

Making Work, Destroying Wealth - daniel-cussen
http://www.cato-at-liberty.org/2009/01/12/making-work-destroying-wealth/

======
bilbo0s
One issue that I have with all of the analysis of the current crisis coming
from the left and the right is the intellectual dishonesty that they engage
in. They seem hesitant to say, 'look, the nature of the world's economies have
changed. The thing is, we have only a tenuous idea as to how.'

For example, long ago, when production was king, the hierarchy of real estate
values in port cities went like this:

Industrial (Port or Factory) > Office > Residential

This was based on the belief, widely held by the nation's businessmen at the
time, that the value of a given 'widget' is related in a very real sense to
the total value of the things that 'widget' will produce in the future. This
rule was true for valuing everything, real estate is just a convenient example
here.

Well fast forward to the late 1990's and all of a sudden a businessperson
finds that there is profit to be made converting factories, warehouses, and
even entire ports to condos. That is, converting industrial real estate to
residential real estate created profit for developers who undertook to do it.
Now in a normal economy perhaps this could happen in a few places as
production shifted elsewhere. What we need to consider though is that this was
happening in virtually every American city of any appreciable size. This was
drawing down American productive capacity in a systematic fashion. Where new
productive capacity was built, it was built outside of the cities. In essence,
FURTHER away from the ports. This indicates that the planners foresaw a
diminished interest in exporting anything that was produced.

Now all of that might make perfect sense, I would need more data to make that
determination. My point is that people on the left in the right tend to
neglect an in depth analysis of trends like this, and instead appeal to what
might be termed 'soundbite economics'. 'It's the unbridled greed of the
elites!' Or, 'Well this is what happens when the government forces you to give
loans to poor minorities!' The fact the market was buying these bonds and
entering into these mortgage contracts, makes little difference to people who
make the 'unbridled greed of the elites' argument. The fact that the market
consists of many times as many teachers, police officers, and plumbers as
investment bankers and real estate developers, is similarly ignored. On the
other side, the self evident reality that striving yuppies rather than
impoverished minorities were the ones buying this new housing, and then
defaulting, is conveniently omitted from their protestations of government
interference.

In any case, we would be far better served to look at things going on in our
real estate market and ask what do these things tell us about the fundamental
nature of our larger economy? As I said, I would need more data to make a
determination as to the appropriateness of some of the pricing that was
happening. That said, at the very least, the seeming financial prudence of
converting industrial to residential should have told us, 'Hey, guys, here's
something you should look at to make sure things make sense with respect to
where you want your nation's economy to go in the future. Because I know in
the past you always thought that production was king, but your pricing is
saying otherwise right now.'

I think the economic world may have changed, and since we are still making
decisions the way we have always made them, we find ourselves in a crisis. I'm
no professional economist, still, I believe we really need to be able to
articulate where and how the economic world has changed prior to prescribing
solutions. An exhaustive enumeration would be ideal, though it is inessential.
I just mean that policy makers should have SOME idea how things have changed
at that fundamental level, and whether those changes make sense for the United
States.

I told you all of that to tell you this. People on the left and the right
making these arguments through their respective think tanks, would have as
much trouble as anyone else enumerating the changes in economic fundamentals
that have developed in the past say, 20 or 30 years. The difference is,
intellectual honesty. That is, most are willing to acknowledge that deficit,
whereas think tank gurus will give you an answer that aligns with their school
of thought. Without regard to any of the contradicting facts.

------
bwd
So let me get this straight: we have this little problem here where a bunch of
people borrowed money to buy houses and lifestyles that they couldn't afford
and the resulting debt has choked up our financial system. Now it seems like a
good solution for the government to borrow a whole bunch more money and spend
it on things that we may or may not need? We won't have any of those nasty
earmarks; instead, we'll just hand billions of dollars over to state and local
governments to spend how they want. Yeah that sounds like a good idea, that
way in five years the contractors and construction companies that benefit from
this largess can replace investment bankers as the new national whipping boys.

~~~
jderick
The main problem the simulus is trying to avoid is capital destruction. At
some point, if enough people get laid off, it becomes a self-reinforcing
cycle. Now, instead of a few people being laid off for a couple of months,
companies start to shut down operations for good because there is reduced
demand (Google Austin, anyone?). Once you shut down an office (or factory, or
mall, or whatever), it can take years before anything pops up to replace it.

There really is no benefit to having a bunch of unemployed people lying
around.

I think it is fair to argue about the best way for the government to stimulate
the economy, but doing nothing is not really an option.

------
time_management
A few things missed by this overly simplistic analysis:

Alternative energy investment, to name one of many examples in Obama's
economic plan, isn't "make work". This sort of research is necessary if our
society is going to survive the inevitable oil depletion problem, and will
create wealth in the long-term. Improving our infrastructure, which is in
desperate need of repair, isn't make work. No one that I am aware of is
seriously proposing make-work.

Bush's war and no-bid contracts to his buddies look a lot more like "make
work" than anything Obama is proposing.

Also, these problems are too complex to frame in terms of creation or
destruction of wealth. Is wealth being destroyed as real estate prices revert
to fairer values? Perhaps, but this is a _good_ "destruction". Also, adding to
the aggregate wealth while destroying jobs (without replacement; job "churn"
would be a great thing if this society were better at training people up) and
creating inequality is a very bad thing. Finally, the wealth of the wrong
people (such as the uncouth trashy real-estate nouveaux who destroy culture
everywhere they go) is a horrible thing and must be destroyed.

~~~
anamax
> Alternative energy investment, to name one of many examples in Obama's
> economic plan, isn't "make work". This sort of research is necessary if our
> society is going to survive the inevitable oil depletion problem, and will
> create wealth in the long-term.

Not so fast. Some alternative energy "investment" may end up being useful. A
fraction of that will end up being worth more than it cost. However, the
history of govt spending on "alternative energy" is filled with boondoggles
that were worse than "make work".

If you're going to argue that Obama's program will be different, you're going
to have to do more than describe "features" of things that failed in the past.

------
gravitycop
Job = enslavement. The goal of the current economic-stimulation is to create
millions of new enslavements. From the article:

 _Drama was a Keynes tool. During a 1934 dinner in the U.S., after one
economist carefully removed a towel from a stack to dry his hands, Mr. Keynes
swept the whole pile of towels on the floor and crumpled them up, explaining
that his way of using towels did more to stimulate employment among restaurant
workers._

