Wednesday, February 11, 2009

Bailout 101

Dear Karl Marx,

This is what our new president says,

So, we're trying to figure out this "Stimulus Plan." What is going on? Do we want a stimulus plan? Do we want the government to give out this money with abandon. We don't know. We just hope.

Of course hope is a two-edged sword. Friedrich Nietzsche said, "In reality, hope is the worst of all evils, because it prolongs man's torments." And that's what I worry about on the one hand. On the other hand, I don't. I think that the right kind of spending, the kind that encourages real human productivity, like jobs programs--the shovel-ready jobs (our newest polito-phrase)-- is never really bad. That kind of spending is like spontaneous generation. You print up some money down at the mint and you say to the person in soup line, I'll give this to you if dig the ditch, build the sidewalk, fix the radiator, mine the coal. Two things have been created: 1) Paper money, 2) Real sweat equity from someone who would otherwise have been standing idle. Both are something from nothing. Yet in the end, real value has been created.

If I don't print the money and the person doesn't do the work, but stands motionless, that value and the opportunity of the day has been lost. You have created nothing from nothing.

Money never means anything. Gold doesn't mean anything. It is all symbolic. We can't eat gold. It can be showy, but even that is symbol. So print money? Yes, do that, if it generates productivity.

But this example is so simplistic. We didn't even ask if the formerly unemployed person was in that state because that person is a poor producer. Perhaps this indigent enjoys indigence. If that is the case, printing money to pay for her day-labor will not produce value, at least not very much. Let's go to an even more complicated example.

What if we have a bank that is performing poorly? It is about to collapse. In this scenario, the executives of that bank already make more money than Croesus. When money is printed at the mint and the bank gets some of it, with the stipulation that the executives take a lower salary than before, the question that immediately arises is whether the bank workers are actually incentivized or disincentivized? (Are those words?) Will value be created? My gut says no. I mean, I believe in the caps on salaries and bonuses completely, but I just don't know if I believe in any of this top-down bailout bahooey.

We all want stuff. We need stuff. You, Karl, might say that it doesn't matter whether we need it or want it because stuff, or commodities, makes the economic world go round. But what is the healthiest way for everyone to get a fair amount of stuff? When the economic system begins to crumble, I think we have to look at the fundamentals. The foundation of the dyke is crumbling. A few patches and some thumbs won't do the trick.

You say that "The value of one commodity is to the value of any other, as the labour time necessary for the production of one is to the other . . . under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time." This is a fundamental. However, wall street and the gang forget or deny this. They prefer, smoke, mirrors, and unrelenting bonuses.

Simon Johnson, an MIT economist estimates that the US banks have a capital shortage of $500 billion. What does that even mean? How about this phrase, "Liabilities far exceed assets"? Lions and tigers and bears, oh my!

What do you believe? Do you believe that any wealth created by this capital--would be "surplus value" to which the owners of capital had no claim--surplus value stolen by the owners of capital from the owners of labor?

I think you might be right. I think that the value, of the assets, the real value, might be what we should look at, and if the true liabilities do indeed far exceed the true value of the assets, then we should NOT pull on blinders and put trillion dollars thumbs in liability-laden dykes. We SHOULD instead, invest in our labor, whether person by person or project by project, but we should create value, not subsidize liabilities.

I personally have stopped judging by Wall Street. I wish they wouldn't tell us, "We're doing what the economic experts tell us to do." These same economic experts were driving the yacht when it hit the shoals. I think we had better go back to the basics. Let's check our fundamentals. Let's look to labor.



cadh 8 said...

Good post. What is scary is that I agree with most of it! Investing in labor is a good and important thing and can be done while tthe governement maintains its purpose...doing for the people what the private sector can't. That is, the government already provides for infrastructure, so they can simple engage in already planned projects. There is no need to step into the realm covered by private sector business. So that is a good thing.
However, as you mentioned, the bailout package does not do only what you recommend. It steps beyond into so many other areas that it could make ones head spin! And Marx' slope is a bit slippery, no matter how well intentioned...

But the point is, right now, jobs are the key!!

cadh 8 said...

OK, I heard this on the ride to work and it is a must listen on this topic. It totally backs up out opinions on giving the money to the banks. I don't blame the banks for what they are doing, because they are trying to survive...just like zombies try to survive by killin is the link

The only thing I disagree with is the conclusion that supports MORE government involvement instead of less. If the government would have been less eager to get involved, this whole problem would have naturally corrected a long time ago. I think so, at least, but that reveals my philosophical view about government more so than the reality of the situation, but anyway. If you missed it, it is a great listen.