Tuesday, August 02, 2011

Cutting Our Way to a Smaller Future

I'm not generally very interested in lionizing specific companies. But in this piece, David Weidner makes what I think is a very good analogy:
How Apple would solve the debt crisis

NEW YORK (MarketWatch) — Spending is good. Borrowing is better. Washington is doing neither. It’s liquidating.

I’ve been covering Wall Street and corporate America for going on two decades, and if there’s anything I’ve learned it’s that there are really only two kinds of companies: those growing and those shrinking.

The U.S. government today has officially become the latter.

The difference between a growing business like Apple Inc. and a shrinking one such as Eastman Kodak has less to do with spending and revenue and than with psychology. Growing companies go through tough times. They adapt, and they’re poised to strike when conditions are right. They don’t stop innovating.

Defeated companies may be producing steady profits. But they lose their entrepreneurial spirit. They stop looking at the future. They get intimidated. They quit fighting. They look for a sale. They try to buy growth. They play not to lose — and end up losing anyway.

Which of those does Washington sound like?

...Ultimately, what’s happened to our government, lawmakers, elected officials and ourselves is that we’ve have taken on a mind-set of defeat. It doesn’t seem to matter that the business model — taxing for revenue, spending for growth — isn’t broken. After all, it’s working in Germany, Canada, India and China.

We’ve given up on the model because of our debt situation. It’s a problem, and a pressing one. A default or lower credit rating would cause further damage to our credit picture.

But there are really two ways to handle it. We could take a balanced approach of reining in spending and increasing revenue (cutting costs, raising taxes), or we could simply cut, slashing incomes (Medicare, Social Security, the military). These drastic cuts, which will balance annual budgets, are in effect a surrender.
The very basic and (I thought) uncontroversial notion that the government can make useful investments in the nation, that it can do things to help make the economy stronger and more productive, has been thrown out the window in the US recently. And the result, I fear, will be a decidedly smaller, meeker, and poorer future for this country.


  1. kharris11:43 AM

    Your pebble missed the Overton Window.  Nobody inside heard it hit.

  2. In Hell's Kitchen1:21 PM

    income and wealth inequality in 10 years will make the present situation re these measures look like complete equality.

  3. Anonymous12:09 PM

    The fact that the government could make productive investments does not mean it will.  First, on the margin, one would expect productive investments to become less plentiful.  Second, politicians benefit by making investments that subsidize inefficient firms and technologies.  These are the firms who will be most willing to make campaign contributions.  That's the theory anyway.  The "investments" that were in the initial stimulus bill most comfirm this.  Further, with the government spending about 25% GDP, why are there any productive investments left unless it has spent much of that 25% unwisely?  In any case, one should not confuse the ideal with the real.

  4. Anonymous4:27 PM

    Right now we have idle cash, idle workers, idle capacity and the government is able to borrow at real rates of zero.  It would be better for the economy for the government to borrow the idle cash to hire the idle workers to put the idle capacity to work to do something useful.  What would be useful?  ALMOST ANYTHING.  Building a million single family homes would be a mistake.  But initiating a program to measure and boost the energy efficiency of homes and businesses would not be.  Upgrading the electric grid for the 21st century would pay economic dividends for decades.  So would nationwide 100Mbps broadband.  The point is to spend money in ways that put people to work and creates or enhances things to our long term benefit.  We get a boost as people are put to work, businesses and household balance sheets are given time to heal and their spending eventually replaces government spending.  Allowing 4-5% inflation for a few years will also help heal balance sheets by putting a floor under housing prices, boosting wages and easing the burden of existing debts.  After we're out of the hole, we benefit economically from the improvements we made.  But in order for it to work the extra spending needs to fill the gap.  You can't plug a 2 trillion dollar hole with 790 billion.

  5. mike shupp3:54 AM

    Nah, the future may be "smaller. meeker, and poorer" for the country, but only in
    comparison to a might-have-been existence that no one can any longer see or
    even imagine. 

    Case in point: Spaceflight.  Another: Ocean-based mineral extraction and habitats. 
    Another: Nuclear power.  Another: Nanotechnology.   These all seemed to have
    great futures once; now they're moribund and only handfuls of enthusiasts would
    wish to see anything different.

    Really, we're going to be comfortable and content as we decline.