5 ms·

Public economic policy is a hard problem, and with all Respect to Philip there are a couple of points from the list of promises to business managers that are so

by mixmax 18y ago

Public economic policy is a hard problem, and with all Respect to Philip there are a couple of points from the list of promises to business managers that are somewhat contradictory. 1) world's lowest percentage of GDP (among developed nations) spent on government; only with a low spend will investors have faith that taxes will stay low - This has the consequence of bad infrastructure, an uneducated workforce, less investment in basic sciense which lays the ground for innovation and high-tech industries, etc. A country like Sweden has a high percentage of GDP spent on government, and yet it has managed to create companies such as Saab, Ikea, Ericsson, Electrolux, Hasselblad, Hennez and Maurtitz, Mysql, Volvo, etc. 2) corporate governance that relieves investors from worry that profits will be siphoned off by management - This is one of those things that sound easy but turn out to be extremely hard. History shows that when you try to protect investors from fraud, mismanagement, etc. all you get is more red tape and, bigger government and make things harder for small companies. Sarbannes Oxley (http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act) was an attempt to solve this very problem and it turned out to be a disaster. 3) world's best school system and best educated workers - America has a long way to go here. The problem is that it takes many years to get educated workers: You start in kindergarten and get educated workers 15 years later. Besides empirical studies show that a good education system requires considerable public investment, and thus a larger percentage of GDP spent on government. 4) world's cheapest transportation system and one that is virtually free from uncertainty caused by congestion - again this requires substantial public investment, and is a long term commitment. You will have to spend a good amount of GDP on infrastructure and will only reap the rewards after a decade. I have to admit that this reads a bit like when you hear politicians talk about technology - it is apparent that their understanding of the domain is not very deep.

metaguri 18y ago
Spot on. Many of Greenspun's points make intuitive sense and thus seem like a good argument on their own, but they are quite incompatible. You can't have your cake and eat it too. I really like your point #1, and it's the most important. I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). It lifts the whole economy up on its own, and makes it more competitive in the world, which is very important re: Greenspun's comment about today's globalized world being very different compared to the 1930s. As for the rest... those are nice to haves, but I think that lowering taxes to encourage foreign investment is an asinine comment. There will be low investment in the next few years, as he comments, if there is a poor political and economic environment for it, not if there are unfavorable tax conditions. Investors are sitting on mountains of cash right now; if the government creates policies and programs that incentivize people to put that cash to work (i.e. government/private sector co-sponsored infrastructure projects) then they will.
- Prrometheus 18y ago
  >"I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). " Most people don't get this point, but the US spends A LOT of money on education, more than most countries. "More money" is the easy answer, the one that politicians like to use. But I don't think the returns of spending more federal money on the current educational system are positive. Here is a chart comparing US education spending with the performance of its students on international math tests. I don't think you can look at stats like this and say "more money" is the answer. http://www.heritage.org/Research/features/issues/charts/Ed_K12/Ed_K123_l.gif http://www.heritage.org/Research/features/issues/charts/Ed_K...
  - mk 18y ago
    The US may spend a lot of money on education, but there is an underlying problem that isn't addressed in either your comment or Phil Greenspun's argument. K-12 education is primarily funded through property tax. This results in wealthy communities having great schools with tons of resources and poor communities that are using decades old resources and schools that are falling apart. So maybe you are correct in saying that "more money" isn't the answer. The tax system that we use for education is not equal and is failing us as a country. If we want to maximize the ability of people we should give the most people the best opportunity that we can.
    - Prrometheus 18y ago
      DC is regularly one of the top 3 school districts in the country in terms of per pupil spending. I don't think you would want to send your children there. There are fundamental incentive problems with public monopolies. When you have a group of dedicated, wealthy, involved parents, these negative incentives can be overcome. However, the system fails your average person, and it surely fails those who need the most help even when a lot of money is spent on them. Those of us who advocate market reforms simply want the incentives of the system to be a help, rather than a hindrance. But we're radical right-wing nazis who hate children and eat puppies, so I don't think our plans are going to be implemented any time soon. Also, it's funny that we are characterized that way in the United States, when such right-wing countries as Sweden and the Netherlands already have universal school vouchers that can be spent on private schools.
Prrometheus 18y ago
I don't think it matters as much how great a percentage of the GDP government spends, so much as how it is spent. Is the government spending money in ways that produce net positive social return? This becomes much harder as the absolute size of the bureaucracy grows. It is harder to manage a multi-trillion dollar budget than it is to manage Sweden. The United States has a large amount of military spending and redundant bureaucracy, so we have high taxes and low social benefit. For example, the US is usually either #1 or #2 in the world in the amount of money spent per pupil in public schools, and yet the results are not good.
- mixmax 18y ago
  You're hinting at a very interesting problem here: The absolute size of bureaucracy. It seems ( I have no data to back this up) that the efficiency of bureaucracy decreases exponentially with it's size. This is obviously a bigger problem for large countries such as the US. There are advantages to size (setting the global agenda, advantages in areas where absolute amounts of money matter (for instance military - your military is twice as good if you spend twice the money no matter how large your population. Roughly...) . , etc.). Whether these advantages outweigh the disadvantage of a large bureaucracy I don't know.
  - Prrometheus 18y ago
    I don't have any empirical studies to back up my point, either, but the way spending is allocated by the US government is anything but rational. I have severe doubts that adding $1 more of revenue into the system will produce greater than $1 of benefits. There is something to be said for the design choice of federalism; pushing all possible decisions down to the smallest unit of population effected. However, our government has moved away from this since the Roosevelts time in power.
  - whatusername 18y ago
    "The bureaucracy is expanding to meet the needs of the ever expanding bureaucracy." -- Quoted from Civ 4 (and google didn't find me a source straight away)
  - 18y ago
tokenadult 18y ago
"Besides empirical studies show that a good education system requires considerable public investment, and thus a larger percentage of GDP spent on government." Citations to the studies, please?
pelle 18y ago
Good analysis. One point though about Sweden. Almost all of Sweden's large successful companies were created and grew during a period of very small government. Sweden's current face of big government didn't start until the 60s when all the companies except Mysql were already large. For more see Johan Norberg's writings on this: http://www.johannorberg.net/?page=articles&articleid=45 http://www.johannorberg.net/?page=articles&articleid=45
- mixmax 18y ago
  Interesting comment that points to why economics is such a hard disciplline: Almost all of Sweden's large successful companies were created and grew during a period of very small government. - So does this indicate that small government is a cause for successful Swedish companies? It might, but since you can't recreate the experiment you will never know for sure, all you know is that there is a correlation. There are probably many other things that could have caused these particular companies to be successful. The Swedish system of education is one.
  - pelle 18y ago
    Agreed. It's a complex issue. However historically the combination of small government, trust and openness has proved to cause growth throughout the world. The economist Mauricio Rojas wrote a very detailed analysis of the Swedish Economy and the Welfare State throughout history, which is available here: http://www.timbro.se/bokhandel/pdf/9175665891.pdf http://www.timbro.se/bokhandel/pdf/9175665891.pdf I haven't read the full report yet, but it looks very interesting. We have to be careful about the education as being treated as the golden ticket for growth. I believe a combination of good primary education and a strong research culture is of vital importance to growth, but without the right infrastructure for entrepreneurs it wont do anything. Just look at all the people educated to the nth degree in failed communist economies to see what I mean. Also see the reoccurring debates here about the value of higher education for an additional counter point to education. Sweden by the way were pioneers in using School Vouchers, something that the Democratic party in the US is heavily against.

by mixmax 18y ago

metaguri 18y ago

Spot on. Many of Greenspun's points make intuitive sense and thus seem like a good argument on their own, but they are quite incompatible. You can't have your cake and eat it too. I really like your point #1, and it's the most important. I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). It lifts the whole economy up on its own, and makes it more competitive in the world, which is very important re: Greenspun's comment about today's globalized world being very different compared to the 1930s. As for the rest... those are nice to haves, but I think that lowering taxes to encourage foreign investment is an asinine comment. There will be low investment in the next few years, as he comments, if there is a poor political and economic environment for it, not if there are unfavorable tax conditions. Investors are sitting on mountains of cash right now; if the government creates policies and programs that incentivize people to put that cash to work (i.e. government/private sector co-sponsored infrastructure projects) then they will.

Prrometheus 18y ago
>"I'm not sure if there are empirical analyses to support this, but I believe that investing in education has the greatest returns (up to the limit when your whole population is educated maximally--but that's a far ways off from where we are right now). " Most people don't get this point, but the US spends A LOT of money on education, more than most countries. "More money" is the easy answer, the one that politicians like to use. But I don't think the returns of spending more federal money on the current educational system are positive. Here is a chart comparing US education spending with the performance of its students on international math tests. I don't think you can look at stats like this and say "more money" is the answer. http://www.heritage.org/Research/features/issues/charts/Ed_K12/Ed_K123_l.gif http://www.heritage.org/Research/features/issues/charts/Ed_K...
- mk 18y ago
  The US may spend a lot of money on education, but there is an underlying problem that isn't addressed in either your comment or Phil Greenspun's argument. K-12 education is primarily funded through property tax. This results in wealthy communities having great schools with tons of resources and poor communities that are using decades old resources and schools that are falling apart. So maybe you are correct in saying that "more money" isn't the answer. The tax system that we use for education is not equal and is failing us as a country. If we want to maximize the ability of people we should give the most people the best opportunity that we can.
  - Prrometheus 18y ago
    DC is regularly one of the top 3 school districts in the country in terms of per pupil spending. I don't think you would want to send your children there. There are fundamental incentive problems with public monopolies. When you have a group of dedicated, wealthy, involved parents, these negative incentives can be overcome. However, the system fails your average person, and it surely fails those who need the most help even when a lot of money is spent on them. Those of us who advocate market reforms simply want the incentives of the system to be a help, rather than a hindrance. But we're radical right-wing nazis who hate children and eat puppies, so I don't think our plans are going to be implemented any time soon. Also, it's funny that we are characterized that way in the United States, when such right-wing countries as Sweden and the Netherlands already have universal school vouchers that can be spent on private schools.

Prrometheus 18y ago

I don't think it matters as much how great a percentage of the GDP government spends, so much as how it is spent. Is the government spending money in ways that produce net positive social return? This becomes much harder as the absolute size of the bureaucracy grows. It is harder to manage a multi-trillion dollar budget than it is to manage Sweden. The United States has a large amount of military spending and redundant bureaucracy, so we have high taxes and low social benefit. For example, the US is usually either #1 or #2 in the world in the amount of money spent per pupil in public schools, and yet the results are not good.

mixmax 18y ago
You're hinting at a very interesting problem here: The absolute size of bureaucracy. It seems ( I have no data to back this up) that the efficiency of bureaucracy decreases exponentially with it's size. This is obviously a bigger problem for large countries such as the US. There are advantages to size (setting the global agenda, advantages in areas where absolute amounts of money matter (for instance military - your military is twice as good if you spend twice the money no matter how large your population. Roughly...) . , etc.). Whether these advantages outweigh the disadvantage of a large bureaucracy I don't know.
- Prrometheus 18y ago
  I don't have any empirical studies to back up my point, either, but the way spending is allocated by the US government is anything but rational. I have severe doubts that adding $1 more of revenue into the system will produce greater than $1 of benefits. There is something to be said for the design choice of federalism; pushing all possible decisions down to the smallest unit of population effected. However, our government has moved away from this since the Roosevelts time in power.
- whatusername 18y ago
  "The bureaucracy is expanding to meet the needs of the ever expanding bureaucracy." -- Quoted from Civ 4 (and google didn't find me a source straight away)
- 18y ago

tokenadult 18y ago

"Besides empirical studies show that a good education system requires considerable public investment, and thus a larger percentage of GDP spent on government." Citations to the studies, please?

pelle 18y ago

Good analysis. One point though about Sweden. Almost all of Sweden's large successful companies were created and grew during a period of very small government. Sweden's current face of big government didn't start until the 60s when all the companies except Mysql were already large. For more see Johan Norberg's writings on this: http://www.johannorberg.net/?page=articles&articleid=45 http://www.johannorberg.net/?page=articles&articleid=45

mixmax 18y ago
Interesting comment that points to why economics is such a hard disciplline: Almost all of Sweden's large successful companies were created and grew during a period of very small government. - So does this indicate that small government is a cause for successful Swedish companies? It might, but since you can't recreate the experiment you will never know for sure, all you know is that there is a correlation. There are probably many other things that could have caused these particular companies to be successful. The Swedish system of education is one.
- pelle 18y ago
  Agreed. It's a complex issue. However historically the combination of small government, trust and openness has proved to cause growth throughout the world. The economist Mauricio Rojas wrote a very detailed analysis of the Swedish Economy and the Welfare State throughout history, which is available here: http://www.timbro.se/bokhandel/pdf/9175665891.pdf http://www.timbro.se/bokhandel/pdf/9175665891.pdf I haven't read the full report yet, but it looks very interesting. We have to be careful about the education as being treated as the golden ticket for growth. I believe a combination of good primary education and a strong research culture is of vital importance to growth, but without the right infrastructure for entrepreneurs it wont do anything. Just look at all the people educated to the nth degree in failed communist economies to see what I mean. Also see the reoccurring debates here about the value of higher education for an additional counter point to education. Sweden by the way were pioneers in using School Vouchers, something that the Democratic party in the US is heavily against.