Monday, May 07, 2012

Why would we want to be Bretless?

In my previous post I suggested that a study purporting the advisability of extortionate tax rates on the wealthy was an empty exercise in mathematical bling, concocted without any apparent reference to the real world, or any consideration of consequences therein.

Last week, the NYT carried a pre-publication review of “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong", written by Bain venture capitalist Edward Conard. Who, since he is not just the 1%, but the 0.1%, clearly wants to make everyone except himself poor so they are free to sleep under bridges.

The idea that society benefits when investors compete successfully is pretty widely accepted. Dean Baker, a prominent progressive economist with the Center for Economic and Policy Research, says that most economists believe society often benefits from investments by the wealthy. Baker estimates the ratio is 5 to 1, meaning that for every dollar an investor earns, the public receives the equivalent of $5 of value. The Google founder Sergey Brin might be very rich, but the world is far richer than he is because of Google. Conard said Baker was undercounting the social benefits of investment. He looks, in particular, at agriculture, where, since the 1940s, the cost of food has steadily fallen because of a constant stream of innovations. While the businesses that profit from that innovation — like seed companies and fast-food restaurants — have made their owners rich, the average U.S. consumer has benefited far more. Conard concludes that for every dollar an investor gets, the public reaps up to $20 in value. This is crucial to his argument: he thinks it proves that we should all appreciate the vast wealth of others more, because we’re benefiting, proportionally, from it.

As it happens, Bret Wallach, one of The Great Guys is an entrepreneur: his company is engaged in designing a robot smart enough to automate pruning grape vines. In order to solve that very non-trivial problem, beyond a daunting amount of knowledge and talent, he needs two things: financial incentive to forego certain income now for more, but less certain, income later. That, and investors who see enough potential reward to make the risk worthwhile.

In other words, to make our society wealthy, we must allow people to become rich.

But never mind that. After all, equality is far better than having to suffer the success of the Brets and Conards.

Just ask the Cubans. Or the North Koreans. Or the Europeans.

55 Comments:

Blogger Hey Skipper said...

This comment has been removed by the author.

May 07, 2012 11:44 PM  
Blogger Harry Eagar said...

All hail investors. Well, except the destructive ones.

Bain is a particularly poor example to finger, since it is as unlike Bret as can be.

May 13, 2012 12:38 PM  
Blogger Hey Skipper said...

Specifics?

May 14, 2012 2:20 PM  
Blogger Harry Eagar said...

It's the difference between finance capitalism and productive capitalism.

People like Bret provide a product or service, build up a business (or try to).

Outfits like Bain take over people like Bret, loot the accumulated assets, stiff the creditors, sell the wreckage for what it will bring and move on.

I believe the Democratic Party is busy providing specifics.

It isn't only Bain. It's Zell etc.

May 24, 2012 9:23 PM  
Blogger Bret said...

The problem is that without people like Bain, people like Bret have an even harder time raising capital to build a business to provide a product or service.

Bain is part of an ecosystem that directs resources towards possibly successful enterprises.

As far as looting accumulated assets, stiffing creditors, etc., that seemed like an excellent description of what Obama did with GM.

May 24, 2012 11:24 PM  
Blogger Peter said...

What is interesting about Harry's neo-feudal effort to distinguish "productive" from "financial" capitalism is his certainty that Bret sings with the angels. Of course we are all hoping Bret strikes the motherlode (and that he remembers his old pals after he does), but I suspect even Bret has only a passing and murky sense of how "society" will benefit in the longterm. Maybe he will kickstart an era of American global supremacy in wine-making and will be the hero that turns around the California economy. Maybe he will just displace migrant workers and drive them into penury. But is that a question that is any more meaningful than whether a particular scientific experiment is socially productive?

Ever since those new-fangled banks started emerging in 14th century Lombardy, powerful intellectual movements have sought to challenge or control the steady, if uneven, march to material prosperity that ensued. For several hundred years it was the Church who defended medieval zero-sum theories of wealth and divinely-ordained social orders against the dynamism of "artifical" finance capitalism, which led to futile, abstract notions of just wages and all kinds of conspiracy theories about secret manipulation, and was a major source of anti-Semitism. Then the romantics, social reformers and socialists took over, endlessly preaching how the rich were getting richer and the poor were getting poorer as general material wealth increased and spread before their very eyes. Today's left, and especially the environmental movement, is channelling the same reactionary thinking.

Unlike a lot of conservatives, I believe there are all sorts of perfectly legitimate reasons to restrict or regulate commerce. Prosperity isn't the only value worth defending. But they are for the most part concrete reasons and values based on experience. The notion that we should all sit up in the clouds trying to decide which kind of commerce is productive and which is not based on ethereal notions of utility is the most destructive notion imaginable to economic prosperity. I think there should have been a lot more criminal charges levied against Wall Street for fraud and breach of trust in 2008-09, but the idea that there is something inherently artifical or destructive about the financial industry, especially when compared with wholesomely earthy manufacturing, is a recipe for stagnation.

Harry, I always say you angry lapsed Catholics will go to your graves defending the thinking of the One True Church. :-)

May 26, 2012 4:06 AM  
Blogger Bret said...

Maybe he will kickstart an era of American global supremacy in wine-making....

Or maybe he'll just make mid-quality wines somewhat cheaper. That's not very murky and seems like a beneficial thing to society, at least for the mid-quality wine drinking portion of society.

Isn't that enough?

May 26, 2012 3:50 PM  
Blogger Peter said...

It certainly would be for me. Don't know whether that's enough social utility for Harry, though.

May 26, 2012 4:30 PM  
Blogger Harry Eagar said...

Peter, your remark about migrant workers is spot on.

Attempts to raise up rural labor have proven remarkably difficult. On the other hand, waiting for the invisible hand to help has also been unsuccessful.

Celebrating creative destruction is less appealing when it is one's own self being destroyed, no? In fact, I cannot ever recall seeing that done.

You got too far, though, in thinking I subscribe to Catholic doctrines on usury. After all, I work in a pawnshop. You should see the aggregate interest rates we take in.

It would be closer to the mark to say that I like Buffett's value investing strategy.

The extreme alternative to that, I suppose, is the Silicon Valley venturers who have now segregated themselves into tranches who specialize in startups, first-level expansion, second-level, going public and so on.

I look upon this a bizarre but have not yet made up my mind whether this is, indeed, a superior way to allocate capital compared to the old ways.

However, I recommend Louis Hyman's excellent (although badly edited) book "Debtor Nation," regarding the mobilization of capital.

No surprise to me, we can thank the New Deal again.

It is true that two of the greatest aggregations of capital that we know so far -- life insurance and consumer lending -- were both complete failures when left to the free market; their success was entirely dependent upon, in the first case, government regulation; and in the second, government leadership.

May 29, 2012 1:13 PM  
Blogger Harry Eagar said...

Peter, your remark about migrant workers is spot on.

Attempts to raise up rural labor have proven remarkably difficult. On the other hand, waiting for the invisible hand to help has also been unsuccessful.

Celebrating creative destruction is less appealing when it is one's own self being destroyed, no? In fact, I cannot ever recall seeing that done.

You got too far, though, in thinking I subscribe to Catholic doctrines on usury. After all, I work in a pawnshop. You should see the aggregate interest rates we take in.

It would be closer to the mark to say that I like Buffett's value investing strategy.

The extreme alternative to that, I suppose, is the Silicon Valley venturers who have now segregated themselves into tranches who specialize in startups, first-level expansion, second-level, going public and so on.

I look upon this a bizarre but have not yet made up my mind whether this is, indeed, a superior way to allocate capital compared to the old ways.

However, I recommend Louis Hyman's excellent (although badly edited) book "Debtor Nation," regarding the mobilization of capital.

No surprise to me, we can thank the New Deal again.

It is true that two of the greatest aggregations of capital that we know so far -- life insurance and consumer lending -- were both complete failures when left to the free market; their success was entirely dependent upon, in the first case, government regulation; and in the second, government leadership.

May 29, 2012 1:14 PM  
Blogger Bret said...

Harry wrote: "Peter, your remark about migrant workers is spot on."

That I'm going to drive migrant workers into penury? Well, maybe, but at least they'll be able to buy mid-level wines more cheaply. :-)

And what was the alternative to innovation? Keep everything just as it is? For all time? Revert back to the good old days? Of horse and buggy? Pre-penicillin?

May 29, 2012 4:23 PM  
Blogger Harry Eagar said...

I mean, you recognize it's a problem.

I don't say it's your responsibility to find something else for those people to do, but decency suggests it is somebody's responsibility, and the free market, we know, will do nothing. Cannot do anything.

This problem is long recognized by people who recognize these things.

Engineers at my alma mater successfully developed tobacco priming machinery, throwing tens of thousands out of work. With government backing.

Life is full of ironies, ain't it?

If you can make Thunderbird cheaper, I suppose somebody will thank you, but it won't be me.

May 29, 2012 5:16 PM  
Blogger Bret said...

Harry wrote: "This problem is long recognized by people who recognize these things."

You mean like the Luddites?

If the free market can't do anything, then no entity can other than to give them a free handout (and that can include giving them a worthless job so they can pretend to feel good about themselves). Government or charities can do that.

May 29, 2012 6:36 PM  
Blogger Harry Eagar said...

Or training schemes. Relocation money.

Welfare isn't only for corporations, you know.

I am unsympathetic to objections about handouts to the poor, since from the days of Hamilton handouts to the rich have exceeded handouts to the poor at least 100-fold.

Did you know those dirty New Dealers sold taxpayer-paid for factories to big corporations for $1?

True, but you don't hear from the reaganites about welfare kings.

May 29, 2012 11:16 PM  
Blogger Peter said...

Harry, you are showing how reactionary the left has become. Back when you and I were protesting against "The Man" in the streets and hoping to get laid after the march, we saw migrant labour as the last word in degrading, inhuman exploitation. Now you are wistfully lamenting its loss to Bret's machines and talking as if it were a time-honoured career option that sustained generations.

I find nothing objectionable in the principle of some assistance to aid folks in transitions wrought by technological change, although such programmes have a tendency to be addicitve for both the administrators and recipients pretty quickly. We're going to pay civil servants $100k to administer relocation programmes in an era when we can fly anywhere in the country for less than $100.00? We'd probably still be spending money on the fallout from the decline of whale oil and blacksmiths if the left had its way.

The point I was trying to make is that the steady increase in wealth and prosperity is a dynamic, uneven process, which tends to trouble intellectuals and produce a steady stream of heart-wrenching tales of individual woe and lamentations for days gone with the wind. Romantics and activists in the early 19th century decried the migration from the English countryside to new urban slums and a lot of bucolic prose and poetry was written touting the organic wholesomeness of rural life, but nobody wanted to go back no matter how hard their new life. Same with the mass exit from domestic service in England after WW1, even though there were lots of cases where they had been better off and more secure in service. I'm really having a hard time with the implication that Bret is somehow stealing livelihoods. What he is doing is liberating folks from backbreaking, low-status work, but it's largely up to them to take advantage.

Sure, a lot of libertarian rhetoric is oblivious to human realities and blind to the stresses this all causes. I roll my eyes a bit whenever I hear how every dollar saved by the rich in reduced taxes will be immediately press-ganged into job creation and then, thanks to the multiplier, will breed like a frisky rabbit. (My kingdom for a rich man honest enough to say he wants to build a moat around his chateau or buy his wife diamonds). But treating the losers in technological change as if they were E.O. Wilson's dumb ants who can only adapt over years of genetic manipulation is patronizing and reactionary.

Up here, the much hated Conservative government has just announced changes to Employment Insurance which will restrict (not end) the widespread practice in poorer areas like Atlantic Canada of working 10-15 weeks in seasonal jobs like tourism or fishing and then collecting EI for the rest of the year. You should hear the howls! Do they not understand how the "real" Canadian economy works? Do they have no respect for traditional ways of life? Are they so hard-hearted they really expect people to move a few hundred miles to areas crying for workers? The horror!

I have no patience at all with this kind of romantic fantasy for the young. Older workers are more problematic, which is why I cheer everytime a new Walmart opens.

May 30, 2012 3:25 AM  
Blogger Peter said...

And BTW, Harry, there is a huge difference between a mass economic downturn caused by a depression and displacement in one industry caused by technological innovation. Analogies to the New Deal lose their power with every "Help Wanted" sign.

May 30, 2012 3:28 AM  
Blogger Harry Eagar said...

I am not pining for stoop labor, having done it myself. I do think somebody -- not Bret -- needs to cater to the needs of the creatively destroyed.

The free market won't do it. Never has.

The New Deal, it will surprise you to learn, I bet, set out to destroy the tiny, uneconomic farms of the South. It was recognized that this would cause immediate disruption and misery.

The long-term outlook, though, was for families to become viable economic actors.

In an attempt to mitigate the damage, a public wealth transfer system was attempted. Funny thing. The landowners managed to appropriate the money designated for the workers on the land.

It was a diaster, but the status quo ante had been a disaster, too.

It ain't easy to humanize a free-market economic system.

But just as Bret keeps plugging away at his invention, we need to keep plugging away at humanizing the economy.

It's interesting, isn't it, how attached people are to the places and ways in which they grew up. Have you read Blythe's 'Akenfield'?

May 30, 2012 11:43 AM  
Blogger Bret said...

Harry Eagar wrote: "...from the days of Hamilton handouts to the rich have exceeded handouts to the poor at least 100-fold."

Where did said handouts to the rich come from?

May 30, 2012 3:35 PM  
Blogger Bret said...

Harry Eagar wrote: "Or training schemes. Relocation money."

I don't know about training schemes, but at least "schemes" is the right word, I think.

Some suburb of Seattle had a brilliant relocation money plan a couple of decades back. They gave free one-way airplane tickets to Hawaii to homeless people who wanted one. The kind folks in Seattle figured the weather and welfare were better for the homeless in Hawaii and I'm sure they were right.

Unfortunately, apparently Hawaii didn't agree and sued said suburb to stop. Heartless Hawaiian bastards!

May 30, 2012 3:46 PM  
Blogger Harry Eagar said...

Urban legend.

As for the gifts, we could start with the land warrants, which were almost valueless. Hamilton insisted that the states honor them -- no one thought they would -- so his fat cat speculator bottom feeders would be made whole.

That was Hamiltonianism from the git-go -- transfer public assets to private owners. Kind of like the 'wise use movement.'

Most of the gifts were stolen from the Indians to give to the corporations. For example, Chicago real estate investors were given the Texas Panhandle. The Comanche were not asked.

May 30, 2012 6:31 PM  
Blogger Bret said...

It's actually a two-way trip now...

From:
http://www.newser.com/story/96470/hawaii-buys-homeless-plane-tickets-to-mainland.html

"(Newser) – The sound of waves crashing, spectacular views, white sand between your toes: Such is life for the hundreds of homeless flocking to Hawaii's shores, where the medical and dental care is free, and hey, you're not under a bridge in Detroit in January. With the homeless population up 15% over last year at a cost of $35,000 a head—and worries that tents on the beach will drive away tourists—the state is resorting to buying them one-way tickets to their home state.

"Proponents of the free flight to the mainland are getting criticized for dumping their problems on other states, and there's worry that some enterprising folks will game the system by flying one-way for a Hawaiian vacation, knowing they can cadge a free ride home. And then there's the irony that at least some of Hawaii's vagrants have already taken advantage of another state's fly-them-out-of-here program: It seems New York's Project Reconnect paid for at least five people's flight to Honolulu."

Doubly Heartless Hawaiian bastards!!! Sending them to their deaths in colder climes! But hey, at least the Hawaiian beaches will be free of riff-raff.

May 30, 2012 7:18 PM  
Blogger Bret said...

Harry Eagar wrote: "That was Hamiltonianism from the git-go -- transfer public assets to private owners. ... "

So the government transferred assets to the rich and powerful. Yes, that's how it works. That's why many of us don't like government and would like to shrink it as much as possible and remove its power to do such things.

Why is it you like government again? Because you love the rich to team up with government against the poor? 'Cause that's what happens. The bigger and more powerful government is, the more the poor and weak are screwed.

May 30, 2012 7:22 PM  
Blogger Harry Eagar said...

True for most of our history. The New Deal was different. The Vreat Society, too, to a lesser extent.

No reason we couldn't learn from our experience, although that would require a citizenry that knows it's own history. The rightwing has invested immense efforts to distort that.

Bret, by urban legend meant that the state never sued over it.

The number of homeless sent by local governments is dwarfed by the addicts and nuts whose rich families pay them to stay here and out of their sight.

May 31, 2012 9:53 AM  
Blogger Bret said...

Harry Eagar wrote: "...although that would require a citizenry that knows it's own history."

A citizenry that knows its history knows that the vast majority of the time, a government takes every last bit that it can from its citizenry and that it's the rare exception that proves the rule where the government actually does something for the non-powerful.

Harry Eagar wrote: "The rightwing has invested immense efforts to distort that."

Oh? Just the rightwing, ya think?

May 31, 2012 4:45 PM  
Blogger Harry Eagar said...

Really? Jackson democracy was about taking as much as possible?

Just one example.

I feel confirmed (again) in my views about jow little Americans know about their own history, especially economic history.

But I confess to not following Canada's business history, so I was not aware of serious labor shortages.

Why don't Canadian bosses offer more pay, if there are idle workers in existence? Haven't they heard about supply and demand up there?

June 01, 2012 1:21 PM  
Blogger Bret said...

Because "Jackson democracy" represents "the vast majority of time"?

June 01, 2012 1:54 PM  
Blogger Harry Eagar said...

It was just one example, but telling, I think, since it represented the first break with the 18th c. plutocracy.

It was followed by rather frugal-minded old-fashioned Republicans, who were followed by Progressives.

I expect you are thinking that that began the rot, but there is more than one way to look at that.

It might be hard to make a case that the gummint was looting the citizenry in the 19th c. when you consider that the total government expenditure was about equal to the expenditure on fences.

June 01, 2012 8:42 PM  
Blogger Hey Skipper said...

Harry:

Attempts to raise up rural labor have proven remarkably difficult. On the other hand, waiting for the invisible hand to help has also been unsuccessful.

I mean, you recognize [driving migrant workers into penury is] a problem.

I don't say it's your responsibility to find something else for those people to do, but decency suggests it is somebody's responsibility, and the free market, we know, will do nothing. Cannot do anything.


For someone who is first reflex in any discussion is to belabor everyone else's ignorance, your unwillingness to take economic reality on board is awe inspiring.

In the last 100 or so years, the percentage of people working in agriculture has plummeted. Women's participation in the workforce has skyrocketed. (To pick just two, and probably not the most important at that, from a myriad of economic transformations over the period.)

What meaningful -- and positive -- contributions has the government made to all that has happened, practically none of which was due to the government in the first place?

By your own reasoning, everyone is out of a job and living in complete misery.

Except that isn't the case. In fact, exactly the opposite is the case: people have never lived longer, more materially comfortable lives than right now.

The problem is staring you in the face: trickle down economics works. But because of the Left's penchant for focusing one one factor to the exclusion of everything else, you fail to understand what is happening all around you.

Which would you rather do: toil on a farm, or work in a Starbucks?

As a life-long subscriber to the lump-of-labor fallacy, you fail to understand that making something -- a mid-grade Pinot, say -- cheaper means not only more buyers of Pinot, but Pinot buyers with more to spend elsewhere.

Which they will.

Peter:

Sure, a lot of libertarian rhetoric is oblivious to human realities and blind to the stresses this all causes. I roll my eyes a bit whenever I hear how every dollar saved by the rich in reduced taxes will be immediately press-ganged into job creation and then, thanks to the multiplier, will breed like a frisky rabbit.

While I have libertarian tendencies, I more or less agree with you here.

IMHO, Libertarianism has no answer to free-riders.

Perhaps even more crippling, your God has seen fit to design people with such a disparity of aptitude that complete freedom must mean grinding misery for the dumb but decent.

(My kingdom for a rich man honest enough to say he wants to build a moat around his chateau or buy his wife diamonds).

But don't those rich men make moat diggers and everyone in the diamond supply chain richer?

June 03, 2012 8:20 PM  
Blogger Harry Eagar said...

But don't those rich men make moat diggers and everyone in the diamond supply chain richer?

No.

Think Highland clearances.

June 04, 2012 10:52 AM  
Blogger Hey Skipper said...

Why think Highland clearances?

Unless the guy wanting a moat and diamonds is engaging in slavery and theft, he is getting those things through paying for other's time, effort, and skill.

Kind of like when I have someone come out in a couple of weeks to put in some fence posts.

No, on second thought, not kind of, exactly like.

I'm going to be poorer, but with fence posts, and he is going to be richer.

What does Highland clearances have to do with any of this?

June 04, 2012 2:56 PM  
Blogger Harry Eagar said...

Asset holders got richer, workers starved to death as a result.

Capitalism isn't a zero-sum game, but it does zero out inconvenient workers.

June 05, 2012 10:26 AM  
Blogger Peter said...

And zeros in convenient ones.

Harry, why does the left see the closing of a plant as a poignant, systematic failure wrought by heartless capitalism, but barely notices the opening of a new one? Is it because that, deep down, you prize stability over prosperity?

June 06, 2012 2:37 AM  
Blogger Bret said...

From observing their actions it's because they prize their power and their control over other people's freedom.

It's always all about power.

June 06, 2012 8:06 AM  
Blogger Harry Eagar said...

Nobody needs to be concerned about whether the people going to work at the new plant eat. That isn't the case when the old plant closes, and you can be sure that the players in the market will not care.

Well, since I know my history, I can cite a few examples of how the players in the market did care. The Provident Loan for example. But that was over 100 years ago and was only modestly helpful.

Why does, eg, Gov. Scott Walker worry about the poor suffering millionaires of Wisconsin but not the jobless workers?

Have you ever in your life heard someone who curses the unions demand that the NAM be extinguished?

June 06, 2012 11:43 AM  
Blogger Hey Skipper said...

Capitalism isn't a zero-sum game, but it does zero out inconvenient workers.

What does that even mean?

Capitalism is a mechanism that conveys signals about relative scarcity.

Sometimes that means jobs get "zeroed" out. But it also must mean that jobs get non-zeroed in.

In addition to "free" and "provided" there are at least a couple more economic fallacies that the Left relies upon: lump-of-labor, and zero sum.

June 06, 2012 9:25 PM  
Blogger Susan's Husband said...

Gov. Walker actually cared about the suffering middle class, and those who use government services. Those are the people Eagar zeroes out in his view.

June 07, 2012 6:52 AM  
Blogger Harry Eagar said...

Did he? Cite, please.

June 07, 2012 10:22 AM  
Blogger Hey Skipper said...

Harry, have you looked at the public service union contracts?

Doesn't the existence of a monopoly provider of labor, which uses compulsory dues to elect politicians who are in charge of the monopoly provision of services lead you to at least consider the possibility of collusion?

In the private sector, unions may be the monopoly providers of labor to their own companies, but the companies themselves are not monopolies. Therefore, in the private sector, insanity gets rewarded with bankruptcy.

Yet in the public sector, insanity has no such consequences. Okay, I lied. There are consequences, but they happen later, and are catastrophic. See, California, Greece, etc.

Take a look at the health care provisions of the WI teachers' contract. Then try and convince anyone that getting rid of that monstrosity isn't to the benefit of everyone (except parasites).

June 07, 2012 3:07 PM  
Blogger Susan's Husband said...

Governor Walker talks about how his reforms are about protecting the middle class.

June 07, 2012 7:15 PM  
Blogger Harry Eagar said...

Strangely, though, municipal bankruptcies are extremely rare and none of the big ones had anything to do with worker compensation.

Could it be that lowly-compensated municipal managers do a MUCH better job than extravagantly paid private firm managers?

It's always possible that the panic-mongering about unions is as mythical as the panic-mongering about union thugs.

June 09, 2012 4:13 PM  
Blogger Susan's Husband said...

Could it be a result of public employee unions which are a relatively recent phenomenon?

Or could it be that lowly paid municipal managers can extract money by force and highly paid private managers can't?

June 09, 2012 7:50 PM  
Blogger Harry Eagar said...

They can? How do they do that?

June 10, 2012 11:30 AM  
Blogger Susan's Husband said...

Taxes, fees, things like that. Try deciding to not pay your property taxes because you think the municipal manager is doing a bad job.

June 10, 2012 8:10 PM  
Blogger Hey Skipper said...

Strangely, though, municipal bankruptcies are extremely rare and none of the big ones had anything to do with worker compensation.

As SH said above, that is in large part because the pension chickens are just now coming home to roost.

What even less strange to contemplate, though, is that many municipalities would have long since been bankrupt had they been companies, instead. And, had they been companies, their directors would probably be in jail. CALPERS based its pension funding model on 7.5% annual return. Really? The state of California isn't bankrupt? Really?

Closer to where I live, then Mayor, now Senator, Begitch, with the connivance of a then left-wing city council, made sweetheart deals with the Anchorage's city employee unions. Then wished (or lied) away $35M per year in additional payroll.

Could it be that lowly-compensated municipal managers do a MUCH better job than extravagantly paid private firm managers?

Not likely. State fund managers in CA managed to claim a $5B deficit for FY13, then six months later it became $20B. And that was for a problem that had been brewing for years.

It's always possible that the panic-mongering about unions is as mythical ...


How public sector unions broke California.


... as the panic-mongering about union thugs.

How about a quick review of union thugishness in WI?

History as panic mongerer.

June 10, 2012 11:17 PM  
Blogger Harry Eagar said...

$6+ TRILLION of notional wealth gone worldwide in 6 months. I don't think we can lay that off on the SEIU.

June 19, 2012 10:38 PM  
Blogger Susan's Husband said...

And therefore ...?

June 20, 2012 5:07 AM  
Blogger Harry Eagar said...

Well, there is blame to put somewhere. If not unions, then . . . '

As for municipal bankruptcies, today's Los Angeles Times predicts Stockton will shortly file the biggest one ever. Stockton is not exactly the bellwether for municipalities, and, according to the Times, the problem was NOT high-paid city workers or pensions.

It appears that in Stockton, unlike the other 20,000 well-managed municipalities, the city administration swallowed whole the silly private sector theories of 'investment' and are going the way of Lehman.

I just am not seeing municipal mismanagement on the scale of private business mismanagement. Maybe paying more for management talent is not the way to get it?

Maybe Adam Smith, the moral philosopher, was all wrong?

June 26, 2012 11:57 AM  
Blogger Harry Eagar said...

Well, there is blame to put somewhere. If not unions, then . . . '

As for municipal bankruptcies, today's Los Angeles Times predicts Stockton will shortly file the biggest one ever. Stockton is not exactly the bellwether for municipalities, and, according to the Times, the problem was NOT high-paid city workers or pensions.

It appears that in Stockton, unlike the other 20,000 well-managed municipalities, the city administration swallowed whole the silly private sector theories of 'investment' and are going the way of Lehman.

I just am not seeing municipal mismanagement on the scale of private business mismanagement. Maybe paying more for management talent is not the way to get it?

Maybe Adam Smith, the moral philosopher, was all wrong?

June 26, 2012 11:57 AM  
Blogger Bret said...

Harry,

You still haven't answered Susan's Husband's point that governments can just raise taxes and fees with impunity (to a point) when they're short on money while in the private sector, if the revenues from goods and services don't cover costs (at minimum), then those firms go out of business one way or another. That's a feature, not a bug.

The concept of bankruptcy is a very important thing in an economy. As long as new firm and job creation exceed those lost due to bankruptcy, bankruptcy functions to move resources from unproductive uses to more productive uses. It may well be that the reason the uses were unproductive is that the managers were idiots. That's fine, the resources are taken away from them and given to others.

In government, it doesn't matter how idiotic, corrupt, oppressive, or tyrannical the managers are. We're generally stuck with them for years with limited recourse to fix things. It could be that municipalities should go bankrupt at a much higher rate. That would limit their ability to borrow and make a real mess of things.

June 26, 2012 12:44 PM  
Blogger Susan's Husband said...

Mr. Eagar;

"There is blame to put somewhere ..."

As far as I can tell, we've laid that blame on intrusive, mismanaged government. We've blamed the public pension crisis on SEIU and its ilk. To Bret I would say this is Eagar's attempt at distraction precisely to avoid addressing my point.

Detroit, of course, is the poster child for the intersection of both effects and also illustrates Bret's point. How much benefit has the lack of a municipal bankruptcy been for the inhabitants? Or do you consider Detroit one of those "other 20,000 well managed municipalities"?

P.S. Something to read on this subject.

June 26, 2012 1:10 PM  
Blogger Harry Eagar said...

I don't believe it was government mismanagement that cut Detroit's population in half. Seems like that was the incompetent management of the area's dominant private businesses.

Bret, I read all that about government raising taxes and fees, but it went right over my head, because that has never been my experience of government.

My experience has been that the pressure to keep payments down has resulted in chronic disinvestment in public services. Prop 13, anyone?

Even in Hawaii, perhaps the most Democratic, union-friendly state in the country, and even in Maui County -- which is, if anything even more Democratic and union-friendly than the rest of the state -- the County Council has been death on new taxes. Fees are, by statute, limited to cost of the service provided, and you can opt out if you want to: If you don't want your trash picked up, it won't be picked up.

Amusingly, there are some new studies out that show a) low taxes correlate with low growth, high taxes correlate with bigger growth; and b) Democratic administrations enjoy greater growth than Republican administrations.

Of course, I wasn't surprised by the second study, since I've been pointing that out for years. Even I was a bit surprised by the firsrt study, though.

June 26, 2012 6:08 PM  
Blogger Susan's Husband said...

I am quite sure you don't. But you continue to miss my point, which is - decide your municipal government is not going a good job and stop paying taxes for its services and see what happens.

P.S. Some actual data which turns out to not agree with your personal experience. Note this is % of GDP, not absolute amounts.

June 26, 2012 9:11 PM  
Blogger Bret said...

This first graph is absolute amounts (adjusted for inflation), isn't it? From a few tens of billions of dollars in 1940 to more than 2 trillion dollars a mere 70 years later?

June 26, 2012 10:22 PM  
Blogger Susan's Husband said...

Sorry, I was referring to just the state and local graphs, which are the relevant ones.

June 27, 2012 7:19 AM  
Blogger Harry Eagar said...

I surmise that you guys live upstream.

Not an apples:apples comparison.

June 27, 2012 12:18 PM  

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