Post on Yanis Varoufakis’s blog
23 Responses to “In Praise of Public Investment: On the importance of Mariana Mazzucato’s article in The Guardian”
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Who said that there is no profit motive? Have you not noticed that Brazil’s, China’s and the EIB’s investments return hugh profit margins? Their investments are profit-seeking and succeed in generating huge profits because of the failures of the private banks to avert their own illiquidity/insolvency/idiocy. Or has the private sector debacle of 2008 escaped you?
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Yanis –
I’ve been following you for a few months and appreciating what you have to say until I saw this post, and especially your response to the last comment. The “private” sector debacle of 2008? Oh, what a grave error. It is always government, the public sector, that forces the private sector to make irresponsible loans by pushing interest rates below market rates. I knew you were a Keynesian, but these economic errors of yours which totally ignore Mises, Rothbard, and the Austrian School, are the greatest threat to individual freedom that the world faces. When the entire system goes bust in default or hyperinflation (it has to be one of the two) you will be among those that only propose more and more “public investment” when there simply will not be any value left to spend.
I urge you to read Rothbard’s pamphlet “America’s Great Depression” and see the other side.
Adieu
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What utter rubbish. Do you seriously believe that it was government that caused Wall Street and the City of London to go ferral? That Wall Street and the City managed to usurp government, and to bend it to their will, is clear. But to say that it was government that ‘coerced’ or even encouraged banks to go crazy is to lose sight of our post-1971 history.
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RichardSeptember 4, 2012 at 16:03 #
Yanis, for what it is worth I have to agree with Rafi ” it was government that caused Wall Street and the City of London to go ferral” – to say anything else is to say the banks deliberately took massive risks that only had a small chance of paying off and a huge chance of going south, ie they were suicidal.. The fact that the government bailed them out only further proves the point that government created the mess.
Why?
No sane person would have done what they did if they did not think they were going to get bailed out. The Greenspan Put and Freddie and Fannie back stopping mortgages proves this was the case.
The fact that government came in and bailed them out post 2008 again proves it was government involvement that caused the mess.
If what you say is correct, then the banks would have been allowed to go bankrupt regardless of the cost. The precedent of bailing out banks for bad investment is totally wrong and can only lead to further bailouts in one form or another.
There is a reason why it is not recommended to negotiate with terrorists much less give in to their demands. You may say the banks are not terrorists but the underlying principle is the same.
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It only proves that you have completely and utterly falsified economic history.
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Hello Yanis – The Greenspan put is false?http://en.wikipedia.org/wiki/Greenspan_put Fannie and Freddie were NOT backstopping the reckless home mortgage loans which were then used to create toxic derivatives?http://useconomy.about.com/od/criticalssues/a/Fannie_Cause.htm
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Yanis – About the profit motive. The EIB is funded by taxpayers so immediately the profit motive has gone out of the window ie revenue is completely detached from spending. Getting passed that, in 2011 it lost 10million Euros, on disbursements of 59 billion Euros. Given the fact that it is funded by taxpayers the 10million loss is completely unacceptable. It is running with a budget deficit, I’m not sure where you get massive profit from? http://www.eib.org/about/key_figures/index.htm
About Brazil, I am pretty sure that is funded by the natural resources of the country, ie something which the government gets for free. But if you have some links to government investments examples in Brazil I would not mind checking it out.
About China, their GDP figures are highly dubious so any other figures coming out of China I would take with a pinch of salt.http://www.bloomberg.com/news/2012-07-13/china-economic-data-questioned-as-electricity-use-slows.html
My point is, if there was money to be made in something (ie there is something a lot of people want) you can bet that a private business would have got in there already. The private sector would not leave massive demand unserviced, if it did it would be much easier to create a successful business than it is.
And this leads on to bank bailouts. If the private banks were worth saving and there was a possibility of coming out on top at the end of it there would be no need for government involvement, banks and investors would be in there snapping up banks at rock bottom prices and making out like bandits. The fact that no one wants to touch banks in Spain, Greece, France, Italy, UK, USA etc etc with a 10 foot barge pole shows even the banking industry itself sees no hope for these institutions.
To repeat, if there was any hope for these troubled banks, the investment community would not let governments near them. That is the fact of the matter.
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You write: “My point is, if there was money to be made in something (ie there is something a lot of people want) you can bet that a private business would have got in there already.” This is so Panglossian it defies criticism! It reminds me of the standard joke amongst economists: “Two economists are walking down the street. One says: Look, here, there is a $20 note on the pavement. The other refuses to look, responding: If there was a $20 note, someone would have picked it up.” Something similar applies to the idea that if money could be made out of some investment then the private sector would have invested in it. Only it is much worse: at a time of universal deleveraging, the private sector goes on an investment strike and, at that point, potentially profitable investments simply never happen. It is called the fallacy of composition.
PS. This is my last response to your continued attempts to lecture me on things that you are deeply ignorant of. Excuse my impatience but I am getting the impression that you are pretending not to understand simple economics, constantly returning to a touching faith in markets that no sensible person can possibly retain – especially after 2008.
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Hello Yanis – That is a very funny joke! Incidentally there are people in Thessaloniki throwing bundles of 50Euro notes in the street hoping people will pick them up. Apparently this an advertising ploy of companies who want to buy people’s gold and silver. But I digress
About investment, I agree with you, apparently businesses in the US have more cash on their books than any time in history yet they are not spending. Why?
The president of the Federal Reserve Bank in Dallas hits the nail on the head in my opinion
http://www.bloomberg.com/video/fed-s-fisher-on-monetary-policy-stimulus-risks-2gzk4LSSTRu_mTGqA1L7oQ.htmlHe has the solution and I believe it is the same as mine. The crisis is down to governments not the currency (he is talking about Texas in relation to other states in the USA with the same currency)
Sorry if you believe I am ignorant but unless you can show that the Fannie and Freddie and government policies and Greenspan and central banks did not, and are not, destroying economies with their policies, I am with the Fed President in Dallas. “The central banks are not the only game in town”
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Yianis – I think you are being deliberately provocative with this post.
You say “Our task is to invest into smarter technologies that solve humanity’s major problems and, in so doing, generate the jobs that will yield the income that will repay our mountain of debts.”
How can you asses what technologies solves people problems if there is no profit motive?
For example, you think wind technology is the way forward, so the government pumps money into wind technology by subsidising the retail price of wind products. But at the same time you do this you are destroying other “eco” industries that may be more sustainable because you are tipping the playing field in the favour of wind.
For example wind may cost 20cents per kwh and solar maybe 18cents per kwh. But the government subsidising wind means wind cost is now 10kwh wiping out solar development. And not only solar development but any renewable technology that costs more than the subsidised rate of wind power but less than the market rate of wind power.
You see what I mean? The profit motive may not be perfect but it is the best method we have. It is the only fair measurement of the effectiveness of something in “solving” humanity’s” problems.
Without the profit motive how do you judge what is the “smartest” choice? I am genuinely interested in your response