sponsored commercial centers than it does with toll roads.

    Is there an unseen impact of government sponsored toll roads which I am missing?

    1. Citizen Buddy

      John, what about tolling for a future bridge? The new 520 Bridge Project tolls the old bridge for $1 billion in funding towards the adjacent $4 billion new bridge.

      I agree that toll roads and bridges are user fees that have basically paid for projects, but there is a brave new world of…

      myself, and thousands of other owners of vehicles that travel over the old 520 may never use the new 520. We are just “paying it forward”.

      1. Citizen Buddy

        The new 520 Bridge supposedly opens in early 2016, but the pontoons being built have had cracking problems due to inept engineering.

        The “cracking problems” will result in $48,000,000 in epoxy injections to fill the cracks.

        Yes, the “pay it forward” tolls keep rising with costs.

        1. mesa econoguy

          But the borrowing costs keep falling, via central bank intervention.

          What happens when that stops/is forced to stop/it ends?

    2. John

      I understand (I think) what Henry Hazlett writes, and I agree with it.

      I suspect that you understand completely what Hazlitt writes, because it’s so clear and logical and makes perfect sense.

      After reading Hazlitt I always suspect I’ve missed something as it’s hard to believe economics could really be that simple. We are told constantly by Keynesians that “oh, it’s complicated”, but it’s really not. It’s only made to seem so because Keynesian economics fails to explain human action.

    3. John

      Is there an unseen impact of government sponsored toll roads which I am missing?

      I don’t believe you’re missing anything. It’s the basic argument of public vs private. If you believe that government planners can make better choices than we, as individuals, can make for ourselves about how to spend our money (and I know you don’t), then the government build bridge may seem like the best choice.

      Otherwise a privately build toll bridge would ensure that only those who directly invest their own money rather than risking taxpayer money will benefit from those investments, or suffer the losses, as it should be. If a private bridge is built in a particular place at a particular time, it is most likely the best use of investors money – that is, if you believe individuals make better choices for
      themselves than central planners can make for them (and I believe you do.)

      It’s almost certain that other government projects like those you mentioned, and especially commuter and high speed rail projects, are even worse offenses against the taxpayer.

  8. David Ray

    If the government cannot create wealth because spending is offset by taxing, is it also true that government cannot destroy wealth because borrowing is offset by repayment?

    1. David

      If the government cannot create wealth because spending is offset by taxing, is it also true that government cannot destroy wealth because borrowing is offset by repayment?

      No, government prevents wealth from being created by spending money that would most likely have been better used by those who earned it. At the very least, it would have been spent as the owners chose to spend it, not as someone else chose to spend it for them.

      1. PeakTrader

        Government creates wealth in many ways. However, it destroys wealth in many ways too. That’s the difference between good and bad policies.

        1. So, Arthur, you’re just like half of government. The part that destroys wealth.

  9. Jon Murphy

    Economics in One Lesson is probably the best, and easiest, way to understand economics.

    The One Lesson (that everything has a trade-off) is so often ignored, not only by the man-on-the-street (which is understandable), but by supposed professionals! Sure, we’ll hear so many excuses why there is no trade-off, but it’s all malarkey (malarkey, I say!).

    When I teach economics, I find the first thing students forget are opportunity cost. It’s not that they don’t know it; it’s just that it’s a different way of thinking and requires practice. It is easy to see the obvious. It’s march harder to see the hidden.

    But, there is something even beyond taxation. Let’s look at the current situation.

    For the sake of argument, let’s take the Keynesian story at face value and that, had the stimulus bill not been passed, the recession would have been worse (a dubious claim considering the leading indicators were turning positive before the end of 2008, but again, we’re going with it).

    Due to the government stimulus plan, US government debt skyrocketed. That has brought us up right to the debt ceiling, and has since led to a period of budget fights and plateaued government spending (albeit at heightened levels). The US government had to trade off future (2013) spending for current (2009) spending! If the US economy were to dip into a massive recession in 2014, government spending would not be an option!

    Even using Keynesian logic, it cautions about reckless, and pointless, government spending.

    Everything has a trade-off. Everything.

    1. Jon

      Economics in One Lesson is probably the best, and easiest, way to understand economics.

      Amen!

      At one time Methinks & I had a plan to drop copies from a helicopter onto every college campus in the US. We were inspired by the notion of “Helicopter Ben” dropping money in that way, and we thought copies of Hazlitt’s excellent book would be even more valuable.

      As I see it, the two major flaws with Keynesian economics are, first the premises that smart people in government know better than all the rest of us how our money should be spent, and then that “aggregate demand” drives production and economic growth.

      When questioned on the failures of those two notions, the answer is usually “well, it’s complicated”.

      1. After “As I see it, the two major flaws …” I was waiting for flaws with the helicopter plan. What a disappointment you started talking about Keynes.

        As God as my witness, I thought turkeys could fly!

        http://www.youtube.com/watch?v=lf3mgmEdfwg

        1. marque2

          I was waiting for flaws with the helicopter plan. What a disappointment you started talking about Keynes.

          Gee, sorry to disappoint. Actually the helicopter fantasy results from the ridiculous notion that demand drives production.

          1. PeakTrader

            Ron, never understood supply & demand is like two sides of a coin. You can’t have one without the other.

            When you have too much inventory, in your store, and no customers, production will not increase from more supply.

            One theory is prices will fall to attract cutomers. However, prices are sticky and when there’s diminished marginal utility (or the opposite of pent-up demand), prices will need to fall far and fast.

          2. PeakTrader

            Of course, another “theory” is to increase purchasing power, e.g. through lower interest rates, higher asset prices, lower taxes, and higher spending.

            However, that would require government intervention. We can’t have none of that.

      2. Ron,

        What a great idea! Except why wait until college where the campus left is lying in wait? I didn’t read Hazlitt until my senior yr at University of Iowa. I would have spared myself some embarrassing(in hindsight) discussions if I had it read it at, say, 15 instead of 22.

        first the premises that smart people in government ..

        The only flaw in that premise is that people in government are particularly smart. Some are, but consider the fact that Larry G worked in government.

        1. Paul

          You’re right. High school would be an even better time to read EIOL. and, as luck would have it, Hazlitt writes so well, and so clearly it can be understood by even those who are reading impaired due to their exposure to the public school system.

          Just consider how much time (and money) you could have put to better use in college if you had read Hazlitt earlier.

          I’m ashamed to admit I didn’t read the book until my 60th year.

          The only flaw in that premise is that people in government are particularly smart. Some are, but consider the fact that Larry G worked in government.

          You’re right again, darn it. I should have specified policy makers and decision makers in government. There are some VERY smart people in government, we just sometimes forget that their interests and motives aren’t aligned with ours, as we assumed they were when we elected them.

          1. …That is, my 60th year on Earth, not my 60th year in college.

          2. LOL!

      3. RIP, Henry Hazlitt!

        Oh, so We Piddle Around managed to put up a building still in use today. That certainly proves the ferocious debt run up by the New Deal was worth it.

        1. Vic Volpe

          Open your eyes and look around in your own community. You might be surprised what you will find.

          Talk to some old folks who came through the Depression years.

          1. I don’t need anecdotal evidence. FDR’s ferocious attacks on ” economic royalists” , his fascist NRA, AAA,WPA, etc., his “Brain Trust” full of crackpots, lengthened and deepened the Great Depression.

      4. Vic Volpe

        Hazlitt — Economics in One Lesson
        https://www.youtube.com/watch?v=24nVarM20KQ&list=PL6EF300C10AC5999C

        or
        Ray Dalio — Economics in 30 minutes
        https://www.youtube.com/watch?v=PHe0bXAIuk0

      5. Vic

        “Economics In One Lesson” Instead of a discussion of the book, why not just read the book.

        “How the Economic Machine works” by Ray Dalio.

        Wow. So many basics missing! So many unanswered questions! So many false assumptions! If that’s your understanding of economics I can see why you are struggling so badly.

        I guess Dalio doesn’t think you needed to understand that money is merely a medium of exchange and must represent actual production to have value, or that economic growth requires increased productivity based on investments of capital so that more output can be produced with less input, or that credit must be based on deferred consumption in the form of savings, otherwise it is pure inflation.

        1. Vic Volpe

          I don’t think you watched the video.

          1. I watched the entire 31:01 of it just because I expected your response would be that exact deflection, so that’s not going to work for you. And yes, I understood it.

            I suspect, though, that you didn’t read the book.

            It’s not very long, so do yourself a favor, and read it. It might help to clear up some of the uneasiness you feel about basic economics.

            Are you really OK with the idea that everyone should spend more than they produce on a continuing basis until it becomes too much for them, and then suffer a similar period of time reducing debt and spending less than they produce? How about spending LESS than you produce, and saving or investing the difference to create economic growth?

            Of course you realize (or maybe you don’t) that credit is only available either from other people’s savings, or from creating money out of thin air. There’s no other source. You can’t use something – including money – that hasn’t been produced or saved.

            First production *then* consumption.

          2. Vic Volpe

            Credit is also available from future productivity — that’s how corporations finance investments. It’s no different with Govt.

          3. Vic Volpe

            “How about spending LESS than you produce, and saving or investing the difference to create economic growth?”

            Called a cash economy. No credit — likely (but not necessarily) to have lower lower growth.

          4. Vic Volpe

            No I never read the book. I have read articles by him — of course, much to disagree with.

            In one of the latter videos there is an economist that mis-characterizes Samuelson’s take on savings and investment. I’ve got my old Samuelson Text (6th ed); Part 2, Chpt 11 — a whole chapter on Saving, Consumption, and Investment. Read it!
            ********************************
            Did you ever read Samuelson’s Text? Did you ever take a course on Economics?…or are you self-taught?

          5. Credit is also available from future productivity — that’s how corporations finance investments.

            No it isn’t. Credit is granted base on promises to pay from future production. You can’t borrow money that doesn’t exist unless you create it out of thin air, which is inflation. Goods and services are paid for with goods and services. We exchange what *we* produce for things *others* produce. Money is only a handy medium of exchange used to stand in for the things we actually want. It has no value of its own, and creating more of it than is demanded only makes each existing unit of it worth less in terms of the things we actually want to buy with it. We call that “higher prices”.

            I guess Dalio didn’t have time to explain that to you in 30 minutes.

          6. Vic Volpe

            Wrong! You secure a load on real estate — for a business. The only thing the creditor has is a promisory note and collateral (which remain in the business’s possession).
            *************************************
            I will ask again — the 2nd time on this post, and I asked once before on another post — a simple question…

            Where did you study economics?

          7. Called a cash economy. No credit — likely (but not necessarily) to have lower lower growth.

            No it’s not a cash economy. What do you think the bank does with the money in your savings account (and checking acct, for that matter) while you’re not using it? (clue: it’s not sitting in a vault). The money is available as *credit* to others, but it represents YOUR deferred consumption. Your production that you have put aside for later. It’s not idle unless you keep it in your mattress.

            When you directly invest part of your production instead of immediately consuming it, you are using it in the same way those businesses you mentioned use the money they borrow. You are borrowing from yourself in the present in hopes of greater future rewards.

            No I never read the book. I have read articles by him — of course, much to disagree with.>

            In one of the latter videos there is an economist that mis-characterizes Samuelson’s take on savings and investment.

            I don’t plan to watch all of those interviews in which economists discuss Hazlitt, but if you will point to a specific one and the approximate time stamp I will watch it and comment on the mis-characterization of Samuelson.

            I’ve got my old Samuelson Text (6th ed); Part 2, Chpt 11 — a whole chapter on Saving, Consumption, and Investment. Read it!

            I will read it if you will read the Hazlitt book.

            But as you are no doubt aware, Samuelson was a Keynesian, and therefore basically wrong. Keynes and his followers didn’t, and don’t, fully understand the role of capital and interest in an economy, and incorrectly believe that “aggregate demand” drives production, that savings and investment are different things, and that government interference on a massive scale is necessary to guide economic activity.

            If you can understand why the “paradox of thrift” is false, then you are well on your way to ridding yourself of all those other Keynesian misconceptions, including the notion that some really smart people in government can determine better than each of us can determine for ourselves, how our money should be spent.

            F. A. Hayek can explain why the paradox of savings is a fallacy.

          8. Wrong! You secure a load on real estate — for a business. The only thing the creditor has is a promisory note and collateral (which remain in the business’s possession).

            I assume that’s “secure a loan”. A loan of WHAT? What does the lender give you in return for your promise to pay WHAT back in the future? What exactly do get from the lender, and what will you do with it? think carefully about what I’m asking you. You are missing this point entirely.

            The lender had it and now you have it. Where will this loan first show up under your control and in what form?

            *************************************
            I will ask again — the 2nd time on this post, and I asked once before on another post — a simple question…

            Where did you study economics?

            Where I studied economics is irrelevant to this discussion. I’m not interested in comparing dicks with you, and it’s obvious that I understand economics and you don’t.

          9. Vic Volpe

            Once again:

            Where did you study economics? What text book did you use?

            *******************************************
            I have two dogs and a cat. Discussing economics with you is like dogs and cats. ):

          10. Once again:

            Where did you study economics? What text book did you use?

            Once again:

            *paste*

            “Where I studied economics is irrelevant to this discussion. I’m not interested in comparing dicks with you, and it’s obvious that I understand economics and
            you don’t.”

            Knowing where I went to school and what textbook I used won’t help you understand what I’m telling you.

            You are missing some important *basic* concepts in economics, so no amount of insight into my economics education will help you.

            – humans act – they act to move themselves to a higher level of satisfaction from a lower level of satisfaction.

            – human wants are unlimited – no one ever has everything they will ever want, including enough time.

            – because human needs are unlimited, almost nothing is available in sufficient quantities to satisfy everyone’s needs. That’s called *scarcity*.

            – Individuals act in their own self interest by increasing the satisfaction of others.

            – The study of how individuals act and interact with respect to those wants and that scarcity is called *economics*

            -Production before consumption – you must produce something before you can consumer it, or trade it.

            – Production creates it’s own demand – Say’s law. If you grow apples to trade for pears you are creating a demand for pears.

            – economic growth requires more output for less input – increasing productivity. More money doesn’t create growth.

            – supply and demand tend toward equilibrium based on the price signal.

            If you would like more on any of those, just ask. I will explain and provide examples.

          11. Vic Volpe

            Once again:

            Where did you study economics? And what text book did you use?

            ***********************************
            will get back to you tonight, I have animals that want to eat.

          12. Vic Volpe

            You wrote:

            “Wrong! You secure a load on real estate — for a business. The only thing the creditor has is a promisory note and collateral (which remain in the business’s possession).”

            I assume that’s “secure a loan”. A loan of WHAT? What does the lender give you in return for your promise to pay WHAT back in the future? What exactly do get from the lender, and what will you do with it? think carefully about what I’m asking you. You are missing this point entirely.

            The lender had it and now you have it. Where will this loan first show up under your control and in what form?
            *******************************
            My reply:
            CASE A: The creditor/lender can be another business — it gives up the property and gets periodic payments back. The asset (the property is moved from one company to another). The company giving up the property now acquires another asset, the promisory note (credit) which becomes decreases with each periodic payment.
            CASE B: The creditor/lender is a bank. The bank has to set asside reserves to cover the loan. That set-aside is only a small portion of the loan — credit is created. Pushhing the reserves back through the banking system to the Fed Reserve — the Fed Reserve can increase the money supply to cover the reserve requirements of the banking system that lends to productive resources — again CREDIT.

            Voilà, money (i.e., credit) created out of thin air.

          13. Vic Volpe

            The video on Hazlitt’s book:

            About your question of the guy falsely citing Samuelson:

            Part 12: Roger Garrison — Auburn; 4:16 into the discussion

            I think I gave you the Samuelson chapter.

          14. Vic Volpe

            Basic concepts, good.

            Once again I ask two simple questions: [Not trick questions; just curious]

            Where did you learn economics? And what text book did you use?

          15. CASE A: The creditor/lender can be another business — it gives up the property and gets periodic payments back. The asset (the property is moved from one company to another).

            Vic, the lender has loaned the amount of the sale to the borrower. The lender now has no money and no asset. they are functioning like a bank. Their opportunity cost is whatever else they might have done with the money from an immediate sale.

            The company giving up the property now acquires another asset, the promisory note (credit) which becomes decreases with each periodic payment.

            How do they acquire a new asset? What do they buy it with? Do you understand opportunity cost?

            CASE B: The creditor/lender is a bank. The bank has to set asside reserves to cover the loan.

            Voilà, money (i.e., credit) created out of thin air.

            Yes. You have described the juggling act called fractional banking. As I wrote earlier, credit must be either from savings or created out of thin air. Money out of thin air is inflation. It works only so long as people believe they can take their money back when they ask for it, and obviously everyone can’t.

            There must be some amount on deposit from savings to begin with, to allow lending multiples of the reserve amount. Creating reserves out of thin air distorts the credit market.

          16. Vic Volpe

            “Vic, the lender has loaned the amount of the sale to the borrower. The lender now has no money and no asset. they are functioning like a bank. Their opportunity cost is whatever else they might have done with the money from an immediate sale.”
            and,
            “How do they acquire a new asset? What do they buy it with? Do you understand opportunity cost?”
            __________________________________
            The lender receives an asset — the promissory note — they can borrow against that (use it for collateral) — more credit extended (out of thin air too).
            _________________________________
            “Money out of thin air is inflation.”
            It is not inflationary if the extended credit is reinvested into good productive enterprises.
            _____________________________________
            “There must be some amount on deposit from savings to begin with, to allow lending multiples of the reserve amount. Creating reserves out of thin air distorts the credit market.”
            What the local bank has in reserves can be increased by borrowing from the Federal Reserve. The Fed Reserve can increase the money supply — out of thin air. Creating reserves out of thin air does not distort the credit market if the reserves contribute to a suitable productivity increase. When the thin air money is used for consumption, you are correct. [Ray Dalio, remember?]
            *************************************
            Extending the conversation to opportunity costs only reminds me to ask you,
            The two questions:
            (1) Where did you learn economics?
            (2) What text book did you use?

          17. Vic Volpe

            And to add…a quote out of my Samuelson text book, what else:

            “How to have your cake and eat it too: lend it out at interest.”

          18. The lender receives an asset — the promissory note — they can borrow against that (use it for collateral) — more credit extended (out of thin air too).

            After further thought I realized I misread your previous comment about credit cases A and B. I knew I wasn’t happy with my previous answer.

            In case A the two parties merely exchanged assets, a property for a promissory note. Nothing was created. The note will be repaid using money that already exists. the seller of the property could have accepted anything they valued in exchange. Cash, a promissory note, a herd of cattle, or a big box of Home Depot gift certificates. All are assets. There is no money out of thin air in this example.

            Case B – borrowing from a bank CAN represent money out of thin air IF the loan results from higher reserve amounts due to additional deposits or from Fed operations.

            [Money out of thin air] “It is not inflationary if the extended credit is reinvested into good productive enterprises.

            O geez. Give me a break. Do you think money cares what it represents and changes colors depending on whether, in its judgement, the use is productive? You Keynesians really have some bizarre ideas.

            Here’s the thing: Money is a commodity, like any other commodity. If you produce more of it then is demanded, each unit of it will become less valuable in terms of the things for which it’s exchanged. Remember that goods and services are paid for in goods and services. We trade things we have for things we want more. We use some commonly traded good as a medium of exchange. These days, we have learned to trust that worthless pieces of paper or their electronic equivalents will be accepted for the things we actually want.

            If there is more money in circulation due to these “out of thin air” activities, then I can buy more of them with a bushel of wheat, a ton of steel, or an hour of my labor. My grocer can buy more dollars from me with a gallon of milk or a loaf of bread. We call that “higher prices”.

            It’s not *exactly* that simple, but that’s the basic idea.

            What the local bank has in reserves can be increased by borrowing from the Federal Reserve.

            Or by attracting additional customer deposits.

            The Fed Reserve can increase the money supply — out of thin air. Creating reserves out of thin air does not distort the credit market if the reserves contribute to a suitable productivity increase.

            And this is where you have it really wrong. as before, a dollar doesn’t care what it represents or how it’s used. Any increase in the money supply is ultimately inflationary, if it exceeds the demand for money.

            The credit market is distorted because the artificially low interest rates and excess credit available don’t provide the correct signal between producers and consumers.

            When the thin air money is used for consumption, you are correct. [Ray Dalio, remember?]

            Vic: Listen to me! Money doesn’t care how it’s used!

            The ultimate end of all production is consumption. Everything we do contributes in some way to producing something to consume.

            We don’t buy tractors because we like tractors, but because we can plant more crops and can ultimately have more to eat at a lower price than we can without the tractor. So, there ARE NO ” good productive enterprises” that don’t lead eventually to consumption. Get it?

            How to have your cake and eat it too: lend it out at interest.

            Samuelson probably meant to write “how to have your cake and eat it later”. The interest rate is a measure of your time preference and risk tolerance.

          19. Vic Volpe

            Your 2nd para: “There is no money out of thin air in this example.”
            Multiply this example throughout the economy and the Fed will increase the money supply with the push of a button.
            ———————–
            Your O geez give me a break comment —
            Yes! I do believe this [people/human behavior are behind that money]. I got it from a sound economic/finance education.
            May I shoot the 2 Q’s back to you?
            ——————————————-
            I’m going to skip most of your verbage — will just make a summary at the end.
            —————————-
            You have a comment about “any increase in the money supply is ultimately inflationary, if it exceeds the demand for money” — I agree; but, the point I give in the examples (multiplied through the economy) are DEMAND DRIVEN examples so the money supply follows. I am not purely a supply-side or demand-driven (arm chair) economist — there are times when one is used, other times when the other is more appropriate.
            —————————
            Your comment: “the ultimate end of all production is consumption….”
            While I agree with the statement, I am going to disagree with you for argument sake — because you do not make a distinction in the vast network of our economy between producing for consumer goods and producing for production goods.
            ————————-
            Summary: I am not going to go throuh one example after another you pose when we have a complex $16+ trillion economy stretched across a vast continental nation intertwined with the numberous international connections; and, all of this is juxtaposed on an American democratic system that is fundamentally characterized by its ability to change and adapt along with an American culture that has shown it can change and adapt.

            Any economy — whether is be totalitarian, laissez faire, or our economy (what I think is a mixed economy of Govt & private enterprise) — goes through cycles (1, 2, or however how many) of expansion and contraction. [Some of the those productive investments I cited that use credit out of thin air, don’t pan out, people lose money, etc., etc.] And human behavior has something to do with the cycles — Human behavior?…something that Libertarians have such difficulty explaining.
            —————————-
            So professor: We are back to the two questions:
            1. Where did you learn economics?
            2. What text book did you use?

          20. Vic Volpe

            I also should have added that you give a straight line analysis from Production >>> to Consumption.
            When Catepillar builds a tractor to be used by a mining company to extract ore and the ore is supplied to a manufacture to make tools that ultimately go to make a pure consumer good — all through that process, people are being paid as employees (and acting as consumers), suppliers are being paid (etc., etc.), repair shops (etc.), service companies (etc.), etc., etc.

          21. About your question of the guy falsely citing Samuelson:

            Part 12: Roger Garrison — Auburn; 4:16 into the discussion

            I think I gave you the Samuelson chapter.

            I can’t find the Samuelson textbook anywhere unless I buy it, so I guess I won’t be reading it after all.

            Garrison characterizes Samuelson’s description of savings as “leakage” from the system at that point in the interview. Is that what you mean? How is Garrison mis-characterizing?

            By the way, if you had time to watch all those video, you had more than enough time to read the free Hazlitt book I gave you.

          22. Vic Volpe

            1. Yes, the leakage comment. Also later when he talks about macro economists. In general I don’t disagree with Garrison that much, I just think he mischaracterizes Samuelson (and probably Keynes, but I have not read Keynes that thoroughly – I learned out of a Samuelson text, remember?).
            2. You can find Samuelson’s text book in a public library – I won’t tell any other Libertarians that you made use of a public resource.
            3. On my bookshelf I have: The Road To Serfdom, Charles Murray books, one or two of Uncle Miltie’s esoteric papers (in a book of readings), two books by Daniel Yeargin (on oil), Jagdish Bhagwati (on globalization) – hardly any Liberals. In addition I have plenty of books to the contrary. I have listened to Uncle Miltie since the ‘60’s (probably a hundred hours), far more than any other economist (next would come J.K. Galbraith) – love him (even though I disagree with him) he’s entertaining as well as informative. I’ve lived in Texas and gone round and round with Texans. Henry Hazlitt is not going to get on my shelf – he is ideology, not academics.

          23. Your 2nd para: “There is no money out of thin air in this example.”
            Multiply this example throughout the economy and the Fed will increase the money supply with the push of a button.

            Vic, the buyer in your example created an asset – a promissory note. There is no money involved in the transaction. Multiplying that example throughout the economy doesn’t create any money either. Money is created by the Fed through the fractional banking system. There are no other ways. Value is created, wealth is created, assets are created, but no money.

            I can create a spear from a stick, and I now have an asset. I can use it in the production of food or I can trade it to others for something I want more. No money is involved. Assets aren’t money, but may be *represented* by money.

            Your O geez give me a break comment –
            Yes! I do believe this [people/human behavior are behind that money].

            No, Vic, money is just money. You can make judgements about the things people produce and consume as to whether they are good, bad, or ugly, but the money used as a medium of exchange has no capacity for change, like a mood ring, to be one thing or another. You can call my USE of money good or bad but the money itself is neither.

            I got it from a sound economic/finance education.

            That is really funny, Vic.

            You have a comment about “any increase in the money supply is ultimately inflationary, if it exceeds the demand for money” — I agree;

            I don’t think you do agree, as you continued on to demonstrate that you didn’t understand it.

            Your comment: “the ultimate end of all production is consumption….”
            While I agree with the statement, I am going to disagree with you for argument sake — because you do not make a distinction in the vast network of our economy between producing for consumer goods and producing for production goods.

            You can’t both disagree and disagree. Either all production, including production of intermediate goods, tools, and raw materials are means of ultimately producing consumer goods or they aren’t.

            Summary: I am not going to go throuh one example after another you pose when we have a complex $16+ trillion economy stretched across a vast continental nation intertwined with the numberous international connections; and, all of this is juxtaposed on an American democratic system that is fundamentally characterized by its ability to change and adapt along with an American culture that has shown it can change and adapt.

            LOL Whatever you said.

            Any economy — whether is be totalitarian, laissez faire, or our economy (what I think is a mixed economy of Govt & private enterprise) — goes through cycles (1, 2, or however how many) of expansion and contraction. [Some of the those productive investments I cited that use credit out of thin air, don’t pan out, people lose money, etc., etc.] And human behavior has something to do with the cycles

            More blah blah blah. You have given up any semblance of an economic discussion.

            — Human behavior?…something that Libertarians have such difficulty explaining.

            Au contraire. It is libertarian philosophy, and more particularly for our discussion Austrian economics that very well explains human action. In fact, Ludwig von Mises wrote a lengthy book under that very title: “Human Action”, which to this day is considered one of the most important contributions to economic theory ever written.

            I would recommend you read it, but I know I would be wasting my breath, so don’t bother reading it, Vic. too bad, it could certainly disabuse you of some of the worthless Keynesian notions you continually spout.

            I also should have added that you give a straight line analysis from Production >>> to Consumption.
            When Catepillar builds a tractor to be used by a mining company to extract ore and the ore is supplied to a manufacture to make tools that ultimately go to make a pure consumer good — all through that process, people are being paid as employees (and acting as consumers), suppliers are being paid (etc., etc.), repair shops (etc.), service companies (etc.), etc., etc.

            Yes, Vic, it’s a complex economy. Lots of interrelated activities. Read Leonard Read’s “I Pencil” for an interesting example.

            I didn’t think I needed to include all the steps involved in making a tractor in a simple example of a tractor as an intermediate means of food production between the ground and my plate. And yes, people are both producers AND consumers.

          24. Vic Volpe

            the 2 Questions:
            1. Where did you learn economics?
            2. What text book did you use?

          25. 1. Yes, the leakage comment. Also later when he talks about macro economists.

            Did you follow the link I provided you? Is figure 14.3 on the page viewed an accurate representation of samuelson’s (and Keynes’) view of savings and investment as separate things, and savings being leakage from the system?

            What was mis-characterized? Please be specific

            3. On my bookshelf I have:

            The Road To Serfdom -excellent . Did you actually read this book, or is it just on your shelf for show?

            Charles Murray books – excellent

            one or two of Uncle Miltie’s esoteric papers – ? too vague. consider “Free to Choose”. Easier than watching all the videos.

            Daniel Yeargin Yergin – don’t know him

            Jagdish Bhagwati (on globalization) – not bad. free markets = good

            Henry Hazlitt is not going to get on my shelf – he is ideology, not academics.

            You’re asbsolutely right, Vic, don’t put Hazlitt on your shelf. Of course understanding theory might help you understand the mechanics you’re so fond of, but don’t bother.

          26. 2. You can find Samuelson’s text book in a public library – I won’t tell any other Libertarians that you made use of a public resource.

            Hehe, Vic, I assume you are attempting to be cute. as I’m sure you’re aware, libertarians have no problem using public resources, it’s just that they see no reason for them to be public. Libertarians believe in “user pays”

            A library is a perfect example. I get a lot of use out of my local libraries, but others don’t. Why should my library use be subsidized by others who may never use the library?

            A private library could easily operate on a subscription basis like Netflix or on a membership basis with charges per use like Blockbuster stores. That would align “pay” with “user”. What do you think?

    2. mesa econoguy

      This should be required reading for all econ 101 students, Jon.

      I never once read it until well into my 30s, after econ undergrad and MBA programs. Shameful.

      http://www.econlib.org/library/Bastiat/basLaw0.html

    3. mesa econoguy

      But gov’t spending is definitely an option, one with great risk now.

      Reserve currency status carries with it certain privileges, like relative interest rate “control” (the Fed is quite powerful, with the short end of the curve), which could disappear literally overnight.

      When that risk reprices, and the Fed suddenly loses that control, you’d better be well hedged, with forks, knives, lead, and brass, cuz it ain’t gonna be pretty.

    4. Keynes did say that you are suppose to pay back in the good times, for saving us in the bad times. I don’t think it works because Keynes also assumes the money comes from nowhere and anywhere you look the money was taken from private people. Even his savings hypothesis is false (Tax people, government spends 100% vs peoples 92% and Viola! 8% growth) The missing savings won’t go out as loans.

      But the biggest problem is that governments do not cut back during good times. They see all that nice money and promise even more.

      1. mesa econoguy

        Correct.

        Keynes was a statistics specialist by training, not really an economist.

        http://en.wikipedia.org/wiki/A_Treatise_on_Probability

        His policies excuse and encourage profligate spending, in the name of “growth.”

        However, he would be ashamed at the current application of this theory, and would likely disapprove of Krugman’s mindless banter.

  10. mesa econoguy

    Fun thread.

    Jon Murphy +100,000

    1. Jon Murphy

      I come in at the end and win the thread? Awesome.

      But, seriously, thank you. You are too kind

      1. mesa econoguy

        Not at all, sir, we’ll connect shortly offline (via our friend Methinks).

  11. Vic Volpe

    Henry Hazlitt again. And from 1946. Right after the Great Depression and WWII. Railing against the Govt. Let’s take a look at how ineffective the Govt was after the decade of the ‘30’s where Big Business backed away from the American Economy and Big Govt stepped in.

    Some of those “make work” projects of the New Deal: Griffith Observatory in LA, the Timberline Lodge on Mt. Hood, La Guardia Airport, and (the bridge to nowhere???) the Triborough Bridge, the Lincoln Tunnel, Grand Coulee Dam, the highway connecting Key West to the mainland. I think over half of the schools built in the ‘30’s were financed (and sometimes built by government labor) by the New Deal (before the DoEd was established). In Texas, of all places, some of those FM roads (farm-to-market) were built by the New Deal. I have been all over the lower 48 in my working life. You go to South Dakota or Iowa and you can still find court houses, city halls, fire houses, police stations, small parks, all built during the New Deal and with pride. Some still have a plaque denoting the fact.

    And who were some of those free loaders who worked for the CCC? The ones that immediately come to mind are Admiral Rickover (before he was an admiral), Chuck Yeager, Stan The Man Musial, and Archie Moore. You can watch any PBS or C-SPAN program that covers that period and you will get to see many plain folk who speak admirably about their experience.

    And you say these things are financed through coercion, intimidation, and confiscation. Really??? Welcome to democracy in action. It’s only been going on around here for just a couple hundred years. Do you think it was any better in Andy Jackson’s day when there was no income tax and hardly any national debt?

    So now we have Henry Hazlitt commenting in 1946 with his negativity about the Govt. And we are just about to go into one of the most productive eras of our existence. The debt-to-GDP will decline from approximately 100% at the end of WWII to less than 40% by the end of the ‘60’s – and this is after many Govt deficits and only seven balanced operational budget in that span.

    Like I said some time ago on another post about Henry Hazlitt – a 19th Century Man who never got over the New Deal.

    1. mesa econoguy

      Perfect Vic, from you, a man that never got over history.

      We’re repeating FDR’s mistakes, with amplified consequences.

      Like I’ve said since Obamascare New New Deal passed, welcome to 1.5%GDP growth, in perpetuity.

    2. Typical leftist drivel, Vic, get some new material. If you truly believe that tyranny of the majority is a good thing and that it’s OK to steal people’s property for what you think is a better use, then you may be on the wrong blog.

      It’s perfectly fine that you need other people to tell you what to do and make your choices for you, but don’t impose your fascist ideas on others.

  12. Vic Volpe

    And we have “experts” commenting on the multiplier effect , the cost of capital, and Govt inefficiency. Makes me wonder about people who get their impressions of the Govt by standing in line at the local DMV.

    I will certainly admit to plenty of Govt projects that can be faulted for one thing or another. Let’s put those in Column A. And in Column B, just look in your daily newspaper for all that goes wrong in Corporate America (you will usually find it along side of a story about the Govt gone wrong) – cost overruns at Boeing, bailouts of Citi and Goldman-Sachs (the “survivors” in Lloyd’s phraseology), Enron’s off balance sheet adventures, WorldCom’s “exotic” investments, a party at Tyco, Jack Welch’s benes revealed in a divorce settlement – all kept from shareholder/investor knowledge.

    But not to be too critical of Boeing. Who here does R&D on projects that have tens-of-thousands of parts? Any critics here of drone technology developed by the Govt, or the Lunar Module, or Mars Rover?

    Column A or Column B, good or bad — the common element, human nature. It doesn’t change because you work for Govt or private enterprise. You want to tell me Govt doesn’t compete. I say to you, find me the Soviet Union or someone who speaks Etruscan.

    1. One great big diff that you overlook, is that when company is continually run badly, it is likely to go out of business. Government just taxes more the keep on making the same mistakes, often rewarding the incompetent with higher positions with more pay.

      Yes, I will do your A-B analysis, and probably have 1-10 ration of good to bad.

      Oh, and BTW, my view of goverNMEnt comes not just from the line at DMV, no matter how representative that may be of the greater problem. I have worked in and with government and have plenty of first hand evidence as to its inefficiencies and corruption.

      How ironic that you list Enron, which got at least $6 Billion in gov’t subsidies before declaring bankruptcy, GOldman Sachs, which in 2009 got more money from TARP than its entire “profit” that yr, a year in which Lloyd Blankfein (CEO) STILL got a bonus, no doubt for his political connections rather than his economic acumen, then list a bunch of other corporate welfare recipients. These are one and all examples of the BAD that the fedgov does, the corruption attendant to it, and your ignorance of what REAL free markets are all about. Subsidies absolve companies of bad management, encourage more lobbying as the rewards of handouts are easier and more certain than the rewards of good management, and worst of all, subsidies keep alive companies that should have been wiped out, thus removing incentives for good management. Who needs the latter when Uncle Sugar will make it right?

      1. Vic Volpe

        Governments don’t go out of business, don’t compete??? Like I said, can you find me the Soviet Union? …bumped into anybody that speaks Etruscan?

        I’ve too have a long working career — 50 years, half in the Fed Govt (DoD activities) and half in industry. The two most competitive bosses I ever had were in the Fed Govt — they knew somebody in D.C. could draw a red line right through their organization and abolish it. We had to prove ourselves every day.

  13. Vic Volpe

    And we have “experts” commenting on the multiplier effect , the cost of capital, and Govt inefficiency. Makes me wonder about people who get their impressions of the Govt by standing in line at the local DMV.

    I will certainly admit to plenty of Govt projects that can be faulted for one thing or another. Let’s put those in Column A. And in Column B, just look in your daily newspaper for all that goes wrong in Corporate America (you will usually find it along side of a story about the Govt gone wrong) – cost overruns at Boeing, bailouts of Citi and Goldman-Sachs (the “survivors” in Lloyd’s phraseology), Enron’s off balance sheet adventures, WorldCom’s “exotic” investments, a party at Tyco, Jack Welch’s benes revealed in a divorce settlement – all kept from shareholder/investor knowledge.

    But not to be too critical of Boeing. Who here does R&D on projects that have tens-of-thousands of parts? Any critics here of drone technology developed by the Govt, or the Lunar Module, or Mars Rover?

    Column A or Column B, good or bad — the common element, human nature. It doesn’t change because you work for Govt or private enterprise. You want to tell me Govt doesn’t compete. I say to you, find me the Soviet Union or someone who speaks Etruscan.

    1. Vic

      Column A or Column B, good or bad — the common element, human nature. It doesn’t change because you work for Govt or private enterprise.

      That is exactly right, but you seem to put way more faith in those in government than those in private business, although those in government have no competition, no profit motive, and are spending other people’s money. What are the incentives?

      Those in private business must ultimately satisfy consumers better than their competitors by reducing costs and prices or they will go out of business. Very strong incentives. Instead those in government can work toward rewarding those who have helped put them in office and keep them in office, by handing out taxpayer money.

      Private businesses risk private money that is voluntarily invested. Government entities risk taxpayer’s money that is taken without their consent for purposes they haven’t chosen. Big difference. Which group do you think is more likely to better serve us?

      You want to tell me Govt doesn’t compete. I say to you, find me the Soviet Union or someone who speaks Etruscan.

      What does this even mean, Vic, please write in clear English. Don’t be cryptic or use riddles.

      The Soviet Union was a failed experiment in the very form of government you are cheerleading.

  14. Vic Volpe

    I don’t know where the comments on the cost of capital are coming from. Obviously somebody doesn’t know what the cost of capital is for the Fed Govt.

    From the ‘60’s through the ‘80’s, the general guidance the Fed Govt used was 10% for a discount factor in present value analysis. This figure was arrived at after a study of large corporations in America. The study determined that large corporations had a cost of capital of 12% (i.e., a real rate; the nominal rate was (I believe) 35%); and, since the Fed Govt didn’t pay taxes, the appropriate discount rate for the Fed Govt would be 10%. In the early ‘90’s this was lowered to 7%.

    The object in capital budgeting is to get the lowest cost of capital so that one can have more investment opportunities, seek projects with a PV above capital costs, and exploit this to your advantage. Here sits the Fed Govt with a discount rate that’s 20% lower than Corporate America.

    You want to make an argument for the inefficiency of Govt; well, talk to someone who was the commander of a defense installation that cuts a lot of contracts, especially locally. I think they will tell you that they had guidance to stay on friendly terms with the local community, help the local economy, and not to take on projects where the installation would be competing with the local economy. Local business people would usually complain that the Govt had an unfair competitive advantage in price. Of course, in other matters, over a beer at the local pub, they would tell you Govt employees are paid too high compared to the locals and that the Govt paid too much for its supplies, materials, and services. So go figure about where the unfair advantage comes from.

    1. mesa econoguy

      Um, Vic, the cost of capital is determined BY the government, i.e., the risk free rate (rfr, back in your dated textbooks). It is government-issued debt.

      Who sets rates now, mostly, Vic?

      The market? Alan Greenspan? Paul Volcker? Ben Bernanke?

      Hint: which of the above isn’t in “office” anymore?

      Follow-up question: What would happen if the Fed bought most debt issuance, while Treasury rotated maturities further out? Or, what would happen to overall US debt duration by retiring the higher rate debt, while issuing much, much more lower rate long term debt, and rates rise?

      Would that be a problem?

      Follow-up question, Vic: what happens when the Chinese dump dollar-denominated assets overnight and refuse to refinance their Treasury purchases, causing loss of USD reserve status?

      1. Vic Volpe

        The cost of capital is not the risk free rate — consult a finance book.

        If a company wants to determine what its risk is it can compare its cost of capital (its discount rate for PV analysis) to the risk free rate (Govt treasuries).

        The Fed Govt discount rate (i.e., its cost of capital) is assinged by OMB based on the analysis of the market that they do. Each dept within the Govt (DoD, etc.) takes the OMB and promulgates its guidance.

        1. mesa econoguy

          Incorrect.

          Cost of capital is directly dependent on the risk free rate, as it is the opportunity cost of doing nothing.

          The cost of capital is the rate of return that capital could be expected to earn in an alternative investment of equivalent risk.

          Or investing at the risk free rate.

          Consult any finance book.

          If a company wants to determine what its risk is it can compare its cost of capital (its discount rate for PV analysis) to the risk free rate (Govt treasuries).

          Thank you for proving my point,

          The Fed Govt discount rate (i.e., its cost of capital) is assinged by OMB

          No, it is not. It is an arbitrarily assigned rate by Board of Governors of the Federal Reserve System

          http://www.federalreserve.gov/monetarypolicy/discountrate.htm

          Via their Open Market Committee.

          1. Vic Volpe

            You are confusing the Fed discount rate (at the money lending window) with the term ‘discount rate’ as used for PV analysis.

            Your finance book?

          2. mesa econoguy

            You are confusing discount rate with everything.

            What rate does OMB set?

            [They don’t set any rate, and whatever government borrowing is done necessarily has to come via UST debt issuance, which is market rates and/or Fed-driven short-end rates. Currently, the Fed is eating about 1/3 of Treasuries http://www.zerohedge.com/news/2013-05-23/moment-ben-bernanke-own-305-us-treasury-market-and-will-own-all-2018 ]

            You finance book?

          3. Vic Volpe

            My teext from Grad School, a smalll Jesuit school in Scranton, PA, in the 1970’s:

            James Van Horne — Stanford
            http://www.gsb.stanford.edu/users/jhorne

            Financial Mgmt and Policy, 4th Ed
            still availble on Amazon (used books for less than $5)
            http://www.amazon.com/Financial-Management-Policy-12th-Edition/dp/0130326577
            Ref: Chpt 4 — Principles of Capital Investment — it has pictures so you can follow the concept

            Concepts like: the ‘time value of money’ and ‘discounted cash flow’.

            [Always glad to bring education levels up to par.]

          4. mesa econoguy

            I understand what you’re trying to say Vic.

            You are assuming government makes wacc calculations (OMB), which – independent of any exogenous rate information – is promulgated throughout government for use in “investment” (government doesn’t actually invest) decisionmaking.

            But that calculation is faulty, for the reason that all borrowing by government ultimately goes through debt issuance, and those rates are currently heavily Fed-influenced, due to their current

            This is the same mechanism as the SS Trust fund IOUs (non-fungible intragovernmental debt), which are now resulting in additional debt issuance (when the IOUs are redeemed at Treasury, Treasury turns around and issues new debt to the public). The stated rate on the IOU is only half of the story.

          5. Vic Volpe

            The Govt does capital budgeting like anybody else. Govt people go to the same universities as the private sector — still teach the same concepts: time value of money, discounted cash flows.

            The OMB guidance has been used for decades. I don’t know about other fed agencies, but DoD has a lot written about the use of the concepts. It is a comparison of private financing vs public financing.

            Where are you coming from: academics or ideology?

          6. Vic Volpe

            The Govt does capital budgeting like anybody else. Govt people go to the same universities as the private sector — still teach the same concepts: time value of money, discounted cash flows.

            The OMB guidance has been used for decades. I don’t know about other fed agencies, but DoD has a lot written about the use of the concepts. It is a comparison of private financing vs public financing.

            Where are you coming from: academics or ideology?

          7. mesa econoguy

            LOL, you’re pointing at CBO/OMB budgeting as a good thing?

            http://www.zerohedge.com/news/speaking-credibility-here-cbos-2001-forecast-which-predicted-negative-25-trillion-net-debt-2011

            FAIL

            I come from math. Math doesn’t give a rat’s ass about CBO, OMB, or any other government agency methodology, or (mis)education.

            Right now, math says we’re broke. Math is usually right.

          8. Vic Volpe

            Take a course in finance. They use math (calculus) now a day.

          9. mesa econoguy

            Oh, ok, “now a day.”

            Dimwit.

            Vic, I recommend you take your own advice, so we don’t have to read your bizarre confused drivel.

          10. Vic Volpe

            Academics? or Ideology?

          11. mesa econoguy

            You come from both; both left wing, both faulty.

          12. Gentlemen, gentlemen, gentlemen!

            Methinks you’re talking past each other.

            The weighted average cost of capital for any firm is the weighted average cost of debt and equity capital. That WACC is used as the discount rate in NPV calculations, as Vic said.

            The cost of equity capital is the market return plus the firm’s risk premium based on its beta to the market (however you come with that, for private firms we have to use publicly traded comps and run betas).

            The cost of debt capital is the Risk free rate (which is the duration matched Treasury bond – we use the 30-year for duration matching reasons) plus a risk premium.

            I think that what Mesa is trying to say in the first response is that since the firm likely stays in the same business, the component that has the highest potential to influence changes in WACC is government bonds. That’s not wrong, under these base assumptions.

            The Fed, however, has virtually no control over long bonds. So, the market, not the Fed sets the Rf rate.

            Vic, I can’t quite understand what you’re getting at in your first post. I sounds like you’re confusing a low risk premium with efficiency. It’s not the same thing. At all. The only thing that the lower borrowing rate of government tells you is that bondholders think there’s a lower risk of not getting paid back when lending to government. It is not a statement on government efficiency. Far from it.

          13. John Dewey

            methinks: “The only thing that the lower borrowing rate of government tells you is that bondholders think there’s a lower risk of not getting paid back when lending to government”

            I agree that lenders to the federal government accept a lower interest rate because the risk of default is lower. I think lenders to other taxing authorities accept a lower interest rate because interest income they will receive is exempt from income taxes.

          14. John Dewey

            The cost of corporate debt is used in determining the firms WACC. Although the corporation must pay more for that debt than the government pays for its debt, that is not the whole story. We do not ignore the offsetting benefit of interest rate tax shields in deriving the private firm’s WACC:

            WACC =

            (proportion of debt)X(cost of debt)X(1-tax rate)

            +

            (proportion of equity)X(Cost of equity)

            I’m not familiar with WACC for government entities, but I don’t see how such entities could have an interest expense tax shield. So the lower borrowing cost of a government entity may be completely offset by the private entity’s tax shield.

          15. John,

            The at least partial tax exemption (munis are still subject to the bondholder’s state taxes) does lower the muni interest rate. However, ever if you adjust for the federal tax exemption, the interest rate is below high grade corporate paper and that’s because muni paper is generally viewed as almost as creditworthy as Treasuries (there are notable exceptions). In part that’s due to the taxing authority of any government and the fact that property owners in their tax authority’s jurisdiction can’t escape quickly.

          16. John,

            The tax shield is generally not enough to offset a company’s market risk premium over Treasurys (the Rf rate proxy).

            The government’s borrowing rate is just the Treasury rate with no adjustments. But, unhappily, of every dollar you and I pay in taxes (the other source of funds for government), studies show that up to $0.65 is spent just to wrench it from us. Collection alone eats up the lion’s share. The running of various redistribution bureaucracies gobbles up the overwhelming majority of the rest and the project being financed usually only ends up with a penny or two. So, even assuming the project in question is totally worthwhile and valuable, the government LITERALLY wastes 99% of the money it takes from you and me to fund this project. Fun, no?

            If this is what Vic is calling “efficient”, then I think you’d agree that Vic is living in an upside-down backward world.

          17. John Dewey

            methinjks: “The tax shield is generally not enough to offset a company’s market risk premium over Treasurys (the Rf rate proxy).”

            And, of course, I didn’t say it was.

            When I referred to government entities, I was meaning airport authorities and water districts and all the other government entities which I think you refer to as muni’s.

            I believe that the average muni yield, currently about 4.7%, is higher than that of investment grade corporate bonds (3.79%, according to Bloomberg).

            http://www.economagic.com/em-cgi/data.exe/fedbog/slbond

            Historically, muni’s may have been lower than corporate bonds. But I believe the significant tax shield on corporate interest does offset the long term difference between high grade corporate debt and the average muni.

            If you have data to show that I am incorrect, please provide it.

          18. John Dewey

            Methinks,

            Here are the current yields on similar bonds, according to Yahoo Finance:

            10 yr Treasury bonds ….. 2.62%
            30 yr Treasury bonds ….. 3.69%

            10 yr AA muni’s …………. 2.72%
            20 yr AA muni’s …………. 4.08%

            10 yr AA Corporates ……. 3.41%
            20 yr AA Corporates ……. 4.38%

            http://finance.yahoo.com/bonds/composite_bond_rates

            So, yes, similar corporate bonds have a slightly higher yield than muni’s. But the cost of debt for a corporation is really much lower than the corporation’s bond yields, due to the 35% or higher tax shield on interest expense.

            That is why I argued that corporate financing of toll bridges would not be higher than public financing. If you have reasons to believe I am incorrect, please provide those reasons. But please do not just say that I am wrong.

          19. John Dewey

            methinks: “munis are still subject to the bondholder’s state taxes”

            I’m not sure that is entirely true. As I understand it, many states exempt from taxation the interest income from municipal bonds used for the “public good”, such as airports, bridges, and hospitals. Those are exactly the type projects I was referring to in my argument.

          20. Vic Volpe

            While the cost of debt is important in figuring the cost of capital, you have completely left out one very important element — what return does the firm want on its investment (its equity; this would be true even if the firm was 100% financed by debt).

            The discount factor in IRR calcuations or NPV (representing the cost of capital) cannot just be the interest rate of bonds. In today’s interest rate environment, with rates held low, the discount factor would be way too low — almost anything could get financed.

            The problem in corporate finance today is with the rates held low and firms trying to get a good return on their equity. I don’t know what the discount rate would be today that they are using; but, I would guess it is no lower than 7% and I think it would still be a lot higher (maybe over 10%).

          21. John

            I agree that lenders to the federal government accept a lower interest rate because the risk of default is lower. I think lenders to other taxing authorities accept a lower interest rate because interest income they will receive is exempt from income taxes.

            What, do you mean incentives matter? Who knew?

          22. John,

            When I was talking about government debt, I was clearly talking about Treasurys, not munis. That’s because all debt in the U.S. is priced off Treasurys, not munis.

            Traditionally, munis trade at yields that are roughly 90% of the Treasury yield. The differential results from the favourable muni tax treatment.

            Munis are not subject to a federal tax, but they are subject to state and local taxes (if there are any) and some places, like Puerto Rico, have exempted every other state’s munis as well their own. Munis issued by the state or localities within the state in which you are resident are generally exempt from taxation. So, a CA resident does not pay taxes on the interest income of munis issued by CA and city governments within CA, but a CT resident would pay the CT income tax rate on revenue from CA munis. I live in Florida and you live in Texas, so we pay no income tax on any revenue from any state’s munis because our states don’t levy an income tax.

            Right now, there’s an unusual even in the bond market: muni yields are slightly higher than Treasury yields. This usually happens when the muni market gets spooked. This year, the market has been spooked by a few things: Detroit, Puerto Rico and the increased probability of Fed tapering. The illiquidity of the muni market is the reason it can get this far out of line. The tax benefit is so enormous that even factoring in those events, muni yields should never be at or above treasury yields. But, an illiquid market is by its very nature an inefficient market and it’s a well-known trade to buy munis and sell treasurys against them when the yields flip like this. So there’s an idea for you :-)

            I clicked on your link where you’re comparing investment grade corporate bonds and munis to see if you duration-matched the bonds, but the link doesn’t provide that info. It looks like you’re comparing lower duration corporates to longer duration munis, but you’ll have to check that since I can’t get access to enough data…and we have to factor in the current weirdness in the muni market.

            I also think that the importance of the tax shield is very much overstated. To their enormous credit, corporations (particularly the large issuers of investment-grade debt) bend over backwards to come up with ingenious schemes to minimize the their tax burden. They are very successful and often pay no income tax at all. I have been out of corporate finance for a long time, so I have neither done that research nor will I ever do that research, but that is my hypothesis. I’m sure someone has done the work. Lord knows the amount of crap masquerading as research in finance is copious. Hopefully someone is doing something more useful.

            As for corporate vs. public financing of bridges, I think that they will be more cheaply and better run by private entities, but not because of anything to do with debt financing rates. Private companies cannot live by debt alone because that makes their balance sheets of such low quality that the debt will be rated below investment grade and the required interest rate will approach the required return on equity capital. The WACC on private financing will be much higher, but the running of the infrastructure, the innovation, the overall safety and efficiency will be much much better so that we can expect to spend less for a better product even with a much higher WACC.

          23. Vic, I have no idea what you’re trying to say any more and I strongly suspect you don’t either.

            The return any corporation is required to earn is the return required by their capital providers and that return can be learned by calculating the WACC.

            You were completely incorrectly trying to make a statement about the relative efficiency of government based on the differential of Treasurys to private company WACC’s. That is beyond absurd and I pointed out to you why in my original response. Go back and read that more carefully.

          24. Vic Volpe

            I shall restate:
            1. When I gave the example of the Govt using a 10% discount factor for PV analysis it was not to suggest that the Govt is more efficient. I was simply citing a study (I think it was done in either the ’50’s or ’60’s) to determine what discount rate the Govt should use. The study looked at major corporations in America and with a detailed analysis (I no longer remember) deterrmined that the Fed Govt was the same as big corporations and since the big corps were using 12% the Fed Govt should use 10% — because the difference is that the Fed Govt doesn’t pay taxes. The point?: Now if you know PV analysis, wouldn’t you think the Fed Govt has an advantage if its discount rate is 20% lower than big business?
            2. I still think your WACC analysis is off. What you have is an exercise that an instructor would give a student (Do you guys teach?) to walk them through the analysis. What corporate America uses is much more complicated than that in figuring out either the discount rate for PV analysis or capital costs. Since I have no experience sitting in a corporate finance dept doing such figuring (I did this stuff for the Fed Govt) I will drop the subject.
            3. Related to #2 though: I’m just curious; does anybody on this post (MP or anybody else) know what discount rate big international companies like Catepillar, Boeing, GE, etc., use for their PV analysis? …and do you have any historical data say from 1990 to present? Like: 1990, 1995, 2000, 2005, present.
            4. I did make a point about Govt efficiency in the last paragraph — but I should have separated it from the paragraphs above that, I wasn’t trying to run the thoughts together. In that para I was just giving some of my personal experience over the years (from the ’70’s to the early ’90’s) dealing with base commanders and the business community.

          25. John Dewey

            methinks: “I also think that the importance of the tax shield is very much overstated.”

            I’ve done capital budgeting at some very large corporations, and I am positive that those corporations believe the tax shield is very important.

          26. John Dewey

            methinks: ” Private companies cannot live by debt alone because that makes their balance sheets of such low quality that the debt will be rated below investment grade and the required interest rate will approach the required return on equity capital”

            I think that is a gross simplification. Companies with very high investment in fixed assets often have high levels of debt without being considered below investment grade. A private company with a history of developing successful toll projects would likely be able to finance subsequent toll projects with almost all debt.

          27. John Dewey

            methinks: “The WACC on private financing will be much higher”

            I still disagree. If private companies were to build and operate toll bridges and airports, they would use very cheap debt financing to do so.

          28. John Dewey

            methinks: “I think that they will be more cheaply and better run by private entities, but not because of anything to do with debt financing rates.”

            I agree that the private sector would be far, far more efficient than public entities in choosing projects, in building them, and in operating them. Can you read what I’m writing, methinks? I agree on this point, so there is little reason for you to keep repeating it.

            Volpe argued that the cost of public financing for such projects was significantly lower than the cost of private financing. It is on this point that I disagree. I believe that major airports and major bridges, if built, owned, and operated by the private sector, would be financed primarily by debt. I believe that the cost of such private sector debt for airports and bridges would be as low or nearly as low for private corporations as is muni bond financing. I think that such project dedicated debt for private corporations would be cheaper than Volpe asserts because of the interest expense tax shield.

            Now, will you please read what I am writing? I am not arguing that interest expense tax shields are the reason private sector infrastructure projects are preferable to public sector infrastructure projects. I am simply arguing that Volpe’s assertion about the advantage of public financing is insignificant.

          29. John,

            “I still disagree. If private companies were to build and operate toll bridges and airports, they would use very cheap debt financing to do so.”

            I don’t what “very cheap” means. Also, it may be very cheap by whatever standard you’re using, but it will never be as cheap as government because you’re going to need equity investors. Government can finance the whole project with debt. Private firms can’t. I don’t think that’s going to be a problem because the question isn’t financing costs but whether or not the project is profitable and I think private firms will be able to do these projects profitably at much higher hurdle rates than government. If you disagree then you’ll have to explain to me how private firms will obtain capital at or below muni bond rates because I can’t see it.

            And please don’t get snippy with me, John. If you want to be rude and condescending, find someone else to talk to. Your skin is so thin that you become mortally offended by almost everything, yet you snap at any opportunity even with people with whom you are friendly. I’m tired of tip-toeing around your fragile male ego while you behave like a prima donna.

            I brought up why I think private companies will do a superior job ONCE and that was to explain my reasoning for why I think they’ll be superior despite a higher hurdle rate.

            “I think that is a gross simplification. Companies with very high investment in fixed assets often have high levels of debt without being considered below investment grade.”

            You don’t seem to grasp that this is true only for companies with mature “cash cow” businesses characterized by steady and predictable cash flows. Still, none of those firms are 100% debt financed and their hurdle rates are above government’s (which can be financed entirely with debt).

            “A private company with a history of developing successful toll projects would likely be able to finance subsequent toll projects with almost all debt.”

            Again, first such a company has to come into existence and “almost all debt” will not get them a hurdle rate at or below the muni rate.

            It doesn’t matter what the hurdle rate is. Private companies will find a way to clear it. Government couldn’t clear the lowest of hurdle rates if its life depended on it. The hurdle rate is not the issue.

            That is why I think looking at the denominator is a fool’s errand. You need to look at the numerator in that equation instead.

          30. John Dewey

            methinks: “I’m tired of tip-toeing around your fragile male ego while you behave like a prima donna.”

            I’m very sorry you felt compelled to write that. Although your opinions about financial and political subjects are worth my time to read, your opinion about my male ego is truly unimportant to me or to anyone else reading this blog.

          31. Well, John, what can I say? That’s what talking to you often feels like. I’m try my best to never offend you and it’s not always easy in the contest of a written back and forth. You take offense at everything. I have always given you the benefit of the doubt, but it’s gotten to the point where I find your responses unpleasant not because we might disagree on some point or other but because you are condescending.

            I’m sorry that you don’t care how you make me feel. But it is quite childish to see yourself as such a model of perfection that you refuse to acknowledge that you might have caused offense either intentionally or unintentionally.

            As you know, I can be extremely offensive and intentionally so, but I never wish to direct to toward the likes of you. If I do offend you, even unintentionally, I apologize. I take responsibility for my behaviour. It’s very sad to see that you refuse to.

        2. Vic,

          No, I don’t teach. I did all this in my corporate finance days at the beginning of my career when I worked as a consultant for companies and calculated this stuff for them all the time.

          One of my clients was National Rail, btw (Amtrak). The crap calculations they had to perform for congress were hilarious. Totally disconnected from reality, financial theory and anything useful.

          No, I don’t think that government has the advantage even if its discount rate is an unbeatable 1% because government is great at only one thing – so much waste that it can’t clear any reasonable hurdle rate. You need to remember that if you’re discounting negative cash flows in perpetuity, you’re got negative expectancy. That describes government at any hurdle rate.

      2. Vic Volpe

        As for the ‘what ifs’ — we’ll save those for a reality check.

        1. mesa econoguy

          Fine with me, Vic.

          The story so far ain’t too good….

        2. mesa econoguy

          Your reality check is coming soon.

          The Chinese are not amused by your reckless Keynesian antics.

    2. Vic

      What a mess. I can only suggest that you restrict your blog comment writing time to earlier in the day, before you start hitting the sauce. You are pretty much incoherent here. And duplicate comments don’t give them more weight, but only makes it appear that you’re struggling with your keyboard.

  15. Vic Volpe

    I don’t know where the comments on the cost of capital are coming from. Obviously somebody doesn’t know what the cost of capital is for the Fed Govt.

    From the ‘60’s through the ‘80’s, the general guidance the Fed Govt used was 10% for a discount factor in present value analysis. This figure was arrived at after a study of large corporations in America. The study determined that large corporations had a cost of capital of 12% (i.e., a real rate; the nominal rate was (I believe) 35%); and, since the Fed Govt didn’t pay taxes, the appropriate discount rate for the Fed Govt would be 10%. In the early ‘90’s this was lowered to 7%.

    The object in capital budgeting is to get the lowest cost of capital so that one can have more investment opportunities, seek projects with a PV above capital costs, and exploit this to your advantage. Here sits the Fed Govt with a discount rate that’s 20% lower than Corporate America.

    You want to make an argument for the inefficiency of Govt; well, talk to someone who was the commander of a defense installation that cuts a lot of contracts, especially locally. I think they will tell you that they had guidance to stay on friendly terms with the local community, help the local economy, and not to take on projects where the installation would be competing with the local economy. Local business people would usually complain that the Govt had an unfair competitive advantage in price. Of course, in other matters, over a beer at the local pub, they would tell you Govt employees are paid too high compared to the locals and that the Govt paid too much for its supplies, materials, and services. So go figure about where the unfair advantage comes from.

  16. PeakTrader

    These wacko libertarians, who got Obama reelected, are worse political hacks than any liberal, including Krugman.

    They know no bounds when looking for dirt on someone they don’t like and when they can’t find any, they create it. They believe if they repeat lies long enough, they’ll become true.

    They can’t defend anything they say one-on-one. So, they have to gang up on you and try to drive you out of this blog.

    What I’ve seen of libertarians is intolerance and destruction, along with lots of politics.

    1. By “no bounds” you mean googling “Peaktrader” and discussing in a spot on the internet visible to the public the fiascos of an arrogant failure that said failure already made public on the internet?

      Yeah, that’s some CIA-level stuff that happened there, Arthur. We even had to hack into the internet using the passwords for our respective networks to get to your site.

      So, are you telling us that all the stuff you’ve posted on your site are lies? Do you sell those for $99 too?

      We tolerate you just fine. Nobody is chasing you off this blog. First of all, this blog does not belong to us and second, you do this to yourself by being an idiot. If you didn’t act like an arrogant fool, you wouldn’t be treated like one.

      1. PeakTrader

        You failed to understand my site, even after I told you. And, don’t play cute games with me. You posted my site just to attack me with your ignorance. Get a life, and a real job.

        1. That is true. I do fail to understand your site, Arthur. That’s why I’m trying to get you to explain yourself.

    2. First place, it was not libertarians that got BarryO elected, it was the GOP establishment and MSM. Flipper did not provide enough difference to inspire people to go to the polls. Indeed the two agreed on most policy issues at one time or another. Flipper was not credible in those differences he stated.

      Most of the rest of what you say is lies or at least an inability to process fact. but we knew that from your numerous comments above.

  17. Vic Volpe

    And from the news today, more good news about the long-term benefits from the New Deal 80-years ago:

    Read about a WPA project (buried in the article) still in use:
    http://www.latimes.com/entertainment/arts/culture/la-et-cm-wallis-architecture-review,0,7909602.story#axzz2jVnz3ZF5

    It’s amazing what info you find when your ideology doesn’t get in the way.

    RIP, Henry Hazlitt!

    1. PeakTrader

      Vic, yes, they’re rigid ideologues. Sort of like suicide bombers.

      1. Peak, it looks like you are using clones now. Wow.

        Peak, a talking with himself to his clone. :-)

    2. It is so nice the folks in Beverly Hills could get a new Art and Entertainment center out of the new deal. those poor people in Beverly hills deserve it. In fact, lets spend some of our current Federal money to make them a 10x bigger Arts center! Cuz you know performing arts centers in LA can’t be built with private money – even though dozens have, it is just your imagination.

      1. Vic Volpe

        You didn’t read the article. The bldg you are talking about is financed by private funds.

        I said the WPA project is buried in the article — it was another bldg that sits near the new Arts Center. 80 years later a “make work” project (in your parlance) still paying dividends.

        1. That is nice.

          Maybe you can cut and paste the small section under fair use laws and put them in qotes

          ” blah blah blah”

          Like that so we can all see what you are talking about. No?

    3. BTW here is another public works project from about the same period. They don’t know how many people died, (some guess around 600 – could have been 2 – 3x that due to the areas it hit) but 90 years later they are still finding bodies.

      http://en.wikipedia.org/wiki/St._Francis_Dam

      1. Vic Volpe

        Shall we blame the aftermath of Hurricane Sandy on private enterprise?

        1. It has been done already! Sandy, is of course caused by global warming, caused by evil industry. There is no other explanation for Hurricanes ever forming otherwise, and these brand new tornado things – where did they come from.

          1. I almost forgot about this song – used to hear it on DR Demento as a kid.

            http://www.youtube.com/watch?v=a3Ps5-CicEE&list=PL8868AA7E7DC542A8

  18. Ken Van Doren

    The Samuelson book- as an economic text, it makes a good door stop. I remember a few of the lessons from High school, such as, as economic productivity increases, there is no reason we should not also increase redistribution of wealth. And that bankers do us a great service by creating money out of nothing. And that the “multiplier” effect creates wealth, an idea I debunked above.

    1. Vic Volpe

      And if you read my responses to Ron H. (the Libertarian) you will see the Multiplier Effect in action along with bankers (the Fed) creating money from nothing (actually not nothing but future productivity growth) — the push of a button.

      1. Ken Van Doren

        One banker I explained the money out of thin air argument stated that the banks employ multiple use of the money. That being the case, and because I EARNED the money I deposited with them in the first place, how come I can not put a downpayment on a house, buy a new pick up truck, and maybe buy a new boat with the same $35000? Why should the banks have a monopoly on counterfeiting?

        Note also this phenom. Bankers (often FEderal employees) put up money for farmers to expand their operations, usually at below market interest rates at the PCA office. So farmer increases production 50%, price of commodities goes down and he gets the same amount of sales on the larger amount of production. Yes, corn is up now, but take away the subsidies to the crop and ethanol, and see what the REAL price of corn would be.

        Or put up $ for kids to go to college, and watch tuition go up 2.5 times faster than prices generally. Where is the greater productivity in that?

        Meanwhile the passbook saver has his wealth stolen by making his $ worth less, while the banker laughs all the way to…..the bank. Yep, we like fairness.

        1. Ken Van Doren

          BTW, ever read the Bastiat treatise, “That which is seen, and that which is not seen?” To many pseudo economists look only at the short term benefit to a target group, and not the long term effect on everyone.

          Guess what, it is the long term, and the economy sucks, thanx to Keynes and his disciples.

        2. KVD

          how come I can not put a downpayment on a house, buy a new pick up truck, and maybe buy a new boat with the same $35000? Why should the banks have a monopoly on counterfeiting?

          Well, through the magic of fractional banking, you can. You put $35k into the black box, and you can take out $105k, and the bank will juggle your original $35k so you see it 3 times in 3 different peepholes in the black box.. As long as you trust the black box and believe in magic, everything is cool.

          If you take out your original $35k, the Fed will print up a replacement amount that represents…nothing, and you can continue viewing it in the three peepholes.

          What could go wrong?

        3. KVD

          In addition, if for some predictable reason there are “idle resources” or “slack in the economy” because producers have been deceived by the apparent high level of savings in the black box and have over expanded and over produced, while you – as a consumer of that production – have prudently decided that new house, truck, and boat payments are as much as you can afford to spend at this time, and have stopped borrowing to buy things, the Fed may decide to put even MORE money accounting entries into the black box to entice borrowers with even lower interest rates.

          At the same time, government will increase spending – to make up for your lack of collectivist spirit – on things you would never choose to buy for yourself – but which you and your grandchildren will pay for anyway.

          Thus, all those unemployed boat building workers will instantly take jobs as concrete finishers on that new bridge nobody but politicians have called for.

          Did I miss anything?

      2. creating money from nothing (actually not nothing but future productivity growth) — the push of a button.

        It’s not a button, it’s a dial. The Fed knows that only money is important, not the goods and services we exchange or other goods and services, and by just cranking that dial up and down to control the money supply, production of goods and services will speed up or slow down in direct response.

        Do you not see how stupid that is?

        And if you had actually read Hayek’s “Road to serfdom” – and more importantly *understood* it – you would understand why people are laughing at you when you show support for such central planning.

        Ditch the Samuelson text. It’s making you write ridiculous and incoherent comments. Learn some actual economics based on how humans act in the real world.

        1. That’s “exchange for other goods and services”.

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