patrick.net

If we are going to discuss delusions of grandsire, I will share what I want.

I would love to travel in my own Ha'tak Star Ship from the Series Star Gate.

Frank,

I have to say you (or Mises) didn't really resolve the inconsistency that I pointed out.. If government is performing 2 societalal functions, call them A and B, why should one apply different standards of perfection to them? Even to the point when A is deemed worthy (although quite imperfect) whereas B is deemed unworthy (at the slightest imperfection, even if caused by corruption that is avoidable).

A= criminal law and prosecution

B= financial regulation and prosecution.

How about the story of the Concorde, what’s your take? I assert that society has taken a huge step backwards because the pulling of a small investment by government.

Don't worry. Supersonic jets will be back shortly.

http://www.aerioncorp.com/

Ah....there's a problem. Flying at .98 Mach is by definition not supersonic.

Am I missing something? Did the marketing people get ahead of the engineers again?

The Concorde is an example of foolish governmental meddling in the market. The US had several good SST designs in the 1960's but didn't go forward because they made no economic sense - an SST is a gas hog in today's parlance. The Brit/Frog consortium went ahead economics be damned. The Concorde is just as dumb as supporting the housing market via mort. interest deduction/cap. gains exclusion.

DennisN Says:
February 28th, 2009 at 6:27 am
"The Concorde is an example of foolish governmental meddling in the market. The US had several good SST designs in the 1960’s but didn’t go forward because they made no economic sense "

Hence a certain limitation in the private sector. On its own the private sector could not have produced something like the Concorde 'because it doesn't make economic sense.' The Concorde is a very good example to demonstrate how intervention can develop a technology faster than just waiting for the free market to produce it. It is very useful to a small group of people which is unfortunately why in my model it would not be a candidate because in order for government involvement I believe something has to have a clear and compelling social need, clearly the Concorde as a passenger plane did not. Pulling the funds and shutting it down literally did cause one of the largest steps back in aviation, and as a whole the entire world now doesn't have a capability that it once did. That takes me back to a point I made a few posts ago where I was saying on its own the free market eventually stagnates, which is why government actions in things which on their own aren't commercial cause all sorts of new activities in the economy and also propel a country to a leadership role. Young people only get to hear and watch history shows on a time when people could go on a supersonic airliner and they talk about 'returning' to the moon.

Another small detail I'd like to point out is the notion of meddling in the market. People who believe in a hybrid economy don't necessarily believe in government meddling. Despite the tendency for labels I am not a soc1alist. Government should not compete with the free market and should allow the free market to compete with it in order to keep markets free. In other words, if the free market is currently or likely to do something government should generally leave it alone. If UPS can deliver a package better than the post office go use UPS.

The theory of partnerships and a hybrid model is based on the fact that some things of high social value are not undertaken because of inherant limitations. One of those being that highly needed services with a high social benefit don't yield an income stream and so they aren't undertaken. A specific example of this would be a substance abuse treatment program. It is kind of difficult to charge a fee to a broke drug addict but only some real die hards here would dispute the high social value in the use of public funds.

Justme, the answer is in the links, but here's my version...

Hayek realized the shortcomings of government in doing A or B or anything else for that matter. But absent a free market solution in the beginning he suggested a boot-strap approach of letting the government do the best it could until the free market could form the foundation it needed to take over.

Here's an example I like to use...

I believe that we should eliminate FDIC because it fosters irresponsible investment practices on the part of the banks. Depositor risk (and hence caution) is removed at taxpayer expense and therefore the banks lose an incentive to invest conservatively.

Other countries currently have functional banking systems without government insurance for depositors. The alternatives vary country to country and formed over time as a result of the free market forces present (for the most part). These alternatives do not suffer from the obvious flaws of FDIC and at the same time foster an environment where depositors willingly place their savings in banks.

We in the US could attempt the same but we if immediately eliminated FDIC we would cause a national bank run overnight. One solution would be to ease out of the government meddling and at the same time letting the free market work out the best solution for us.

Yes, we would be open to continued bank abuse as the process occurred, but we won't be in any worse shape than we are now and we have a better system to look forward to in the end.

frank Says:
February 28th, 2009 at 7:39 am
"Hayek realized the shortcomings of government in doing A or B or anything else for that matter. But absent a free market solution in the beginning he suggested a boot-strap approach of letting the government do the best it could until the free market could form the foundation it needed to take over."

Just for reference, this is in line with my thinking.

Ah….there’s a problem. Flying at .98 Mach is by definition not supersonic.

Am I missing something? Did the marketing people get ahead of the engineers again?

Dennis, it flies at mach .98 over land and supersonsic (mach 1.6) over water. Someone passed a silly law in here that prohibited speeds above mach 1 in the US regardless of the amount of sonic boom.

Hence a certain limitation in the private sector. On its own the private sector could not have produced something like the Concorde ‘because it doesn’t make economic sense.’

Concorde was probably killed by private jets.

Let's say you wanted to fly from Hartford to Reykjavik. To fly the Concorde you would have to first get down to NYC. Then the supersonic flight would only get you to London. You would have to take another slow flight back to Iceland.

Even a slower jet like the Challenger 601 would beat a 3-leg routing even if one segment is supersonic.

Besides, Concorde would still bind you to the inflexible schedule and you would still have to fly with strangers.

Moreover, a smaller jet can get into smaller/closer airports like the one in St. Moritz.

Frank,

There is hardly a modern industrialized country that does not have deposit insurance. I simple trip to Wikipedia will debunk your claim thoroughly.

Instead of changing the topic, please explain the logic of why A and B are treated differently.

It is unfortunate, but free market fundamentalism is nothing but a religion that makes wholly unfounded claims based on certain dogma or axioms that quite simply are not valid in the real world. As such, is it as deeply flawed as many other well known pure ideologies.

...it IS as deeply flawed...

you would still have to fly with strangers

Ewww...cooties.

You should see the airport at Sun Valley sometime. I've seen dozens of private jets parked on the tarmac.

You should see the airport at Sun Valley sometime. I’ve seen dozens of private jets parked on the tarmac.

I remember a few years back someone wanted to fly his BBJ there but was denied. There was a lawsuit and all.

Peter P Says:
"Concorde was probably killed by private jets. "

If those jets were supersonic I would be trumpeting the Concorde as a beautiful example of the model. But I think private and short-haul jets are more likely going to displace segments of the airline industry. This is why I brought up the subject because we could go in all sorts of directions. Would you or anyone here say Concorde was a success, failure, neither but valuable step?
One more thing, Ronald Reagan used government funds to develop a hypersonic space plane. Everyone here can remember or probably has seen the animation. The poster boy for the free market believed in public private partnerships as well. Hope that doesn't rock anyone's world.

justme Says:
February 28th, 2009 at 10:26 am
Frank,
"It is unfortunate, but free market fundamentalism is nothing but a religion that makes wholly unfounded claims based on certain dogma or axioms that quite simply are not valid in the real world. As such, is it as deeply flawed as many other well known pure ideologies."

My one criticism was based on a similar observation. Where I am confused and interested is that Frank seems to be well informed on hybrid economies but seems to preach with a very fundamentalist style things as unquestionable fact, which don't seem as true to me. In that style false premises not representative (such as, the only way government is involved is through coercion) of the different point of view is asserted. He simply ignores that in a public private partnership, all entities are willing participants. Many partnerships are initiated from the private sector.

Malcolm,

Regarding the Concorde, I'm not an expert in avaition, but I have to agree with DennisN. But luckly we can argue this without having to determine whether the Concorde was good for society or not.

My argument, the same one I gave in response to your other post, is simple and is that government solutions will be inferior market solutions.

Stiglitz, the guy you quoted and a nobel prize winner (albeit in economics:-), could not prove that government intervention would eliminate imperfections in the market. Baumol gave some excellent free market alternatives to bureaucratized R&D that favored entrepreneurship and were much more efficient.

I think neither of us believe that an unmotivated bureaucratic group people in the government would possibly make better decisions than the mulitude of profit-driven entities that make up a free market. What makes you think that such a government group could possibly add more value to a process than a free market alternative?

There is hardly a modern industrialized country that does not have deposit insurance.

Sigh. I never said just insurance, I said government insurance. Private insurance is one better alternative as is higher interest rates at riskier banks.

debunk your claim thoroughly.

Hardly.

Instead of changing the topic, please explain the logic of why A and B are treated differently.

Now you're just being dense. A and B are not treated differently. However there is an initial stage for A & B (pre-market solution) that is required to establish the rules for later stages of A & B. There is no contradiction here.

It is unfortunate, but free market fundamentalism is nothing but a religion

A quick trip to wikipedia will debunk your claim thoroughly.

:-)

He simply ignores that in a public private partnership, all entities are willing participants.

Not at all... the government is always very willing to spend our money and their private partners are very happy to take it.

Btw, you wouldn't happen to be working for one of those private companies in partnership with our money, ah... I mean our government, would you Malcolm? :-)

frank Says:
February 28th, 2009 at 1:28 pm

"I think neither of us believe that an unmotivated bureaucratic group people in the government would possibly make better decisions than the mulitude of profit-driven entities that make up a free market. What makes you think that such a government group could possibly add more value to a process than a free market alternative?"

I see this as an example of you just expecting us to accept something as true. Who says everyone in government is unmotivated? Many in government have their own private businesses. I also have had my fair share of private sector unmotivated bureaucrats. No, I am a self employed investor. My ownership position in solar and real estate companies and assets does put me in the category.

Regarding the Concorde, a fun read...

https://mises.org/story/1266

I use the term "unmotivated" in the economic sense. It is what we are discussing.

"(Larkin, 1994) touches on these ideas by suggesting that the partnerships must build on the strengths each side brings to the table. There must be respect for each others’ counterpart. He makes the point that managers from the private, and public sectors actually show the same personality traits, and descriptions of leadership behavior. He also notes that each side tends to have stereotypes of each other. "

"What makes you think that such a government group could possibly add more value to a process than a free market alternative?”

I never said it could. In fact to the contrary, that's why government should not participate in areas already served by the private sector, or those likely to be served by the private sector.

In fact to the contrary, that’s why government should not participate in areas already served by the private sector, or those likely to be served by the private sector.

So you are advocating government until a better solution comes along? That might be more tolerable (and necessary in some cases as Hayek suggests), but I remain cautious because sometimes government involvement precludes private interests taking a stake. How can you guarantee that government involvement yields to private interests?

Yes, that is my position. Different forms of the model eventually lead to private operation and or ownership.

Instead of guarantee, which is faith based, I believe more in the concept of controls in the process. I have a section relating to best practices and pitfalls to look out for. The planning is the important part but the goals and deliverables have to be very clear. Is the partnership specific to the project or is it ongoing? It brings the power of good business to the government who is trying to address a social need. In the case of R&D it releases technology to the private sector whose strength is the commercialization.

"Direct funding such as through universities, and direct grants occur where market failures are perceived to be the greatest. Because commercial applications may not be apparent, there is little or no incentive at all for firms to undertake the expense. It is usually after the research is completed that commercial uses are identified. Direct R&D traditionally has been used to fund direct government objectives such as space, defense, and health research (Stiglitx & Wallsten, 1999). Unfortunately many new technologies developed by the government are not being utilized to the fullest extent possible. In fact the term “Death Valley” has been applied to the phenomenon of technology becoming forgotten or disconnected without the full pull-through of private industry (Lyons-Johnson, 1998)."

Frank said:

Other countries currently have functional banking systems without government insurance for depositors.

In 2007, after incurring huge losses, UBS was forced to turn to the Government of Singapore for fresh funding. Since then, the largest shareholder of UBS is Government of Singapore Investment Corporation.

Can you find any real example of private deposit insurance and a "functional" banking system? I'm not going to be holding my breath.

I'm not going to use your own words and say you are being dense, but I might say that you are being disengenous.

Dogma does not make truth.

... (no italics)

The only industrialized country I know of that has only PRIVATE deposit insurance is Switzerland. Apparently their banking system has been long deemed “functional’, but not lately, as indicated by the following (from Wikipedia UBS entry)

....(end no italics)

I wish there was a preview and edit mode in wordpress...

Frank said:

Now you’re just being dense. A and B are not treated differently. However there is an initial stage for A & B (pre-market solution) that is required to establish the rules for later stages of A & B. There is no contradiction here.

In other words, once we reach the fundamentalist free market Nirvana, even law and justice will be a non-government free market function. Any other way would be illogical.

Good to know. I sure as heck hope it never happens.

He simply ignores that in a public private partnership, all entities are willing participants. Many partnerships are initiated from the private sector.

AKA Rent Seeking

My city has lost millions over the last decade enriching developers with public/private partnerships. This includes building hotels that go bankrupt before paying back the city loan, fizzed upscale retail centers that do not attact tenants and get dumped on the city partner, a failed Gateway Computer factory, and a seriously underused Convention Center. None generated anywhere near the promised tax revenue. Surrounding communities have similar experiences with apartment complexes, town centers, and malls.

In fact, here is a very recent example of the public/private "willing participants" in a nearby community:

http://www.dailypress.com/news/dp-local_marquis_0227feb27,0,7395205.story

I'm sure people on this blog could find similar examples in thier own localities.

By the way, did the Concorde ever make money for the operators? Or was it just a tax payer subsidized way for the very affluent to streak between London and NY for $10k a pop?

One in every 10 Californians is looking for work, the largest percentage since June 1993, according to figures released Friday.

The state’s jobless rate increased to 10.1 percent last month, compared to 8.7 percent in December — and 6.1 percent in January 2008, according to the state Employment Development Department. The current jobless rate is 1 percentage point from the record 11 percent in November 1982.

Data for Silicon Valley was not released Friday.

California lost 79,300 jobs last month compared to December — and 494,000 jobs since January 2008.

Alibaba Group Holding Ltd. Chief Executive Officer Jack Ma said he’s on a recruiting drive to lure Silicon Valley engineers to China and that the company needs 5,000 more employees this year to keep up with demand.

The economic slowdown is a “treasure,” letting the company recruit employees from Google Inc. and Microsoft Corp., Ma said yesterday in an interview in San Francisco. The company plans to double its U.S. staff to about 50, he said.

Ma and 10 senior managers from China are in the U.S. for the next two weeks. They’re meeting with eight companies, including EBay Inc., Amazon.com Inc. and Microsoft Corp., to try to form partnerships, Ma said. Alibaba, based in Hangzhou, China, also runs AliPay, which enables companies to exchange funds online.

Radio talk show host Rush Limbaugh wants Barack Obama's econimic policies to fail. He said it, he said it again, and he said it again at CPAC. Limbaugh was quickly accused of treason, more or less, and now he says he doesn't understand what all the outrage is about. All he said was that he hopes the economic recovery plan fails.

Why is this suprising? I'm not stunned that conservatives oppose President Obama's economic policies. Actually, I wouldn't have it any other way.

The only industrialized country I know of ...

The wiki page was your reference, wasn't it?

Wiki - some [deposit insurance institutions] are private entities with government backing or completely private entities.

after incurring huge losses, UBS

So you're blaming UBS's losses on it's private deposit insurance? LOL. That's gotta be a classic!

even law and justice will be a non-government free market function

For the second time, read the links I posted. That is, if you're really interested in another opinion. But I seriously doubt you are based on your comments, therefore consider our conversion over.

By the way, did the Concorde ever make money for the operators?

The simple answer is no. Definitely no.

A better question is just how much money did the combined effort truly cost (i.e. how much did they lose). Accounting being what it is in the government sector, you can bet that it was much more costlier than is claimed.

Malcolm, I certainly stepped into that one. For a moment I thought you were proposing a much more conservative role on the part of the government. But I see it's your original stance. My mistake. I'll reply to your post and try to hit on each point you make shortly, but not tonight.

IIRC none of the US carriers ever bought a single Concorde: they all were operated by the government-subsidized national carriers Air France and British Airways.

Was away for most of the day. Look forward to it Frank, take it easy.

As far as I know the Concorde never made a profit. In that particular case I don't even care since that kind of development, one which propels society forward has a different value than just the money.

Rush & Obama
Again, I join in rejoicing that Obama is our President. He is the most dynamic, self made, visionary leader I've seen in my lifetime. Ending the cold war set the bar quite high for Reagan, but every time Obama speaks I feel assured that he is making good choices. Rush is just a tired old man who is just looking for attention. I used to like him but I got tired of his dogma and just opposing everything Clinton did and ended up being proven wrong in hindsight on a lot of things.

Bad PPPs
Yes, we can dredge up all sorts of examples of failed projects both public and private. Examples might help make a point but can't be conclusive to a complicated issue. I would also state my conclusions that government only gets involved in areas with a high social need and low commercial potential. An agency who partners up in building a shopping center does so at its on risk and without my blessing for the very reasons Frank stated.