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> The government eventually rescued the private sector by building railways to no-where. That's still causing problems, as they have to spend tax revenue paying

by anamax 16y ago

> The government eventually rescued the private sector by building railways to no-where. That's still causing problems, as they have to spend tax revenue paying interest, not paying for healthcare or research (or tax cuts). Did that "rescue the private sector"? Or did it rescue the folks who worked for railroads and their dependents while causing greater problems in the rest of the economy? Bad capital allocation, by definition, means that you got less for your investment than you would have gotten otherwise. A "train to nowhere" means that you couldn't do something that would have produced greater benefits. Yes, building that train benefitted the folks who built it, but that ignores the costs.

wisty 16y ago
By talking about "resource allocation", you are ignoring the dynamics of credit and debt. Resources aren't fixed, because labor (a very important resource) is very flexible. You are not just allocating resources within the economy, you are promising people resources in the future. People work harder if they are promised resources later on, but only while that promise is credible. Creating lots of debt makes people work hard, and creates the illusion of wealth. People do jobs, because you told them you would pay them. People spend money, because they know you are going to pay them. Paying off the debt is where things come unstuck. The government took on a lot of debt, which made everyone work harder and spend more. But that creates a future issue when the government has to pay that debt back. Creating debt is similar to creating new money - it speeds things up (which is generally seen as good), but can cause people to start doing irresponsible things (which doesn't show up until somebody asks what the elephant is doing with the sofa).
- anamax 16y ago
  > By talking about "resource allocation", you are ignoring the dynamics of credit and debt. Not at all. > Resources aren't fixed, because labor (a very important resource) is very flexible. If labor is so flexible, why is it so necessary to waste money on trains? (Inflexibility is an argument for temporarily suboptimal allocation.) > Creating lots of debt makes people work hard, Only as long as they feel an obligation to pay back that debt. > and creates the illusion of wealth. No, debt doesn't do that. The things/services that you get in exchange for going into debt may create wealth, or they may just create a hangover. > People do jobs, because you told them you would pay them. People spend money, because they know you are going to pay them. Yes, but none of that has anything to do with what you spend money on. > but can cause people to start doing irresponsible things (which doesn't show up until somebody asks what the elephant is doing with the sofa). Surely you're not arguing that bad resource allocation is good until someone notices....

by anamax 16y ago

wisty 16y ago

By talking about "resource allocation", you are ignoring the dynamics of credit and debt. Resources aren't fixed, because labor (a very important resource) is very flexible. You are not just allocating resources within the economy, you are promising people resources in the future. People work harder if they are promised resources later on, but only while that promise is credible. Creating lots of debt makes people work hard, and creates the illusion of wealth. People do jobs, because you told them you would pay them. People spend money, because they know you are going to pay them. Paying off the debt is where things come unstuck. The government took on a lot of debt, which made everyone work harder and spend more. But that creates a future issue when the government has to pay that debt back. Creating debt is similar to creating new money - it speeds things up (which is generally seen as good), but can cause people to start doing irresponsible things (which doesn't show up until somebody asks what the elephant is doing with the sofa).

anamax 16y ago
> By talking about "resource allocation", you are ignoring the dynamics of credit and debt. Not at all. > Resources aren't fixed, because labor (a very important resource) is very flexible. If labor is so flexible, why is it so necessary to waste money on trains? (Inflexibility is an argument for temporarily suboptimal allocation.) > Creating lots of debt makes people work hard, Only as long as they feel an obligation to pay back that debt. > and creates the illusion of wealth. No, debt doesn't do that. The things/services that you get in exchange for going into debt may create wealth, or they may just create a hangover. > People do jobs, because you told them you would pay them. People spend money, because they know you are going to pay them. Yes, but none of that has anything to do with what you spend money on. > but can cause people to start doing irresponsible things (which doesn't show up until somebody asks what the elephant is doing with the sofa). Surely you're not arguing that bad resource allocation is good until someone notices....