THE INNOVATION INITIATIVE

* This post was written in 2011 before Mr. Roche founded Monetary Realism, which was formed due to several disagreements Mr. Roche and many other former MMT proponents had with the school of thought.  For more info on the difference in views please see here.  For more on MR’s views please see here.

 

In a story on his blog today Mark Cuban discussed an idea to get the economy going. Mr. Cuban cites the fact that the US government is essentially borrowing money for free today. Now, we know that an autonomous nation with endless supply of currency in a floating exchange rate system never needs to borrow money to “fund” itself, but the implications of negative borrowing rates are important from a political/logical perspective. It highlights the fact that the USA should essentially be trying to benefit from this odd environment by leveraging itself up on free money. Cuban says the US government should offer loans to corporations willing to hire. This is pretty similar to the MMT jobs guarantee except that it uses the private sector to leverage the government’s resources. I think we should go even further.

America became great for one simple reason. We combined a democratic government with a capitalist economic environment that unleashed creativity, innovation and an unmatched entrepreneurial spirit. We are known for our great innovators. The combination of democracy, freedom and capitalism created an environment where outside the box thinking is rewarded like no other place on earth. What is missing in all of this though is an understanding of how our monetary system could be used to leverage this great system.

The recent market turmoil and extremely low borrowing rates on government bonds only prove one of the basic tenets of MMT – that an autonomous nation with endless supply of currency in a floating exchange rate system never needs to borrow money to “fund” itself, but we have fooled ourselves into believing that we are bankrupt due to the flawed monetary system of Europe or due to misconceptions that lead households to believe that a government balance sheet is somehow analogous to our own. And in believing these destructive myths, we are not actually bankrupting our own government, but we are bankrupting our society by neglecting it of one of its most powerful resources – the government that was created by us for us.

As an autonomous nation with limitless supply of currency in a floating exchange rate system there is no such thing as the USA “running out of money”. But I am not going to convince everyone in the USA of this overnight. And that’s where Cuban’s idea comes into play. This political environment where rates are negative might just be the right environment to convince people that we should be doing more to help this great nation of ours by taking advantage of the fact that we are essentially being paid to lend money to ourselves. It makes perfectly logical sense. Any sensible businessman would agree with the idea that, when people pay you to borrow money from them, you should leverage that loan up.

While Cuban is right that we need more jobs in this country, I think he is missing the key component in the jobs story. We are suffering from a cyclical economic problem that is a balance sheet recession. That can only be fixed by reducing private sector debt levels and getting aggregate demand back to normal levels. And that’s what most businesses are seeing today – a lack of domestic demand. So they’re protecting their margins in an uncertain environment and not leveraging up. Even those corporations who have been taking on extra debt at super low rates have not been turning around to invest because the demand just isn’t there. So, I don’t see why the government lending money to corporations would change any of this to any large degree. We need to get out of the balance sheet recession first.

What I would propose to the US Congress is an Innovation Initiative. As I’ve said before, the structural problem in the US economy isn’t JUST that we’re shipping our jobs overseas. The other side of the coin is that there aren’t more Apple Corps. Let’s create more Apples. And let’s use one of our most powerful resources to do so – the US government.

I believe the Federal Government should allocate ~$50B per year from the Federal budget into what would essentially become the world’s largest private equity firm. While it would be government funded, it could be entirely managed by the private sector. And its focus would be entirely based on increasing private sector output and productivity. I would propose that we hire 10-20 private equity firms to manage the program on behalf of the government. In return, they would get an equity slice in any of the companies that are approved for the Initiative.

I would break the program down into several sectors – energy, environmental, infrastructure, technology, defense, healthcare, etc and allocate a specific amount of funding to each sector via monthly awards ceremonies. We would reward private sector entrepreneurs, start-ups or existing corporations with funding to go out and create new companies, new jobs and capitalize on their vision. I would promote the program vigorously. The key here is to get the creative juices flowing. I want college students sitting in their dorm rooms dreaming of winning this month’s contract. Or boardrooms at major corporations bouncing ideas around about how they’re going to obtain this month’s ~$500MM energy contract. The key here is that we are creating a specific entity funded by the government, run by the private with one sole purpose – to unleash a whirlwind of innovation on the world.

I am sure that much of the money would be “wasted” (at least we’re paying people to do real work as opposed to collecting a paycheck sitting on their couch), but for all the failures we might just look back and say, “wow, that program helped put a man on Mars and helped contribute to solving the energy crisis”. Besides, most new businesses fail. We can’t expect all of these to be winners. Call me crazy, but I see this making an incredible lasting impact on the country despite what ideologues would likely describe as another big government failure….

The USA might be suffering a short-term balance sheet recession, but the problem facing our economy today is much larger. We are suffering from a shortage of Apple Corporations. And we have the resources, talent and entrepreneurial spirit to fix it. We’re just not utilizing the resources and organizing our efforts in a way to benefit from it all because we choose to let politics and ignorance of our monetary system stand in our way….It’s like we’re sitting on a winning lottery ticket and we just refuse to cash it in….

I’d love to hear some thoughts about how insane this idea is or how it could be improved upon….

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • LVG

    I think it’s genius, but it will never happen. We think we’re bankrupt and despite what MMT says the politicians just don’t understand how the monetary system works.

  • http://DataDiary.com.au Rohan Clarke

    Not such an insane idea Cullen. It’s what the Nordic countries did after the war (though without the explicit private equity angle) – and now they are world leaders in industrial design. Watching Australia become one big mine shaft, the same idea has occurred to me – and we already have the pool of funds to do it (compulsory pension schemes). If you get it up in Washington, maybe we’ll follow…

  • SS

    The big government people will hate it. But I am sure you know that. The key would be convincing those people to get onboard. I don’t think you’ll be able to. Even though it would be run by the private sector and likely generate a pretty higher government spending multiplier the tea party people will still call it another bureaucracy.

  • baychev

    Not sure if you are too short sighted or just never thought of it: the easiest and surest way for a corporation to lever up is stock buybacks. And no one would possibly invest in spare capacity when utilization rates are in mid seventies.
    Your innovation idea is good, certainly better tha QE N^n and it favors PE so it may even get lobying support.

    And please make distinction between running out of money and out of credit, U.S.’s biggest export is the USD, if you debase it, no one would want it.

  • SS

    Stock buybacks are a waste of money. I thought everyone knew that.

  • baychev

    Agree with you in principle, but the C suite perspective is slightly different, buybacks increase the value of their options.

  • SS

    Yeah. Buybacks are a scam.

  • Wulfram

    I love this idea. People forget that the things that make the greatest improvement in their lives were actually the result of the government taking the initiative to fund completely crazy things.

    If you ask anyone what the greatest invention of the last 25 years was, it’d arguably be the internet. Many of those projects enabling the internet started because the Soviet Union decided it might be fun to put a giant basketball into space. Then Kennedy decided to one up them with the even crazier (and expensive!) task of walking on another natural body.

    The resulting innovation in material science, satellites, microprocessors more than paid for itself.

    While I am not advocating that we spend $50 billion dollars a year extra on NASA, I would like to point out that we’ve spent $150 billion on Fannie and Freddie as of this date (in just over 2 years). It will likely cost us anywhere from $240-$360 billion dollars to rescue Fannie and Freddie when all is said and done. $150 billion is already enough to fund NASA’s yearly budget for 7 years.

    If we consider the ROI of bailing out financial entities over investing in science, medical research, infrastructure, education, or even hated poverty combating initiatives, it isn’t even a fair fight.

  • beowulf

    I’m just lazy I know but Cuban’s plan sounds, well, overengineered. Why would the the govt loan money to employ people? Why would it would it expect to be paid back? The borrower already on the hook for federal employment taxes, dollars are tax credits and tax credits are dollars. Uncle Sam could give a tax credit (tapering down as wage rate goes up) to employer, who’d simply deduct it from his own tax liability.
    http://traderscrucible.com/2011/08/09/orzag-supports-the-linking-payroll-taxes-to-unemployment-rate-aka-the-tc-rule/#comment-1286
    Your venture funding idea is first rate. I suppose a start is throwing more money at DARPA.
    http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=busav&id=news/P6Rustan.xml

  • http://www.3spoken.co.uk Neil Wilson

    We should be throwing every relevant scientist and engineer we have at nuclear fusion research.

    A ‘Manhattan’ programme with practical nuclear fusion technology as the goal would be the greatest achievement since the Moon shot.

    But it needs vision to push these things through. The only vision modern politicians have is ‘stay in power at all costs’.

  • F. Beard

    Scientific innovation will put more people out of work unless it is combined with financial reform to “share” the productivity gains.

  • F. Beard

    I am sure that much of the money would be “wasted” (at least we’re paying people to do real work as opposed to collecting a paycheck sitting on their couch), … Cullen Roche

    Remember the Ancient Greeks? They had slaves to free up their time for leisure activities. And what did they do with that time? Some wasted it to be sure but others invented logic, mathematics, natural science, astronomy, etc.

    Remember Albert Einstein? He worked as a patent clerk because he needed the money. Wasn’t it a waste of Albert Einstein’s time to have to work for a living? In fact, he cheated. He worked on his ideas by stealing time from his employer. But how much was humanity cheated by the fact that Albert Einstein had to work for a living?

    The problem in the US is unjust wealth and income concentration. Fix that and eliminate the causes for it and the innovation will take care of itself.

    Righteousness exalts a nation, but sin is a disgrace to any people. Proverbs 14:34

  • Ryan

    Cullen Roche for President/(Instert influential gov’t position)

  • Ryan

    *Insert. If only I could type at 3am

  • Outlander

    INNOVATION INITIATIVE?
    What are you asking for a new job-protectionism legislation.. or how you going to avoid to overseas jobs?
    “What I would propose to the US Congress is an Innovation Initiative. As I’ve said before, the structural problem in the US economy isn’t JUST that we’re shipping our jobs overseas. The other side of the coin is that there aren’t more Apple Corps. Let’s create more Apples. And let’s use one of our most powerful resources to do so – the US government” Paid 900USD for connecting to internet when you have nice tablet for 200USD?? We need another debt-party wave for that.
    No way, when you have your own “balance sheet recession” with your competitor manufacturing overseas as 1/3 cost your production… you are over.
    But agree there should be ways to downgrade our countries without drawing wealth from middle and poor’s classes… we are the consumers, who support all this stuff, they cannot just go like that… I guess…

  • nark

    perhaps you should add immigration to the list of things that made america such a strong country in a technological sense; it can’t hinder you when tesla, bell, fermi, einstein and von braun rock up.

    perhaps if america spent less on military research and more elsewhere they may achieve more success. the cold war was won as much by a disparity in quality of life than a disparity in numbers of nukes and tanks. in other countries it is perhaps more common to spend on ‘green technologies’ (europe) or direct government intervention in bank credit allocation (japan) than the US.

  • Nils

    You want to see spending on Innovation and Science with the Tea Party essentially in control of congress? Not gonna happen, sadly. The House even wants to cancel the James Webb Space Telescope, probably one of the most awesome things since the Large Hadron Collider…

    http://en.wikipedia.org/wiki/James_Webb_Space_Telescope

    Well what is there to learn from looking at the creation of stars and galaxies when we all know the earth is 10,000 years old and men and dinosaurs walked among the earth together. Yes, there are enough people in Congress who believe that kind of horseshit. Oops, I’m ranting again.

  • binve

    Cullen,

    Good post, and I am in agreement. If the idea is promote hope and change, then we need to realize two things: 1) Chronic unemployment destroys hope, as Bill Mitchell often says but I don’t think has ever said any better or clear as he did in this post, and 2) change is by doing things differently, and the last 30 years has been thinking that monetary policy is all powerful and the unemployment can be used as a buffer stock (NAIRU). We can absolutely ‘afford’ to change that mindset, *especially* now.

    The sectoral balance for our current economic environment is clear: The private domestic sector desires to net save and we have a current account deficit => The Government *must* run a deficit to allow the private domestic sector’s savings desires to be realized.

    This means a Federal Government budget deficit is required in this environment. It does not pose any ‘solvency’ risk, and because the economic environment is weak does not pose a significant inflation risk. But while the sectoral balance tells us a deficit is needed, it doesn’t say how it needs to be implemented. This is where we draw on previous observations regarding how money from Government spending moves through the economy and how unproductive (and dangerous) the financial sector is.

    The biggest obstacle in the current environment is the no current direct spending paths to help Main Street. In particular all stimulus plans have been ‘jobs poor’ (propping up financial institutions spends a lot of money but does not create jobs).

    So like your ideas proposed above, I have a few ‘big ideas’ as well, as elaborated in Section 6 of this post.

  • http://thebuttonwoodtree.wordpress.com/ Romeo Fayette

    Reminiscent of Dylan Ratigan’s rant about an “Infrastructure Bank.” He didn’t develop the idea, but I would support it if it involved something about renewable energy infrastructure.
    I’ve written about this notion extensively over at my website for the past 2 years. I fully support innovation investments kindled by the government. With population demographics waning, innovation is the only source of organic demand, the only cure for structural issues. Alt/Renewable energy is under our noses. Use it domestically; reroute the fossil fuels to make us a net exporter.
    I also wrote a lot about a Time Magazine article that investigated allocations from ARRA that turned the DOE into the world’s biggest Venture Capital fund back in 2009.
    http://www.time.com/time/nation/article/0,8599,2013683,00.html

  • JohnnyBravo

    It sounds good in principle. But the money invested should not be a grant that the government just throws out there in the hopes that some percentage of it actually results in new innovations. The would-be Edisons who take this money must assume commensurate risk for taking it, otherwise most of it will be wasted. One of the reasons we got into this mess is because we removed risk from borrowing, which makes money worthless––until, that is, you have to pay the bill for your profligate spending.

    But even before such a program should be launched, we have to reform the entire financial system so that the banks can’t keep sucking money out of the tax payer so that they can continue with their fraud. Also, American companies have to have some reason for creating jobs in the US, rather than shipping them all to the lowest cost region. This is a political issue, not a financial one. But until these problems are addressed and government once again represents the people, no amount of money in an innovation fund will turn American around. The problem is not a lack of innovation. It’s that there is no reason to be innovative when the system is corrupt.

  • Rob

    we can’t afford this.

    just kidding, awesome idea. i think you would need some type of criteria in place where the entrepreneurs would have to show why hiring expansion would need to take place in America for the most part and not be shipped overseas or automated.

  • f

    “…We are suffering from a shortage of Apple Corporations.”
    Perhpas Apple deminish more jobs than it create(i.e. Those company beat up by Apple lay off more people than Apple hire.)
    But we do need many small company doing well like Aplle did.

  • CybrWeez

    Jobs shipped overseas may mostly be low wage jobs. I think that’s fine. What we need to focus on in America is our edge in innovation.

  • DGC

    I see some problems with your proposal. You suggest that you would allocate funds in several “sectors – energy, environmental, infrastructure, technology, defense, healthcare, etc and allocate a specific amount of funding to each sector.” The key is who allocates the funds and what criteria are used. The current regime would likely favor management of the program by people from “green energy,” proponents for government-sponsored medical care, union officials from public employee unions, etc. Such individuals would fund “innovators” favorable to the regime and supporting of regime policies. The end result would be more wasted time and money.

    For your program to be a success, it is essential to use a profit motive for those funding the “innovators.” To the degree that the government can control who gets the funds, that is the degree to which the funds would be wasted.

  • Dimm

    Not gonna happen. The tide is in the other direction unfortunately.

  • DerekG

    I think that is a very smart idea. The government is already doing this (state and at the federal level) for start-up companies in the alternative energy sector, mostly wind through tax credits and tax breaks. The government seems to be fine taking this extremely high risk as well, as only a minute percentage of wind farms actually make it and with investment payback taking at least 9-10 years!

    So, I agree with you, why cant we do this for start-ups in all sectors of the economy. Like you conceited, there would be a lot of failures, but there is bound to be at least a few home runs and maybe even a few apples.

    But because of the hatred towards the business world that has been created nowadays, there is no way American people or democrat politicians would allow this to happen. That is something I really do not understand. Corporations invest large sums of money, through PACs, lobbyists, etc into politicians every election year. Moreover, this is a huge investment risk because there is still a large chance that “investment”, or politician will not get elected! So, why don’t the politicians return the favor of all the money they have received over the years from businesses and put forth government funds for an idea just like the one you’ve outlined here?

    But that would only make too much sense right?

  • USA Joe

    While your idea is a welcome change from the politicized ideas of this administration, I fear that it will also be politicized and eventually be of little or no value. Better to have the government set up a program to deal with the mortgage debt issue, have banks take their losses and clear up their books a la S&L crisis of the early 80’s. Also: repeal Obamacare; repeal all new government regulations relating to crippling our oil and energy sectors; and abandon the government’s baseline budgeting ‘sacred cow’. These actions would restore stability to our economy and allow businesses to function without the fear of more government interference, not to mention the huge jump start unleashing our oil & energy sector would have on our economy while bringing down consumer energy costs. And this is exactly why this administration won’t entertain any such ideas.

  • ocean

    If I understand correctly, free market capitalism appears to have failed to create sufficient economic innovation because of lack of aggregate demand. Additional government spending does not address the demand problem directly (granted a portion of the population will benefit from the new jobs). However unlike corporations that have solvency, profitability and loan servicing limitations the government has a unique solvency, profitability and borrowing advantage because they are the monopoly issuer of the currency (not a household). Therefore in the face the lack of aggregate demand the government can attempt to stimulate demand (in the current low growth economy) by providing access to startup capital to entrepreneurs who can create innovative products that spur spending and improve the overall productivity and quality of life of corporate or individual interests beyond the outlay of the product’s cost.

  • ocean

    I was thinking the same thing, though if this was positioned as a “supply side” application of “keynesian” spending without mentioning keynes perhaps it might be palatable. I’m twisting definitions and a few economist will take exception to the statement but this program in some ways is more about lowering barriers to creating products for entrepreneurs, that big government bashers are supportive of (though they prefer the barrier lowering to be in the form of tax breaks or less regulation).

  • F. Beard

    Therefore in the face the lack of aggregate demand … ocean

    Aggregate demand is stolen by the so-called “credit-worthy” and the banks via credit creation in the government enforced monopoly money supply for private debts and used to outsource and automate away the jobs of workers. No wonder then that there is a shortage of aggregate demand!

    Why do we even have banks? The government has no need for them since it can just create, spend and tax its own fiat. As for the private sector, why should some, the so-called “credit-worthy”, have the privilege of stealing purchasing power from their neighbors?

  • oliver

    I think the basic infrastructure for such an idea already exists in the form of universities and their research programs and subsequent spin-offs, but, since it’s a supply-side remedy, it won’t take off until the balance sheet recession has been overcome. In fact, with demand weak, a spike in productivity could have a negaticve effect on the unemployment level. Not that that should be used as an excuse for complacency.

  • oliver

    I correct myself, employing people obviously isn’t a supply side remedy, but the intended effect is geared towards supply, not demand.

  • AK

    I don’t think this idea will work. Without any accountability and risk this money will just go into CEO salaries and may generate few powerpoint presentations to impress people who are runnng the private equity (PE) funds. Fund managers won’t care because they know it is not their money and CEOs won’t care because they know it is not PE’s money. When there is no real risk money will always be wasted. Something personal must be at stake else it is mini-China that is what you are proposing.

    To resolve balance-sheet recession you need people to have real jobs so that they can pay-off their debts. It is better that govt create news jobs by funding new infrastructure projects such as high-speed rail, natural gas exploration, educate more doctors and nurses for cheaper health-care. Let the firms earn that money from the govt.

    Mr. Roche I respect your opinions but this one is a chapter straight out of China’s book!

  • innertrader

    While ALL socialist concepts sound good, they do NOT work and are NOT productive. in fact, they are counter productive. FED intervention into the housing market is what created this fiasco in the first place! The FREE MARKET is absolutely perfect, if left alone to work!!! The risk takers that fund private enterprise are best suited for the job… it’s THEIR MONEY and they are going to invest it as wisely as possible! NO government funded entity can compete, nor should they, in a FREE society. However, if you are a socialist, this concept will work very well for you. The LESS the FEDS have to do with anything in the market place, the better for the market and the people thereof, period!!!

  • ocean

    I think we agree that banks have right to be compensated a credit risk spread beyond the risk free rate they source fund at, for the service of lending money. As regard to the fractional reserve part it seems to me that “competition” should drive excessive profits from this activity. Though I agree a monopoly can and will probably find ways to abuse this.

    The State Bank of North Dakota has helped the state government largely eliminate interest cost from borrowing by funneling the interest payments from the issued state bond back to the North Dakota. They also provide no frills small business and personal banking service based on a fractional reserve banking model. This might be a better model? Thoughts?

  • Jonnyblaze

    “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Rothschild

    Cullen, you have been a proponent of the “definancialization” of our economy and I think this is a well-intentioned but ultimately misguided attempt at pushing toward that end. I like your outside the box approach, but I think it has been colored by our technocratic society.

    I fear that the real issue in the United States is not a lack of innovation, but a moral bankruptcy among our leaders (and many average citizens as well) which is underlied by unquenchable greed and lust for power. I included the quote above because I think it speaks to what has happened amongst our elected officials. Though they themselves continue to ostensibly make the laws, they have adopted the attitude that control of the money/credit supply is the only thing that REALLY matters (“It’s the economy, stupid!”). This couldn’t be further from the truth.

    The past 20 years have brought unprecedented changes in the pace of technological advancement. To suggest that solving our economic woes can be achieved simply by accelerating this pace of innovation seems to ignore the fact that this whole mess has come to a head during this very same period of rapid technological innovation. Our economy doesn’t have AIDS, it has Cancer!! Just look at the derivative financial system for proof of how innovation run amok actually leads to further problems rather than being a cure-all.

    I’m not saying that we need to revert to the stone age by any means. But I think that the real remedy for our current issues is not solved by looking JUST at the technological aspect of the problem. Rather, I think we need to shift our focus to the moral/ethical implications of our technology. Take for instance food production — there is more than enough techonological savvy in the world today to feed the entire global population, and yet we have BILLIONS of people basically starving to death their whole lives. This is a problem not solved by technological means, but only by appropriately harnessing the technology that already exists.

    What societal good has a company like Apple really promoted? Sure they have all sorts of neat technology, but does my iPod angstrom really make the country or the world a better place to live? Probably not, but maybe it could. Perhaps all that money you want to throw at VC firms that fail really would be “wasted” after all, when it could be used instead to promote a more equitable society by funding initiatives aimed at ethical advancement rather than technological advancement.

  • Brian

    Socialism is inevitable, it has been stifled by right wing rhetoric and lies for years. We should just model ourselves after Switzerland and get it over with.

  • pebird

    I agree with beowulf on Cuban – why not just do a tax cut for companies that employ people. Oh wait, we’ve already done that – pushing on a string. Adding the “loan” dimension doesn’t help much, unless the government is going to pay 0.25% on what it “lends” – wait that is just for banks :)

    As much as I support increases in government spending – I don’t believe the government is going to fund ventures better than hedge funds, venture capital, etc. At least ventures that deliver returns that can be monetized/realized.

    If you want infrastructure built and long-term R&D in this environment – you need government spending that creates public returns – these are not (by design) easily monetized because returns are shared across society. So any funding the government would undertake in such an environment would be toward that end as opposed to something that could be brought to market quickly.

    So that brings up the political risk. The government has no special crystal ball – it will have its share of investment failures just as the private sector. But the private sector has much less transparency – any government investment failure would be magnified and used as another excuse to undermine public purpose.

    The old fashioned way to implement government supported R&D was funding secondary education (university research, etc.) – IMHO, that would be a good use of government spending. And that actually worked, so why not try that again?

    I think there is more than enough work out there fixing bridges and highways, along with providing the private sector (business & households) spending power to make up for the gap in private spending – but that is going to take a helluva lot more than $50 billion per year.

  • Different Chris

    I like Cuban a lot. But any idea that involves fiscal stimulus to create jobs without creating additional demand from the consumer for those jobs is a prescription to solve a symptom, not the disease causing the symptom.

  • F. Beard

    My thought is that government should get entirely out of the private money creation business because:

    1) The government has no need to be concerned with private monies.

    2) Any interference (besides enforcing laws against fraud and insolvency) is bound to be unjust.

    3) The private sector is quite capable of coming up with its own money solutions.

  • http://www.pragcap.com Cullen Roche

    Beard,

    It’s a lovely thought, but not realistic. Who would regulate the pvt sector money supply? In many ways, this is similar to the anarcho capitalist dream. It works in theory, but collapses in reality because men are inherently self serving…..Just look at our bankers, lobbyists and politicians. They can barely be contained by the world’s most powerful govt :-)

  • F. Beard

    The FREE MARKET is absolutely perfect, if left alone to work!!! innertrader

    Then let’s have one and abolish the government backed and enforced counterfeiting cartel, otherwise known as the banking system.

    The risk takers that fund private enterprise are best suited for the job… it’s THEIR MONEY and they are going to invest it as wisely as possible! innertrader

    It might be their money but the purchasing power for it was likely stolen, one way or another.

  • Different Chris

    My idea is based on the simple idea that demand creates jobs, not the other way around. So any prescription that targets the symptom (employment) and not the disease/virus (private sector debt & need for furhter deleveraging before demand can be increased) is no where near as effective.

    That being said. The political environment is not one where a properly massive Tax Cut/Holiday can be acheived (Or wage increase subsidy).

    ‘My’ idea would be that any fiscal stimulus should get more money to consumers it should be enough for them to ‘fully’ deleverage and then have increased ability to spend(consume). If it makes it politically more tenable for it to be linked to something that directly creates new jobs then I am 100% with Cuban. He’s a smart, successful, bastion of capitalism and if simple job creation is the goal then I stand behind him. But the vast majority of the fiscal stimulus should go to the consumer.

    Demand-creates-jobs.

  • Jonnyblaze

    One of the greatest presidents in our country’s history, Abraham Lincoln, completely disagrees, to the point of taking the polar opposite opinion:

    “The government should create, issue, and circulate all the currency
    and credits needed to satisfy the spending power of the government and
    the buying power of consumers. By adoption of these principles, the
    taxpayers will be saved immense sums of interest. Money will cease to
    be master and become the servant of humanity.”

    It’s not just a matter of who creates the money, but how it gets distributed. I agree with you that the government being in bed with the banks is problematic, but I don’t think complete privatization is the answer.

  • Different Chris

    (I can be rather terrible at organizing my thoughts). Left out the specific notes for ‘My’ idea. Income Tax holiday and/or wage increase subsidy. If you want to also create jobs directly, make it a a corp tax cut where X amount of the cut is earmarked for hiring and Y amount is earmarked for wage increases.

    I would argue Y needs to significantly outweigh X, but that’s just me!

  • Seth

    I wouldn’t object to such a plan. I wouldn’t expect it to generate much more than rent-seeking, cronyism and fraud, but what’s $50 billion in an MMT world?

    But I’d much rather see the government reduce the enormous regulatory burden it places on our entrepreneurs, especially in the healthcare and education sectors. You could foster a lot more innovation in those industries by easing up on red-tape and mandates, than you could with any pie-in-sky “Innovation Initiative.”

    IMO, we do NOT need more Apples making handheld computers or flying cars or X-Ray specs or whatever this program would produce. But we could really use a few more Apple Universities training new engineers and more Apple Pharmaceuticals synthesizing new drugs.

  • F. Beard

    Who would regulate the pvt sector money supply? Cullen Roche

    There would be any number of private money supplies regulated by the respective private issuers, of course. And think about trade policy: Each issuer could decide for itself if it wish to strengthen or weaken its currency. The US would therefore have optimally tailored foreign trade.

  • Dimm

    Here is the results of innovation, self regulation, free markets etc.

    http://www.usatoday.com/news/nation/2011-08-11-pa-courthouse-kickbacks-sentence_n.htm

  • Cowpoke

    I say let people value thier assets like banks do. let them attribute a value and then be able to borrow against that nominal value.

  • Jonnyblaze

    But there is plenty of unsatisfied demand, it’s just all in the emerging markets. Problem is, corporations only care to exploit that demand for enhancing their own bottom line. There is absolutely no regard for how their actions fulfill the implicit social contract that they have with the citizens of their own country… I’m convinced there has to be a way in which we can promote some balance in the “global economy” if we truly are committed to that proposition.

  • F. Beard

    … but I don’t think complete privatization is the answer. Jonnyblaze

    Nor do I. The government would still create, spend and tax its own fiat. Furthermore, the government could deficit spend at will, confident in the knowledge that excessive spending would not harm the private sector but only the government and its payees.

  • The Dork of Cork

    http://ftalphaville.ft.com/blog/2011/08/11/650656/when-a-government-bond-becomes-a-giffen-good/

    Explosive article – the SNB are not sterilizing.
    the FED is not QEing

    They want to direct the 30 year old credit bubble into Gold in my opinion – this is ECB doctrine ,5,000 -10,000 Gold may not be hyperinflationary.

  • ocean

    Beard,

    Central banks came into existence because of general public frustration with free market private banking solutions that were be prone to bank runs and/or outright fraud (that is your point 2). Granted their role expanded to include management of international money flows and monetary concerns.

    Legality aside, I’m open to alternative currencies (be it bit coins/facebook credits, gold as tender or berkshares local currency etc) and letting users and sellers decide which currency to honor. I even have some of these currencies, but at the end of day all taxes will be settled in USD. And I suspect the majority of people would avoid replacing the bulk of their currency holdings with a non-soveriegn currency (maybe except gold bugs).

  • Different Chris

    Well you let me know when you find that idea. I’d love to read it.

    Until then, let’s create some demand here.

  • F. Beard

    And I suspect the majority of people would avoid replacing the bulk of their currency holdings with a non-soveriegn currency (maybe except gold bugs). ocean

    Probably true since government money is so convenient and necessary (for paying taxes) but ONLY so long as the government managed it well enough.

  • Jonnyblaze

    I’ve said this before on these boards, but I really like Bernard Lietaer’s work on multiple currencies. You should take a look too — I think you would appreciate it:

    http://www.lietaer.com/

  • Brian

    Hmmm, here’s an idea for getting us out of the balance sheet recession, let’s raise taxes for the rich and more equally distribute wealth throughout the country. Then when people have money again, and feel confident, they will spend it. Has anyone ever heard of Bernie Sanders? He does a great job of explaining how the top 1% has funneled all of the middle classes money into their caufers. http://sanders.senate.gov/ Excellent reading for those so inclined.

  • Different Chris

    Wow….. Just wow. You might rival Jo as my favorite commenter here for entertainment value.

  • VRB II

    One of my favorite things about the TPC is it reminds me of the table outside the cafe where by a bunch of friends sit around and argue, laugh, argue, agree repeat. Like the cafe I see the same faces…and names..arguing, agreeing and laughing. That’s how I see it..doesn’t mean it’s the way it is but I’m getting to know your personalities the more you write on isssues that you feel are important.

    Just thought I’d share this and let you guys(gals?) know I enjoy seeing your names everyday..like the cafe. Your always there. Many don’t leave the table no matter how much they disagree.

    On a lighter note:…go to http://www.ritholtz.com Barry’s site and see the political cartoon posted on the standard and Poors. I think it’s one of the best all time.

  • F. Beard

    Thanks for the link. Interesting viewpoint.

  • VRB II

    Brian- I’d like to know what the top 1% is for your tax brackets.

    I’m in the top 1% and I don’t feel rich. I pay my bills, I never took bailout money, or have ever been helped my a govt. program. My business survived the downturn on my own blood sweat and lack of sleep. I employ 5 people. As a small business owner raising my taxes higher then my effective rate of the 40% I paid last year I can tell you candidly to get your hands away from the money I earned through creative, innovative hard work. It’s going where I see fit. to my family, religious organizations, Alma Mater, and social programs I warrant.

  • Different Chris

    I believe this is my third request to make you staff total 6 people.

  • Brian

    This idea of “my money” is an interesting one. Are we a society or simply individuals locked in competition?

  • F. Beard

    … or have ever been helped my a govt. program. VRB II

    So you never borrowed from the government enforced and backed counterfeiting cartel, the banking system?

    Cease your search Diogenes! We have found an honest man!

  • Different Chris

    Try using the reply button Brian, it makes for a much better discussion (black arrow shaped like the arrow on an old school return button, located in the lower right of a comment box).

    The idea of ‘My Money’ is quite interesting indeed. That people like VRB II who work hard to earn their money should get to… uh… keep what they’ve worked hard for. Very interesting indeed.

    Serious questions: It sounds like you support Communism or something similar if you do not like or agree with the idea of an ‘individual’s money’. Are you a communist?

  • John

    MMT expose’s “money for nothing” which the average voter may expect more from the Government ‘in all times’.

    It is hard to take something away once it is given.

    If the voters understood MMT would that be such a great idea?

    They may just hear “free money” & not grasp the fact that government works
    Like a weighing machine. When inflation and the balance sheet recession is over the free money will be taken away and taxes raised. Too much information for voters to connect all the dots maybe.

    A combination of Cuban & Cullen’s idea would work well, keeping the borrowing aspect in at very low rates.

  • Different Chris

    I work for a company that employes just over 100 people, origins date back to 1898, has had a standing line of credit at several banks for decades and has never ever touched that line of credit. I would bet its more common than most people think.

  • Jonnyblaze

    Ha I wish I had the perfect answer, but I know there are much brighter economic minds out there than my own. I’ll keep searching and thinking anyways though :)

    My main point for the purposes of this discussion is that we are operating in a global economy but trying to implement policies based on an isolated view of our own economy. This strikes me as completely inconsistent and probably leads us into danger of exacerbating imbalances that already exist.

    Let’s cut the crap and really be an isolationist nation again, with all the protectionist trappings, or really commit ourselves to a globalized economy and address the issues with globalized solutions. Personally, I wouldn’t even mind the former but I doubt we’ll go that direction…

  • Different Chris

    “If the voters understood MMT would that be such a great idea?

    They may just hear “free money” & not grasp the fact that government works”

    Well those aren’t the same thing, now are they….

  • Kyle J Hipp

    I believe a singular mission, like the sixties moon landing goal would be possible with the right delivery. I would love to see the goal be energy independance in 15 – 20 years.

    How much is too much to spend if we accomplish this goal? I think if we spend even a couple trillion dollars, it will be more than worth it. First off it will put tons of people to work. Secondly it will bring about a well funded innovation cycle that will propel the economy for years to come. It will make the technology of the US coveted all over the world once again. The biggest risk we currently have is our dependance on foriegn energy imports. This also contributes to our federal deficits, which would lower with energy independance and would make our debt levels look much more manageable. This is something that can be accomplished but their just needs to be the will to do it. We need to look further our than 5 or even 10 years to see the benefits. This could be a transformative point in US history, like government involvement in our rail industry or the interstate highway system. Hell maybe someday it could enter the plot of a future transformers movie!!

  • Different Chris

    Johnnyblaze,

    “My main point for the purposes of this discussion is that we are operating in a global economy but trying to implement policies based on an isolated view of our own economy.” Well, the body that implements our policies does not extend (directly, we could argue about this, but on paper at least and ABSOLUTELY interms of currency control) outside our “borders”.

    I understand your view and agree with the sentiment, but in the current environment- the one where BO said during his last State of the Union address that corp tax cuts were coming, among other things- I think the idea of affecting the US to affect economic change in a positive direction is much more viable a possibility. This is why I say give a huge, massive corp tax cut where (making this up as I go, haven’t crunched any numbers) 80% of the cut is earmarked for wage increases to employees beyond some pay level (which we can argue) and 20% is earmarked for’new’ payroll creation (new jobs).

    That being said, I hate politics so the more beltway savvy could probably give 100 reasons why my idea is ‘impossible’.

    Best

  • VRB II

    Brian- It’s my business, it’s my responsiblity to pay my employees. It all falls on my shoulders. Where is your society when I fail? There are countries better suited for your society where competition is not encouraged. But if you want the benefits of my money and the wealthy made via competition and creativity then you better encourage it and rather than raise my taxes I would recomened our policy makers do a better job with the money they have. The misallocation of capital and bailouts of TBTF banks is not a reason to shift the burden or blame me.

    Competition is good. But we will disagree on many of these issues. which is probably why I have money you want to take.

  • Different Chris

    “wage increases to employees beyond some pay level”

    Yikes! Should be ‘below’ not beyond.

  • beowulf

    And its payors. Even if you earned all your money in a private currency, you’d still need to exchange it for dollars to pay your taxes. That exchange rate (which Tsy would surely control) would establish the value of your currency.

  • ES

    > The problem is not a lack of innovation. It’s that there is no reason to be innovative when the system is corrupt.

    Exactly. If you ahve brains for innovation in the US you just go into financial services or itnernet/ social media because it is so much easier making money there than trying to do something real.

  • VRB II

    I do have a mortgage- which I pay and during the downturn I had to take equity out to satisfy payroll. We never layed off an employee and we added staff in 2010. I stil have the 2nd mortgage and I hate the rate. But I never walked away from any debt obligation.

    I own 3 units in my building and I never supported the contractor next to my office when he could not pay for 6 months due to the slowdown. That was my choice. I get to make that decision.
    Anyway..I digress too often.

    I don’t like banks. Period. I don’t like Finance as an industry…and yet I own a financial planning/CPA office.

    Truth be told if I could I’d be a world class DJ spinning Trance/House music in Ibiza, Las Vegas pool parties. But my wife says I would kill myself on all the drugs…so I better keep my head on straight and get better at helping my neighbors sort through all the noise.

  • VRB II

    I supported…delete(never)

  • AK

    Mr. Roche,
    Instead of coming up with this $50B fund, you can just give PE fund managers and their CEO friends a check of $50B. Why go thru such a shenanigan. It seems you’ve never worked in a real industry. These start-ups have a very good way of sucking money out investors. You do not know the power of Powerpoints. Everything looks good on paper but when it comes to delivery nobody shows any results.

    Unless people put in their own money there is no point of funding any venture.

  • ES

    > The old fashioned way to implement government supported R&D was funding secondary education (university research, etc.) – IMHO, that would be a good use of government spending. And that actually worked, so why not try that again?

    Exactly. This is what other countries do, germany, Finland, Sweden. Making secondary education more available but also setting expectations for being QUALIFIED to receive it is the dirver of innovation because it lifts the education level of the population.
    In the US K-12 system is horrible because it is non-competetive, everybody can get into some college, anybody can get a credit. In Germany, if you don’t work hard you are not getting into taxpayer financed college, end of story.
    That teaches responsibility and hard work from young age.

  • http://www.pragcap.com Cullen Roche

    So, we’d require that the approved companies have some skin in the game. The program would be pretty similar to just giving PE firms $ except that they’d be directly accountable to the Federagl govt. This would reduce potential corruption, give them some upside, but also provide the net financial assets needed to fund the ventures.

  • ES

    Innovators don’t grow on trees . Innovators have to be nurtured from very young age, which with the US education system is a problem.
    Those who are innovative then get pushed towards internet and finance area because this is where there is less regulation and taxation. I don’t think lack of credit is a problem.
    It is a fact that doing anything that employes people in the US is extermly hard, taxed and regulated heavily. It is much easier to do something in virtual world, there you don’t need much in terms of equipement or employees. Plus, you can hire indians from Bangalore at $5/hr to create and update your website.

  • Sixx

    Interesting idea Cullen, it attempts to promote innovation and puts money into the system for good use. I like it, but one road block to the idea may lie in the creativity necessary to champion innovation. What motivates people when creativity is required is not money, as explained in the video “Drive: The Surprising Truth About What Motivates Us” below…

    Drive: The Surprising Truth About What Motivates Us
    http://www.youtube.com/watch?v=u6XAPnuFjJc

  • Pierce Inverarity

    Equity stakes. Guarantee them a minimum of 10% equity in whatever legal entity owns the rights to the innovation.

  • Anonymous

    Maybe 1% is a little low. Maybe it should be Top .5% I dunno. Its not so much how much the rich make, but what they do with it. Do we need free capital right now? I don’t believe the modern rich contribute to the economy that much any more. There was a time when they started a business and hired people. This grew the economy in a healthy way. These days (and I have no facts other than the number of hedge funds available only to the rich) they just seem to want a quick profit on Wall St. and Minsky said too much money there and you get instability. Now maybe we should blame it on 401k plans instead of the rich, but the whole system seems to be Darwinian on steroids. You are either a good investor or trader or govt employee or you suffer. Time was that you could be of several professions and still have a decent retirement. These days it seems its either High Finance or the Highway.
    It was said somewhere else on this post and I have said it also that corporations should have tax incentives to rehire. In the book “The Age of Greed” it explains how corporations started in the 80s trying to escape taxes and regulation. Well they succeeded and this is where we are today. (Advantage corporation) Back in the 70s it was Advantage Employee and you had wage inflation. We are living in opposite times to the 70s. Its Deflation.

    Chart of top 1% income:
    http://www.cbpp.org/cms/index.cfm?fa=archivePage&id=3-29-07inc.htm

    Tax Rates:
    http://www.ctj.org/pdf/regcg.pdf
    http://www.wallstreetoasis.com/blog/90-marginal-tax-rate-explained

    Wages of private sector workers compared to public sector (second graph down):
    http://www.intellectualtakeout.org/library/chart-graph/historical-comparison-public-and-private-sector-compensation-levels

    Corporate Taxes:
    http://www.ritholtz.com/blog/2011/04/corporate-tax-rates-then-and-now/
    http://economix.blogs.nytimes.com/2009/11/24/the-tax-burden-around-the-developed-world/

  • beowulf

    If the govt uses the tax code to create a virtual wage subsidy (instead of an EITC subsidy being sent to employee, employer gets tax credit for wages paid). There are three variables. 1. Percentage of wages (that could be deducted against employer– or its payroll company’s– tax liability), 2. Percentage of pass-through (ex. does worker get 100% of credit as a way to hike effective minimum wage, or employer get 100%for temp jobs for LT unemployed as a privatized MMT”job guarantee”) and 3. Percentage of phase-out (as wages increase above minimum wage, ex. every $1 of add’l income, SSI phases out 50 cents, EITC by 21 cents).

    Congress could set formulas, or they could give Secretary platinum coin-like discretion to adjust wage credit. A floating payroll tax holiday would be the same as a tax credit with a variable percentage, half pass-through and zero phase out on the first $106k of wages.

    I should note the Full Employment Act dual mandate set goals for both unemployment and inflation rates as below 4.0%. Congress would never give the Secretary that kind of discretion until they figured out as the Fed has, you can target quantity or you can target price but you can’t target both. Instead of Congress targeting budget deficits (quantity), it should order the Secretary to target the dual mandate (price) by adjusting taxes and allow the quantity of the budget deficit to float. Second best option, set formulas to target price by adjusting virtual wage subsidy and payroll tax rates automatically. While they’re at it, they should lock in current Fed rates, 0.25% IOR/FFR, 0.50% discount. :o)

  • El Viejo

    Lost my login when I deleted history and cookies.

  • VRBII

    Brian- Your question is a good one. I’m just not the best person to sort that out. There are some smart people here to discuss that with. It’s not in my DNA to discuss that. I don’t understand the question. Which means I have a view that would be hard to break down. Kind of like MMT to my ultra conservative clients.

    I want to apologize to you if I came off to aggressive. I think a little different about taxes than you. But I thought this way when I was making 26,000 working at the bottom of a finance company scraping for my 500 monthly bonuses living off chinease drive throughs in Dallas, TX.

    I would like to see our policymakers allocate capital better. First. Second I would like corporate tax rates and loopholes closed. Third..I thing the incomes for married filing joint at 500k should be raised and 350k for single filers. I think the 250k number is absurd.

    Good luck Brian. I’m not going anywhere and hope to see your thoughts more.

  • F. Beard

    That exchange rate (which Tsy would surely control) would establish the value of your currency. beowulf

    That would defeat the purpose of private currencies. Instead, the free market should determine the exchange rates. People who received government money – Federal workers, the military, SS recipients, Federal contractors, etc. – would sell that money on the open market for goods and services or for private currencies if they desired.

  • VRBII

    beowulf- I think you need a picture on this site. I hope you get one. I have my own thoughts what it should look like. But something resembling a large brain or simple yet super complicated imagery.

    I’ve said this before but your one smart dude. To that end..I’d just like to see what image you come up with.

    I really enjoy your posts. I’m not versed in alot of what you write. It’s above me. But has helped me

  • Brian

    VRB,

    Naturally I think most people are concerned about the economy and the market right now as we all should be. We find ourselves in a period of sputtering growth and uncertainty and our way of life is being challenged, so there are going to be misunderstandings. What I don’t agree with is the knee jerk reaction to an idea. Granted I don’t always articulate things fully and I can’t help but be a bit of a antagonist. But the scary thing is when people just won’t listen to each other anymore and remain locked in old ways of thinking. Case in point our government, and unfortunately most citizens just will not budge on their ideas. Cullen to his credit seems to have ideas, or at the very least is actively trying to have new ideas and I can’t help but respect that. I will honestly listen to anyone’s idea at anytime, because I don’t believe that I know everything and I believe everyone’s perspective is valid – even if it does not benefit me. We have to look at things with new eyes everyday. When as a society we collectively fall into the grips of fear and protectionism we are screwed : )

  • pebird

    Why would people think that? They believe they are all over-taxed and that they should get their tax dollars back. When Bush provided the $800 credit, I don’t remember anyone complaining about their free money – they saw it as a tax credit.

  • Different Chris

    Mmmmmm cookies

  • beowulf

    You’re missing the point. The problem isn’t there are too many “rich people” (however you define it) but there are too many poor people. And it wouldn’t cost the rest of us a penny to help them. Right now, it is literally cheaper for the US Govt to borrow money than it is to just create it out of thin air (interest on reserve rate is higher than T-bill rates).

    There’s no reason to raise taxes on anyone when the govt can fill its trillion plus output gap and help a lot of families simply by adjusting the tax code. A few things can only be done through govt spending programs (universal healthcare, inevitably, will require dropping Medicare’s “65 and older” age restriction) but for everything else, the simplest way for the govt to spend is through tax credits.

    For example, a 50% employer wage credit that passes that through to anyone earning $7.25/r minimum wage would create a living wage of $10.88 an hour (an extra $7,260 a year for a full time worker) at no cost to the employer or anyone else. THAT should be your goal, not taxing the rich (and yeah, dropping that “65 and older” line from Medicare too).

  • Different Chris

    Beowulf,

    I’ve read that twice now and kind of understand about half of it.

    My idea was very simplistic, as I am a simpleton. Whatever the mechanism is, I simply prefer getting more money into the pockets of those who will utimately consume and therefore generate more demand (and therefore sustainable jobs). I actually prefer a ‘straight forward’ income tax holiday to my own idea, but the wage subsidy being linked to the corp tax cut seems more politically tenable to me.

    Can you speak more to, or provide a link to your ‘floating budget deficits’ idea. I like it I just don’t think I fully understand the mechanisim.

    Best

  • F. Beard

    I don’t like Finance as an industry…and yet I own a financial planning/CPA office. VRB II

    I have no problem with finance; it is the government backed usury and counterfeiting cartel that is the problem:

    “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.

  • El Viejo

    I’ll give you a cookie for that hat.

  • RobertM

    I watched the movie “Transcendent Man” yesterday and I’m not so sure that what you propose is all that great of an idea until we deal with what the consequences will be. As Kurweil points out in the movie, innovation is already on an exponential path. What he doesn’t explore is what happens when robotics replace most of today’s jobs. We already don’t have enough jobs and society needs to seriously rethink how societies run should innovation make that situation worse.

    Remember that we are supposed to be enjoying the benefits of industrialization but that doesn’t seem to always be the case. The more we innovate, the less we need man to work. I think we’re going to need to consider a guaranteed income for everyone in the near future. If machines eventually start solving problems on their own and start discovering new innovations themselves, most of mankind would be able to live a more leisurely life if done right…..or it could lead to massive world war should society not share the benefits equally.

    Please don’t think this is all pie-in-the-sky talk. It took us millions of years to evolve to where we used fire. Thousands of years with the wheel. A little more than a 100 years of flight. Only a few decades in space. Innovation is rapidly accelerating already. See http://en.wikipedia.org/wiki/Law_of_Accelerating_Returns

    For the near term, I would think a massive infrastructure project would be enough to get the economy moving again. Innovation will come by itself.

  • VRBII

    Brian-

    Well said. I may disagree with you in areas in the future. I know what I think on many issues. Here’s the thing. I always put the greater good in front of myself. ALWAYS. I always have and I run my busines this way. We have 180 investment clients and 850 corporate and individual tax clients. We always do right by them no matter what it costs us. My family does the same in our community.
    Like wise I hope as we get to know each other better here…you forgive me for my knee jerk reaction. I’m not always the best here. I do not want to sound pig headed in my opinions and I’m sorry to you personally for being a little rude.

  • Different Chris

    Brian,

    I apologize for any knee jerk reaction I may have had to your idea. (And also to VRB, I was kind of defending you/putting words in your mouth which is childish). Its no excuse but I have a visceral reaction to the words “wealth redistribution.” I cannot express enough how horrible an idea I, personally, think it is. I have never seen an example of it that does not disregard some very simple rules for capitalism to work properly.

    I don’t agree with the over-financialization of the US over the past decade (or decades).

    I don’t agree with the banks being bailed out (US should have backstopped clients deposits at the banks- banks should have failed- capitialism has winners and losers, in this example the government stepped in and usurped the process that defines winners and losers and gave the trophy to the guys with the worst scores).

    But above all I don’t agree with Wealth Redistribution. It is a direct disincentive to produce at the levels that make someone rich in the first place (we can aruge the productivity of the rich, but you can’t make a law that will separate the productively rich and the non-productively, or lucky, rich) and at the same time it creates a direct incentive to continue the disincentive via the redistribution to those who will continue to vote for it in the first place.

  • F. Beard

    Excellent video!

  • beowulf

    Thanks for your kind words. I should set up an account to put a picture of either Uncle Rico or Johnny Canal (from Napoleon Dynamite and awesome John Malkovich SNL skit, respectively).
    http://images2.fanpop.com/images/quiz/170000/170588_1237846234047_320_240.jpg
    http://snl.jt.org/caps/episode_sketches/1989-01-21-13.jpg

    Set in the post revolutionary period USA where the new government is planning how to set up the new nation. They are on the topic of a national transportation system. In walks Johnny Canal.
    He proceeds to tell the committee about his idea of interconnecting towns and
    cities with a huge system of canals. He pulls out a ridiculous map of the plan that has most of the country’s space taken up by canals.

    Part of his idea is that the canals would not be connected to each other. Each town would have its own singular canal to each other town.
    Whenever a committee member asks a question that points out the difficulty in logistics or the sheer ridiculousness of the plan, Johnny gets confused, pulls out his knife and lunges threateningly at the inquisitor, only to be pulled off before killing him. This happens several times.

    http://forums.eslcafe.com/korea/viewtopic.php?p=1510052#1510052

  • El Viejo

    You’re right Its not about too many rich. Its about where they put their money. They put it into the market these days just like they did in 1929 and that is destablilizing.(pure Minsky) The Republicans say they create jobs. I don’t believe it. Small businesses and the self employed are the incubator of new jobs and the self employed are the most taxed group in the country. 30% income + 20% self employment = 50% tax. Remember the guy that flew his plane into the IRS building in Austin, TX? I know how desperate and frustrated he felt. I too was self employed and gave up and I know of others.

  • Brian

    VRB,

    Of course I whole heartedly accept your apology it really isn’t necessary but it is appreciated nontheless. A rare thing on any blog and a testiment to the potential of this one. I am simply a worker clinging to a middle class lifestyle and was initially attracted to this website by the idea that I might find good investment advise as I am having to take responsibility for a 401k and haven’t really got the foggiest what to do with it. The average person is usually just invested in mutual funds they know nothing about and along for the ride so to speak. They complain when things go badly and take it for granted when things are going well. I’m not sure I agree with the idea that everyone should become their own money manager as it takes up a lot of time and degrades our quality of life (who what’s to live by the news all day?) Anyway it sounds as if you are quite used to financial responsibility and can relate to this.
    Regarding economic policy, etc. I am no expert, I simply believe in cooperation in all of its forms. I know taxes can be a dirty word and I agree with you that the number one problem is the misallocation of our tax money. In general I don’t want my comments to be taken personally as they are not directed at any one person. So the open-minded question I pose to everyone is how do we collectively ensure better lives for ourselves and humanity as a whole? Individuals cannot accomplish this, it must be a collective effort.

  • El Viejo

    Four days old but I haven’t seen it here yet:
    Paul McCulley on Minsky and Liquidity Trap:
    http://neweconomicperspectives.blogspot.com/2011/08/paul-mcculley-on-bloomberg-on-minsky.html

  • Different Chris

    I love that image.

    But you probably shouldn’t let me hang out at the table because I would probably start spiking cups of coffee.

  • Dimm

    virtually no one makes 350K and above with honest labor. I know you are a smart guy, so be honest with yourself. Also do you really pay 35% tax ? Really?

  • Brian

    Robert,

    You might enjoy this link> http://www.thevenusproject.com/index.php

  • VRBII

    Brian,

    I think our best bet is to do it individually. Each working individually to ensure a better life for ouselves. I don’t see this as selfish. Zero sum game. I think we have to take care of our side of the street if you will first. I can not help you if I don’t help myself.

    It’s important to do this within the context that what I do affects you and my neighbor thus while cleaning my side of the street I’m thoughtfull of how my actions affect others. So this overlay drives my decisions. I’ve never needed a law to keep me from littering but it is imperative to keep me from speeding. So I understand we individually have different areas that call for greater coordination or regulation. We are not all the same. In the context of your orginal question regarding competition and society. I don’t seperate the two. I don’t see competition as bad. I enjoy it. But I’m comfortable with it because I see everyman as equal after the competition is done. I think people should explore there strengths and see how good they can be. My preferable way to measure this is through competition. When I lose I like the process and challenge of coming back. doesn’t mean I’m going to win but in some cases marginal improvements make me fullfilled in life.

    Theres more but I’ve said alot in this one.

  • Dennis

    CR this is a great idea: “I believe the Federal Government should allocate ~$50B per year from the Federal budget into what would essentially become the world’s largest private equity firm. While it would be government funded, it could be entirely managed by the private sector. And its focus would be entirely based on increasing private sector output and productivity. I would propose that we hire 10-20 private equity firms to manage the program on behalf of the government. In return, they would get an equity slice in any of the companies that are approved for the Initiative.” We already have this sort of with NSF, DOD and NIH grants. Non-government folks decide who can share in this ever smaller pie. The good projects make it to the private sector and create lots of profit. Putting $50B per year in NSF, DOD and NIH grants would be fantastic.

  • Dennis

    *and DOE

  • VRBII

    Your 401k or investments. These are great funds. And I’d read http://www.ritholtz.com site, TPC, and log into GMOs site for sound advice as well as the http://www.value restorationproject.com. But it seems most people can get there just by hanging around on this site and reading what Cullen finds.

    RNCOX
    WGRNX
    FPACX
    PAUIX
    PRPFX
    NWORX
    NVORX
    OAKGX

  • VRBII

    F. Beard…how do you focus in on my finance comment but totally miss my depravity of man drug binge in europe comment?

    Which after how I feel today…I could use a day in the sun in southern europe. Little run down…and did nothing but read websites today…We are fully invested and I’m not giving everything I have today. For sure.

  • F. Beard

    how do you focus in on my finance comment but totally miss my depravity of man drug binge in europe comment? VRBII

    Because I sympathize?

    My own brain could use some stimulants but alas they are illegal or require too much hoop jumping and expense to obtain. So I make do …

  • VRB II

    If u didn’t believe this honest guy before you probably won’t the 2nd or 3rd time I tell you yes, then empathetically.
    39.7% in ca. Hit with AMT. I own a CPA office. U think I tipped 25% for breakfast at the kosher cafe?

  • VRB II

    It’s not u I’d be worried about. It’s my Armenian friend who is president of the too much fun club. I like u and your alacrity to spike my coffee

  • RobertM

    Thanks Brian…I’ve already seen it though.

  • AK

    Mr Roche,

    I think having “the approved companies some skin in the game” is not going to work either unless it a 50-50 partnership. And you will have to make sure funds are not going into another subsidiary (SPEs) of the PE.

    Less regulation but easy access to loans should be the way to go. PE should take more than 51% of the risk-burden.

  • Robert Rice

    First and foremost the people need to understand the monetary system. The politicians will follow in suit once they realize there is demand from their constituency for a correct understanding and implementation of fiscal and monetary policy.

    The battle is for the minds and hearts of the American voter. Continue to make good arguments, and with time you will succeed. All good theory eventually succeeds, but it takes time. Universities around the country are depots of economic theory. The more people are aware of MMT, the more they are going to talk about it–students with professors, friends with family–the word will get out. The word is getting out. This economic condition we are in is a perfect climate for chatter on broader economic and monetary theory. Continue to seize the moment.

    As far as how to implement the innovation initiative, I believe one method is through the universities. Give grants to the universities which graduate students can look forward to utilizing for their research. Let these students make wages studying biotech, nano-tech, chemistry, mathematics, defense, space, etc. instead of racking up student loans. This will give people additional initiative to spend so much time and energy seeking unknown truths and creating new products and services. It shouldn’t be a free lunch to sit around and be perpetual student–there should be incentive to be productive with information and/or products/services. This would give the youth, who are having a hard to finding a job already, real opportunities. If this were implemented intelligently, I’d go back to school tomorrow instead of running an HVAC business and studying cell biology on my own.

  • Dan Kervick

    I’m a big government type. But I don’t completely hate this idea. It depends on the size of the equity slice and the degree of public control. I believe the public has already gone way too far in the direction of ceding power to private capital. It’s time for the public sector to pump up its muscles again and assert some governing authority and democratic sovereignty over the private sector. If these private equity firms are essentially contract employees for the government, I think that’s great. But I worry about our bought off and corrupted government not driving a hard enough bargain in the process of setting this up, however, and allowing these firms to skim too much unnecessary profit from the money flow.

    Venture capitalists, OK. But how about giving some venture socialists a chance? That is, let’s have a “public option” in investment manned by people who work for the public sector and the American people, and draw a reasonable salary for their work in identifying promising venture, instead of demanding Midas fortune shares for that work.

  • Dimm

    It is possible I guess. And if that is the case congratulations.
    2 things though.
    1- This is certainly not the general case. Only 2 % of the small business owners make 250K and up, so all this talk about tax cuts for job creators is bogus.
    2. Do you honestly believe that taxation and intensives in general are well aligned in this country? I mean do you honestly believe that what you do is as important as what 3 doctors or 6 engineers or 7 teachers do? Do you honestly believe that CEO’s of failed banks and corporations should make 7 or 8 figures and pay 15% in taxes?

  • http://pragmaticcapitalism michael schofield

    Cullen, I think your plan is a good one. Two problems: 1)The people who would have to implement this are experts only at winning elections and 2)voters are so cynical they won’t put faith in anything. So the politicians will spew scare stories about how this would ruin the country and the people will believe it. Too many headcases.

  • Peter FitzSimon

    Although I greatly admire Apple I’m not convinced creating more Apple Computer Corporations is the key to recovery. Apple employs 25000 in Cupertino, mostly highly skilled engineers and managers. Interestingly, the company also employs 25000 low paid, lower skill workers in their own stores. With $80B in revenue that means it takes about $1.6 million per job. To employ 1 million would take 20 new apples and require $1.6 Trillion in revenue. And we have 16 million unemployed and about 10 million more under-employed.

  • VRB II

    U directed a lot of stuff at me that I did not say. I’m not against u, or better than a doctor i don’t think better than any man or women. Not more deserving either.

    Iits not appropriate for me to defend myself against your attacks or what u have boxed me in as. I doubt tonight I would have any wisdom for you.

  • Dennis

    Uncle Sam already has an impressive infrastructure to carry out this concept. See

    http://www.aaas.org/spp/rd/rdreport2010/
    http://www.proposalexponent.com/federalprofiles.html
    http://grants.nih.gov/grants/about_grants.htm

    I don’t think output and productivity are serious issues for America’s companies. New ideas and new products are what USA is good at. These programs supported my graduate and post doctorial work, as well as my first few research projects. I learned a lot and made some discoveries that were very important for what was to become the “Biotech” industry. In 1978 I was one of the very first ever to be hired to “cut and paste” DNA fragments together. I was employee number 5 of Genentech, which was recently sold by its shareholders to Roche for about $100 billion. ($50 Billion was borrowed from the credit markets in 2009). I retired last year and live in Maui. So my point is that we have in the USA the tools to do what CR suggests already. We just need to convince Uncle Sam that it’s a good thing to deficit spend into existence these jobs! I assure you that this would be a fantastic investment. I don’t understand why such spending should be added to something called the “National Debt”. BTW, my PhD. thesis research was about making synthetic DNA molecules, a product that had virtually no use at the time. For the last 20 years more different DNA and RNA molecules were made every year than any other organic compound.

  • http://www.kennelson.com Ken Nelson

    Interesting idea… But currently the zero rates only apply to loans that benefit the political class. Helping you, me, or heaven forbid a corporate jet owner is strictly verboten!

    Second, I have zero confidence that the loans won’t be crony loans designed to flow through to political donations.

    Why go to all this funky approaches? How about just let us be?

  • Dennis

    *http://www.gene.com/gene/news/press-releases/display.do?method=detail&id=4160

  • JWG

    The government can do moon shots well. It can marshall huge resources for an overarching public goal that helps the private sector grow; e.g., the Apollo Project; TVA; Rural Electrification. The government will be terrible at running a VC fund. I can just see all of the “social justice”, “social networking” and “social-ism” initiatives funded for favored constituencies and persons. $880 billion in squandered “stimulus” told me all I needed to know about the Chicago Way. The Republicans will have their own nonsensical ideas.

    Energy independence is the viable and logical moon shot; natural gas is the 40 year transition to truly viable base load alternatives; a percentage of royalties on natural gas funds research and development on alternatives; frack the USA into the Saudi Arabia of natural gas; convert utilities and trucking to run on it. Make moon shot federal funding available on one big condition: only USA companies and suppliers and contractors need apply, and to heck with the WTO. The greens will hate it, but the greens hate basic industry anyway; just get over it. Natural gas produces 50% less CO2; it is a huge incremental improvement and the moon shot will fund the long term transition to truly viable alternatives. The private sector and the unions will support it.

    It’s not too late for Obama to do it in a “Nixon goes to China” moment, but he is too lacking in imagination and too much of an academic leftist even to consider it–despite the economic emergency we find ourselves in.

  • http://macronomy.blogspot.com Martin

    Good post Cullen, you are (re)-discovering Schumpeter and creative destruction.

  • El Viejo

    France has outlawed Fracking, but that won’t stop robber barron industrialists in this country. They don’t give a damn if they pollute the drinking water of millions.

  • Dimm

    VRB II, I’m not attacking you at all. If it came out that way I apopogize.
    I do not know people that are in the top 1%, so I’m trying to get a glimpse of your rationale. That is all.

  • Andrew

    This is too complicated, and more importantly, doesn’t address the fact that most of our needs are public needs, not well-satisfied by the private sector. We need more teachers, better roads, more trains and public transport, more health care for people who can’t otherwise afford it.

    If you don’t believe that, let’s assume that we are simply too productive to put everyone to work. In that case, simply reduce the work week to 35 hours, which could improve hiring by 10%. Perhaps the government could subsidize this effort as long as there were some sort of a sunset provision.

  • InvestorX

    Public goods like police, courts and infrastructure cannot be provided by the free market. R&D in terms of alternative energies / ecology may be seen as a public good, which the free market cannot provide.

  • Dismayed

    Private markets have generally done well at creating new companies and new markets, so I doubt there’s a real benefit from having the government play directly by funding a private equity fund.

    I prefer that the government fund basic research – the type of work that’s not undertaken by private companies because the risks are high and the return uncertain. Fusion research, novel materials, and gene therapy fit that category. And I’m sure there are many other projects that people could think of. This won’t guarantee that the jobs will end up in the US, though; I remember reading recently about DARPA research that halved the cost of producing solar cells. The manufacturing rights were purchased by a company that manufactures in Asia.

    I’d also really like the government to fund and manage our national infrastructure. A smart power grid, mass transit, high-speed rail, and energy efficiency initiatives would provide large benefits to the citizenry.

  • VRBII

    Dimm- I like to think I put others before myself. I don’t ingringe on anyones ability to earn what they want or think capable. Some people seem to get some things over others. Sometimes deserving and sometimes not.

    At the core of everyone is who you are. I don’t see things as them or me. Meaning I see people across the spectrum the same. I don’t think anyone rich or poor should be told they are more obligated to pay than someone else. I’m not saying the top 1% shouldn’t pay more in taxes. I’m saying please don’t come to me and tell me because you’ve missallocated capital, and need votes you get to take what I’ve earned. I would say that if I was in the bottom %. And I would say that for anyman.

    I’ve been called a purist or naive with good friends at dinner. Theres an old saying…”no one washes a rental car”…I have. I’ve also returned a wallet with the cash inside. Not because I’m a saint but because that is what you do.

    I don’t know what I’m trying to say other than I don’t like self interests and I would protect each persons ability to live the life they want. I would not take anything away from someone else because they had more. They get to decide that. I would hope they would not hoard what they have but I don’t like someone else telling someone else what to do with their money, religion/beliefs, sexual preference, dress and life.

    Someone in the top 1% does not get to decide via their wealth what social norms are acceptable. Or what you can or can not listen to. I wish at the end of the day everyone respected each other and where policy makers were able to allocate capital to those in need the top 1% would be willing to comprimise for the greater good. I’m told the top 1% is 250k. I’m above this. I’ve never felt rich until my son was born.

    Taxes are tough. I too feel as though there is a limit to what is reasonable compensation. So my logic has some holes in it. I don’t have the answers to alot of things. But for me…it’s most important we respect each other first before we tell someone what they must do. If a group of people doesn’t like another group simply because they have more, believe in that god or look this way I will alwyas defend the latter’s rights. Wether I am in the top 1% or not.

  • Dismayed

    “France has outlawed Fracking, but that won’t stop robber barron industrialists in this country. They don’t give a damn if they pollute the drinking water of millions.”

    Of course they don’t care. The serfs can always drink bottled water!

  • RobertM

    I see the good people at New Economic Perspectives are thinking along similar lines:
    http://neweconomicperspectives.blogspot.com/2011/08/poverty-joblessness-and-job-guarantee.html#more

  • Dimm

    Thanks for your response. I respect and agree with what you are saying, but I sense a hint of Utopian libertarianism.
    First, democracy so far has produced the best results. I believe this is undisputed. But what is it? “Democracy is a form of government in which all eligible people have an equal say in the decisions that affect their lives.”
    So the many should set the rules for all. Not each to his own. Now, the many in the US want higher taxes for top earners by a wide margin. From that point of view the many do have the right to say what the tax rates should be.
    Of course since this is not a democracy (1 dollar 1 VOTE, vs 1 person 1 vote) the rules are set from and for the benefit of selected few.
    Personal freedom is important, but it cannot exist above the society. It exists in the society. I know that people say “If you do this or that I’ll leave” And some do, but few are willing the freedom above society( Robinson Crusoe types), mostly because society provides all of us with things that we take for granted. Our role in it is to participate in it. Taxes is just part of that.

  • VRBII

    I can be Utopian. Be it Libertarian, democratic, or sport.

    I think where we differ is the following. I don’t think a majority should ever democratically decide something that is not just. Just because it benefits the majority more than that minority. I believe in protecting rights and laws. I personally would not vote for my benefit if I thought it not fair.

    I say this towards sexual preference or wealth.(odd connection..but trying to deliver my breadth)

    I do seem to favor libertarianism over most systems. This is true.

  • Scott K
  • VRBII

    Dimm-You missed your calling…I must say you preatty much nailed me in your utopian libertarian comment…I thought that was really funny.

    Your very astute and bright.

  • kman

    ” Let’s create more Apples” I’m sure it’s thats easy thats why teh Africans are so rich.

    Cullen, The US is leading in the space race and thats probably where the next bubble will come from. Imagine when we build the starship enterprise or it’s equivalent…..the fuel required the move that thing, et’c will all be new stuff butI think you have to have some goals in mind first and the innovations will come from then.

    Dude, I hope I’m around to see that.

  • Dimm

    Can’t go a level down so I’ll respond here.
    Thanks. Of course I get the opposite as well .. e.g. Baychev things I’m a clown.
    The scientific thing to do is to average, so that makes me of average intelligence which is ok with me ;)
    To summarize, don’t get me wrong. I like to be able to do whatever I please, just like everyone else. What I also want though, is for myself and those around me to follow certain rules, if effect to reduce their freedom to for example steal, murder, pollute, etc.
    Of course theoretically if everyone does the right thing, there will be no need for rules. We are nowhere close to that though.
    Btw, what do you thing my calling should be?

  • Dismayed

    “So, we still have the ongoing problem of “discovery” of the right-sized demand level. I think that needs to be an important part of the overall task of resolving this “recession”.”

    I’d think that the “right level of demand” is whatever exists at full employment. As for the mix of goods and services, that depends on a combination of what consumers purchase, where business invests, and what government funds.

  • Dismayed

    Perhaps I should add: when consumers have a positive savings rate.

  • f

    http://www.marketwatch.com/story/buffett-bearish-on-currencies-holding-value-2010-05-01

    OMAHA , Neb. (MarketWatch) — Warren Buffett said Saturday that he’s bearish about the ability of all currencies to hold their value over time because of massive deficits being run up by governments in the wake of the global financial crisis.

  • Dismayed

    “It’s not too late for Obama to do it in a “Nixon goes to China” moment, but he is too lacking in imagination and too much of an academic leftist even to consider it–despite the economic emergency we find ourselves in.”

    Huh? Explain Obama’s leftist policies, please. Health Care reform is essentially what was proposed by the Heritage Foundation in the early 1990’s. He still has us fighting multiple wars in the Middle East. He cut taxes. And he increased the deficit. Sounds like a traditional Republican to me!

  • ocean

    “One concern is that governments will print lots of new money to pay debts, undermining the value of currencies and triggering a damaging bout of inflation”

    So he believes “printing” is inflationary though if you accept MMT’s claim that inflation is not possible if there is unused capacity (output gap in the economy). Since I’m not an academic, is the assertion that inflation is not possible accepted in the economic community or “anecdotal” proof by example (US and Japanese as an example)?

  • REN

    Venture capitalists spend money only after an idea has been somewhat proven. It turns out the real risk money is private savings. If we want a thousand fields of flowers, our money needs to be a store of value, and not slice off so much for itself.

    Credit money will always slice off for itself and vector to the issuers. Within our current credit money environment (full disclosure, I prefer 100% reserve systems), we could use Cullens idea to fund new flowers and see which ones grow tall (best ideas). That government money HAS to enter the money supply outside of the Private Banks. In this way the new money buys down our Balance Sheet problem, and serves the secondary purpose of improving innovation. Essentially the government money idea is accusing credit money of misbehaving.

    Cullen, you can also direct spend with 100% reserves and encourage entrepreneurship, plus money itself becomes a better store of value. But, within the framework of our current system, and our current reality, it is a good idea.

  • geniusnitwit

    AK & CR, I thought that’s what China is doing. Please refer to China International Capital Corp, Temasek Singapore, Khazanah Malaysia. And Goldman is a good candidate for America.

  • JWG

    France as a model for energy policy might be dicey. It is all in on nuclear energy; perhaps not the best idea in light of Fukushima, Chernobyl and Three Mile Island.

    The USA has been drilling for oil and gas for 130 years. That water table is still there and we are still drinking it. Shale fracking is mostly done far below the geologic zone where the water table resides. I live in a shale area, and the gas seeps and ignitable shale exist where there is no drilling. It’s called “geology”.

    In an industrial democracy (remember that?) energy is necessary to fund the real economy which produces wealth from making things and gives jobs to lots of regular people. Remember them? Pennsylania’s outback is starting to boom from the shale play; I’ve been there. An economic boom which provides jobs to roughnecks, truck drivers, equipment operators, pipe fabricators, machine shops etc. The blue collar salt of the earth. Remember them?

  • JWG

    Health care “reform” is an academic leftist’s bid to hyperregulate and thus control and extract rents from about 18% of the US economy; that is the health care industry. The “Affordable Care Act” is a dog’s breakfast of bureaucratic nonsense.

    Dodd-Frank is an academic leftist’s bid to hyperregulate and thus extract rents from the finance industry. It is a dog’s breakfast of bureacratic nonsense. Why not re-enact Glass Steagall instead? It is under 20 pages of brilliant legislation from FDR that kept Wall Street in its cage for 65 years. FDR is a Democrat I can support, because he was all about real economy jobs for regular people and the infrastructure to support the real economy. He also knew how to keep Wall Street in its cage rather than try to extract rents from it.

    The FCC under Julius Genachowski is an academic leftist’s dream; let’s regulate the internet and extract rents from it!

    Need I go on?

  • jnh

    This idea of thinking outside of the box and innovation is grand but what scares me is do we actually have the young people to execute this plan? There is a general sense in US that the status quo is mediocrity and blending in is more important. Do we blame our young people for this, no, they been dressed and cloned by the Gap, Old Navy, Aeropostale etc. there entertainment is based on reality or alot of way out fantasy e.g. “Harry Porter”. Furthermore a big part of their lives is spent in idle nonsense e.g. Twitter, Facebook, Video games, You tube etc.etc.

  • beowulf

    Chris, my comments usually don’t make sense but if you notice– every other line rhymes! (no no just kidding)

    By floating budget deficit simply that the govt should spend as much or as little as is required to hit dual mandate targets, instead of focusing on budget deficit number.

  • Y

    Seconded.

  • John

    This whole post reminds me of when Fonzi jumped the shark

  • http://twitter.com/T_R_Armstrong Chuck Hussel

    A hefty estate tax would go a long way towards separating the productively rich from the lucky rich. What could be more lucky than an accident of birth which enables a person to never need to work for material gain? Say, 80% tax on estates valued over 10 million dollars…you could debate specific rates and cut-offs, but the principle is sound, IMO. Reduce the wealth of those inclined to hoard money with no incentive to create or innovate or produce value for society.

  • http://www.dictionary.com Piccola Economista

    Palliative care leaves room for miracles.

  • Peter Fairley

    Good starting idea Cullen but you may have to try harder..with big tax breaks to re-patriot foreign profits and more.

    Intelligentsia in USA is looking at int’l world through 5 star hotel glasses, thinking ‘USA is so much better a place to live and work so why wouldn’t Corporations want to hire here?’

    Overseas nations are getting the foreign direct investment non-stop…jobs growing constantly.

    We have been waiting a long time…and still no one waking up.

    USA is very stupid as a country and we are headed for big trouble.

    The Pickens plan is a good idea too…but not much enthusiasm in Washington.
    Natural gas for more cars and trucks nationwide could have been started years ago and we would have all that OIL money still in USA.

  • Dismayed

    Note that I added the condition that the savings rate is positive. Negative savings rates by consumers really are unsustainable.

  • Dismayed

    I think we’ve moved beyond “The Wealth of Nations”. What really matters now is “The Wealth of Firms”. Invest in firms and the jobs will go to the low-cost provider. How do you compete with countries that have plentiful cheap labor and that allow you to dump pollutants into the air and water?

  • f

    http://money.cnn.com/2009/11/11/news/international/global_american_wages.breakingviews/index.htm

    Americans are overpaid

    For the global economy to rebalance, the pay gap between Americans and the rest of the world must shrink.

  • dave

    more government welfare.

    more government inefficiency.

    more graft and corruption.

    why should the government pay the private sector for what they’re doing anyway?

  • Mediocritas

    I’ll wade in late with a few thoughts. An anecdote:

    Two friends and colleagues, both scientists, both excellent. Both moved to the USA to pursue academic opportunities, both took their wives. Both had children in the USA (two kids each) and now both are looking for an opportunity to leave. On the one hand, the research being done in the USA is second to none, stimulating and academically rewarding. On the other hand, the standard of living is in decline, schools suck, the healthcare system is a mess, wages for publicly funded scientists are terrible, there are an awful lot of really crazy people running around and it’s becoming harder to get by day by day. When these guys put their research first, the USA wins, if they put their families first, they’re on the first plane out.

    Go into American research facilities and you will find loads of people with surnames like Yang, Gupta or Maciej. Education in the US is hideously expensive, the reason why the USA produces fewer graduates per capita than most other OECD nations. America’s edge is supported by imported scientists, mathematicians and engineers, allowing the US economy to benefit from the fact that some other economy paid for those peoples’ training. While career opportunity might be incentive for younger more naive thinkers, it doesn’t pull the more experienced thinkers who understand a thing or two about what i means to actually DO thinking work in America, so if the USA wants to keep pulling the best talent, then it needs to address the core social problems that plague the nation. Front-and-centre, excessive income disparity that is increasingly pushing the middle class (of which sci/eng/math are members) into the gutter.

    I’m not talking about massively increasing the pay of scientists and engineers or offering them big cash prizes for delivering outcomes. Such things don’t work for primary R&D. I’m just talking about improving the situation for thinkers so that they spend less time researching which private health insurance policy will rip them off the least, and more time actually applying their brains to something useful.

    Finally, I recommend reading the following paper produced by none other than the Federal Reserve. Empirical evidence demonstrates that increased pay leads to increased performance for manual jobs. For thinking jobs (including finance), increased pay improves performance up to a point (as worrying about basic needs is removed), but beyond that point, it has the opposite effect. Remember that next time you hear some executive justifying large bonuses: it’s a lie.

    http://www.bos.frb.org/economic/wp/wp2005/wp0511.pdf

    So if America wants to see a surge of innovation, one great way to start would be to give the FIRE class a 95% pay cut to improve net performance, and redistribute that money to productive people who are wasting time worrying about getting by day to day instead of applying their brains to innovation.

  • Walk The Talk

    Well first of all Cullen, necessity is the mother of invention. Sorry for sounding patronizing and cliche, but it seems that we as a species need a fire under our collective assets in order to actually get down to designing fireproof underwear.

    That said, create a fire of some sort to rally around. Pick a cause. Then pour energy into working it out.

    Plentiful free/cheap energy creation and storage would be a very good cause in this age of increasing marginal energy cost. For example, I read a while ago that in Denmark they already had invented a stable, solid hydrogen storage in ammonia salt. This story is still dead in the water. I wonder why.

    21st century transportation infrastructure could be another cause.

    So the government could pick something like that. Then pour the focussed effort into the creation and maintenance of incubation chambers.

    I truly, sincerely have no doubt that a Eureka company like Apple would spark on the fringe somewhere like the last one did when we were all learning Fortran in a dingy lab in the sub-sub-basement of the university.

    I like the idea though. It’s time that governments all over the world make it easy and supportive for incubation chambers for innovation for the next generations. God knows, they’re going to need it. I believe though that this is already happening, though, with ‘national’ (read: security) and not altogether altruistic interests in mind.

    As far as finding money for that kind of thing? Corporations are currently sitting on piles of cash. Waiting to put it to use.

  • JWG

    “One great way to start would be to give the FIRE class a 95% pay cut to improve net performance… ” Amen. Get Wall Street off welfare. You could give a trained chimpanzee access to ZIRP liquidity in the billions of dollars and he would become superrich on the carry trade, because when that trade eventually crashes he’ll be bailed out anyway. Wall Street is full of phonies who claim to be geniuses but who are really on welfare courtesy of the Fed.

  • Dave Doe

    The problem I see with private equity investment is that most companies don’t
    have the long term focus to solve many of the sticky problems we now face. (Energy Independence, Environment). As many have pointed out, we’ve done better by picking an audacious public policy goal and putting our resources against that (Manhanttan Project,Space Race).

    I don’t think anybody doubts we have a huge output gap (we’ve got a vast amount of underutalized human capital which is on the sidelines due to a dysfucntional money system).

    The national debt problem can be solved through MMT applied to monetary reform.
    http://www.youtube.com/watch?v=Rq8s0JShs7o&feature=relmfu

    Get rid of the debt based money system and free up the government’s ability
    to invest for the future (constrained by some statuory limit).

  • wanwer

    I like the concept. Demand would probably increase in every industry if people believed they had a shot at getting rich. Hope and Change? Hope is lost and the “change” is not the what most expected.

  • oldschool

    Short of a debt Jubilee, Cuban’s on point.

    “The Republican/ Tea-Party approach to job creation is to cut taxes. The theory being that more money in the pocket of individuals will cause people to spend more money in the economy thereby creating more jobs. Nope. Not happening. Why ? Because individuals have too much debt. Any money they get goes to pay credit cards, student loans and for the smart and fortunate into savings.”

  • Walk The Talk

    Looks like some very tough choices ahead if Phil is right, just read this posting:

    philstockworld.com/2011/08/13/problem-solving-101-republicans/

    Politics aside, this is very scarey stuff. Though, it does make a very, very good case for higher taxes and certainly leads me to conclude that the economic trauma that America is currently going through would disappear overnight if Americans would pull up their socks and make the wealthy pay more tax.

  • RobertM

    “the pay gap between Americans and the rest of the world must shrink.”

    Correct.

    “Americans are overpaid”

    False. The “rest of the world” that the article cites are paid slave wages. You must also take into account that most other industrialized nations have benefits like health care paid for by government. If anything, the rest of the world’s wages need to rise. It’s the income inequality gap that needs to close.

  • Boston_Al

    It all depends when a company’s BoD’s authorizes the buy-back of shares.

    If they do so when the stock is over-valued, the shareholders receiving the money are doing so at the expense of the shareholders who hang on to their shares.

    If the BoD authorizes the buy-back of shares when the stock is fairly valued, then it is an even transfer of money to shareholders for value received. Remaining shareholders are left intact.

    Finally, if they buy-back shares when the stock is undervalued, then those receiving cash for their shares are being short-changed and the company and remaining shareholders are receiving superior value for putting these shares into the Treasury. (Which can later be redistributed for potentially a much greater value when the market return the proper price to the stock.)

  • Boston_Al

    The problem with innovation is that first time entrepreneurs (founders) typically give away 50%-70% of their business value (to VCs) in order to receive the funding and support needed to bring a new business public.

    The second time around, Entrepreneurs usually leave out the VC world until absolutely needed in order to retain as much of their original IP (business) value as possible.

    On top of that, the potential for increasing regulation costs and income tax burden means that American entrepreneurs will lose 50% or more of the remaining value they are able to keep out of the VCs hands.

    Where’s the incentive to innovate?!

    What we need is smaller government in the form of reduced regulation (costs) in order to bring back entrepreneurs. There are too many barriers to entry in most industry segments anymore. Very little room for the little guy to get started without significant funding and backing.

  • Dennis

    AAAS Speaks for Science as U.S. Debates Federal Budget

    We all know the challenges to the United States in addressing the debt and reinvigorating the economy. We also know that federal research and development (R&D) funding is vital to continuing advances in innovation necessary to spur economic growth. AAAS has been very active in arguing for the continued support for the full array of science and engineering research fields.

    As one example, as the U.S. House of Representatives prepared to debate the Commerce, Justice and Science appropriations bills for fiscal year (FY) 2012, AAAS led a consortium of more than 150 scientific societies and universities to express their support of the federal R&D budget of the National Science Foundation, which is unique in advancing multidisciplinary research. The letter, dated 11 July and routed to key lawmakers, noted recent “attempts to trivialize specific research grants and to challenge the scientific merit review process” and argued in support of the peer-review process as the appropriate vehicle for awarding grants. The intersociety letter strongly opposed “defunding individual grants or entire scientific disciplines,” a tactic that has had an impact on the NSF and the National Institutes of Health over the years. (See News, below, to access the full letter and the list of signatories.)

    AAAS has a long history as a leader in promoting strong science policy and robust investment in scientific research. Since 1976, our R&D Budget and Policy Program has provided timely independent analysis of federal funding trends and budget legislation. The weekly AAAS Policy Alert e-newsletter supplies budget and other Congressional and Executive Branch news in areas of concern to the science and engineering community. Annually, our comprehensive report on the Administration’s budget request includes special analysis by theme, major agency, and discipline. You can access “AAAS Report XXXVI: Research & Development FY 2012″ and the current status of appropriations legislation, listing bills with funding tables, at http://www.aaas.org/spp/rd/rdreport2012/

    With your support, AAAS works to advance the scientific enterprise and protect its integrity. Thank you.

    Sincerely,

    Alan I. Leshner, CEO, AAAS