Shutting the Eyes on the Back our Heads

Joseph Stiglitz:

“I’ve been a bit astonished that all the discussion around the private-sector stimulus has centered on infrastructure,” he said. “Bailouts, too, are aimed at correcting mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we’d have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future.”

Comments

[km4]

the Paulson Ponzi Plan....

US Government bailout now totals about $8.5 trillion

If we figure the government paid $8.5 trillion for bailed out assets worth 1/4 less than was actually paid, i.e., that the government got stuff worth about $6.38 trillion for its $8.5 trillion investment, which is perhaps a charitable assumption, since there is really no way to know what most of the trash was/is worth because nobody was buying...

...it means about $2.13 trillion of the dollars printed to buy these assets represent nothing, except our ability to print dollars. Or, in the context of the overall economy, we printed phantom dollars amounting to about 15% of the 2008 GDP.

http://www.ritholtz.com/blog/2009/01/no-one-saw-it-coming-really/#comment-137011

It's highly likely that the US will default on its financial obligations by the end of 2010 OR it’s hyper-inflation and standard of living going down for 90% + of Americans.

If the US defaults then look out for World War III ( hopefully mostly economic warfare ) because we are not the super power we formerly were !

PS - Paulson is USA's #1 crook that will not go to jail

[Simon St.Laurent]

The problem is more complicated than looking backward.

The hard question is how we get to there from here without the winds of creative destruction demolishing making that transition impossible.

He's right, as usual, but partly wrong at the same time. Transition costs are no small issue here.

[Markus]

I read the linked article and there are a number of problems that they don’t really seem to address, but I definitely can see why tech companies would want as much of the stimulus as possible directed towards the purchase of their products.

One huge difference between investing in roads and bridges verse internet infrastructure is that the government owns the roads and bridges while private companies own the internet infrastructure. How would using the stimulus of mass broadband work? Would it simply involve forking over a few hundred billion dollars over to Verizion and AT&T to upgrade their networks? I am not sure the public would go for that. Now… free WiFi for everyone provided by the government, well…, I could go for that but I am sure Verizion and AT&T wouldn’t.

[Bruce Wilder]

But, isn't the effect of creative destruction's demolition programme on the general economy, the prime reason that we have to turn to Federal fiscal stimulus? The deflation is breaking parts of the economic structure that don't need breaking, and putting loads of resources out of work.

And, coincidentally (or maybe not), public investments in public goods can make an excellent foundation for a (re)newed and productive economic structure.

The idiotic part of the Austrian (the economics not the country) program was never the observation of creative destruction, but the insistence that the public should suck its collective thumb.

[Bruce Wilder]

I have long thought that a sensible scheme would be for municipal governments to finance the construction of broadband networks, and then lease out bandwidth to operator(s) providing service and content. There's probably some set of proposed terms, that would be attractive to AT&T and Verizon, as promising to relieve them of burdensome and constraining capital requirements.

My personal preference, and the economically efficient course, would be to break AT&T and Verizon like over-ripe melons, and pass the broken corpses through Chapter 7 bankruptcy. But, I'm sure a second-best solution could be found through the political process, that the dinosaurs would find acceptable, but would still allow for a reconstruction of a regulatory power.

[evagrius]

Gee, the ship's full of holes and leaking and he wants a new, hi-tech, engine to replace the old one.

[Bruce Wilder]

Allowing the debt-ridden AT&T and Verizon to creep into the 21st century, with greedy executives at the helm, virtually guarantees that net neutrality will be sacrificed to the ability of the executives to use their power over gateways to extract rents sufficient to pay themselves obscene amounts of money.

[ken melvin]

Could be that technology sucked the money away from other, more important, things like energy, etc. Technology's hardly a scarce resource. Now things like energy, air quality, water, food, health care and shelter; they be worth fighting for, or, better yet, investing in. I'm usually wid Joe, and he's right about investing in the future and not the past, but this one needs another go around the bush.

This certainty of some redeeming dot-com like savior's fascinating; could happen, has happened, but that doesn't mean it will happen next time or ever again. Dismal science makes for a piss poor religion.

[calmo]

I could read the whole thing...and not just the MT reader's digest (We B so busy...)
First off: isn't it a relief to be able to turn our necks and look around a bit? Hasn't "Moving forward" just about atrophied every neck muscle in our bodies? ("Holes in the back of your head"...not always THE phrase to use for redirection, for instilling confidence, for non-intrusive advances in cognition, no.)
Secondly, at least with hi-tech we got to play with buttons and keys (lookit em go here!) and not some barn door phrases like "disintermediation of risks utilizing the latest financial instruments of credit transmogrification".
Thirdly, it is not clear to me (or anyone else should they voice a different clairvoyant opinion...in their little box of very muddy puddles compared to these translucent, pure, and sparkling waters...) that the hi-tech boom did not engender this one --the financial machinery already in place for the heisting and housing promising so much more. Could've been a cautionary note from The Man here with no holes in the back of his head, but if there had to be one, this is where we should've drilled it.

Ok, time to read the Man.
..dang it was by Janet Rae-Dupree, a spokesperson for the transistors emerging technology in Silicon Valley.
..we B tricked!
finessed into reading an unknown by the lure of Stiglitz.

[Thai]

Give the money to the states to spend on primary school education and shrink classroom sizes- stop the primary education cuts that are clearly happening. Classroom sizes of 15 would clearly pay for themselves in the long run. We don't need to get too fancy on all this other stuff.

[Rusty]

"If we spend $700 billion on new technology and innovation, we’d have a stronger, new, real economy."

And what would that be, and how soon could it happen, and who would benefit, and which states could benefit, and.......?

Too many questions.

[gordon]

Speaking of "backward-looking", I've been reading about the Reconstruction Finance Corporation here and here. Fascinating stuff.

[julio]

Rusty's nihilist comments prompt me to offer my own suggestions, in all seriousness, for ways that Uncle Sam can spend money productively. Let it not be said I was too embarrassed to save the country:

1) Massages. At the local mall. Free for everybody.
(Before you dismiss it, filter it through the same tests you'd apply to other proposals).

2) Massive national healthy-diet trials. Universities design and run them. Everyone can enroll and get paid by the government for eating only carrots for a month or whatever.
The results database to be kept and updated by the government, available free to US researchers and for a charge to everyone else.
I'm sure plenty of those projects are shovel-ready.

3) Mandatory one-month country holidays for all graduating high-school seniors, hosted by struggling farmers, all paid by the feds.

I can keep going of course, but I think better minds than I can come up with many other projects that are
- ready to go,
- non-outsourceable,
- result in lasting benefits,
- improve our sense of community, and
- boost not just our GDP but our quality of life.

Oh, and

4) Send our artists around the country to educate, entertain, and chronicle (preferably in mural form) these exiting times. (This one has been tried before of course, I'm not trying to take credit for it.)

[K T Cat]

A stimulus bill run by politicians will buy precisely what politicians want bought.

Votes.

[mmckinl]

Stiglitz ~ "We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we’d have a stronger, new, real economy."

Wow, Stiglitz has really run off the rails ... $700 billion for projects even more distant, complicated and with more ephemeral economic results?

Just say it "Medicare for All", easily the best way forward ...

[Rikki]

Why does it take a Stiglitz to say this? Anyone with a brain can see it! Yes, infrastructure all over the country needs repair, but does it need the entire stimulus package? Why not aim for plasma fusion, wireless electricity and the (finally!) eradication of cancer by 2020. The point is of course that all of the present plans are attempts to stabilize or, better yet, restore. In my view, this is not going to work. The way to get out of this crisis is to aim for change, be it small, large or disruptive. Nothing else will do.

[anne]

"Why not aim for plasma fusion, wireless electricity and the (finally!) eradication of cancer by 2020."

Why not aim for a plasma turtle, giraffe, pigeon, pig, robin, eagle, kangaroo, trout? I am plasma woman.

[Rusty]

Julio:

I'm not opposed to those ideas, but a 10 year plan will not solve short term problems.

We need to decide which has priority, short-term stimulus or long-term innovation, then spend accordingly.

[baileyman]

Stiglitz is at least advocating spending on investments that have yields, rather than the typical dig a hole and fill it up projects that pass the vote.

[odograph]

We are much better at identifying broken infrastructure than we are at picking future technological winners.

My litmus test for stimulus is: Don't do anything we wouldn't have to do in the next 10 years anyway. Play it as a time-shifting rather than make-work game.

There probably is some technology (and some 'green') that fits that requirement.

says...

"If we spend $700 billion on new technology and innovation, we’d have a stronger, new, real economy."

Yes, finally. Enough with the ditch digging/filling them back in schemes. Improve productivity instead.

[KThomas]

Technology? Phooey!

[Beezer]

Not another dot com bust, please. The private market appears to be handling the technology funding issue quite well, even today. Which, by the way, is what private money likes to do and can do. Real serious Wealth takes that 5-10% of its assets not invested in treasuries and short term munis and puts it into owning companies that offer the real opportunity for tremendous returns.

What's not being handled, and is probably more important than any software product you might imagine for internet addicts like myself, is the transformation of our energy systems and making our economy sustainable.

The last thing we need is another road. Fix what we've got, including bridges, but the automobile/truck business is in decline. It's shrinking about as fast as anything can. Think horse and buggy here.

We've subsidized the car/truck business for what, 70 years or more? It's the primariy reason we now have such imbalance in our transportation system. Railroads are still private companies responsible for their own tracks, and also responsible for their own insurance. Fix that.

Some Palestinian nutbag lobs a couple homemade missiles into Isreal and oil jumps what, 15%. Better get that "City of New Orleans" back up and running.

[Beezer]

By the way, is your computer a big fossil fuel user?

I've read it takes as much energy to make a modern computer chip (CPU) as it does to make a car.

Better get that sustainable energy infrastructer up and running. Hate to see those fab plants browned out.

[anne]

"Some ----------- nutbag lobs a couple homemade missiles...."

Notice the astounding prejudice, the stuff of wishing for war, and getting war. Carry on with such metaphors though, since the intent is obviously decent.

[anne]

Astounding how prejudice becomes mindlessly acceptable, even institutionally and is there any wonder why even when we play at diplomacy we are only playing and have no intention on being diplomatic.

[julio]

Rusty,

"long-term innovation" is one of those sets of consecutive words that have become inseparable. But innovation need not be long-term.
One of my points was that a lot of innovative changes of direction are staring us in the face and can be done right away, in ways that spend government money and stimulate the economy immediately.

(I also think that "short-term stimulus" is another one of those sets of words that should be unlinked. Why shouldn't we plan for some ongoing stimulus in some areas? But that's another discussion).

[save_the_rustbelt]

"....a lot of innovative changes of direction are staring us in the face and can be done right away...."

Such as?

[julio]

save_the_rustbelt:
"....a lot of innovative changes of direction are staring us in the face and can be done right away...."

Such as?

I mentioned some ideas above.
Take massages for everyone. The specific example was somewhat tongue-in-cheek, but if we can change our underlying assumptions so that such an idea is thinkable, we can come up with other ideas that employ people in projects to promote our well-being.

Or the massive diet research. Under "Depression Economics", it makes sense to throw multiple research projects onto the wall to see what sticks. When will we get another such chance?

If we don't come up with anything better, I'll stick to massages for everyone. I'll take Paulson on whenever he's ready to debate me.