"Run Government Like a Business" = Deficit Spending
We’re used to that line by now. Ross Perot—one of the more prominent people who got rich due to government contracts—used it, Carly Fiorina and Meg Whitman are using it (while desperately hoping you don’t pay attention to how they ran Lucent/HP or eBay), and Aaron Sorkin even had Charles Grodin say it in Dave, if only to establish his Sensible Centrist cred.
So how are businesses running their debt-laden firms? Ask the WSJ and ye shall receive:
U.S. corporations have taken full advantage of low interest rates, going on a bond-issuing binge that has left them with tons of cash, which they appear to be holding largely as insurance against a new bout of financial turmoil, rather than spending on new hires. Nonfinancial companies were sitting on about $8.4 trillion in cash as of the end of March, or about 7% of all company assets, the highest level since 1963. Even before its [$1.5 billion at the bargain-basement interest rate of only 1%] bond issue, IBM had $12.3 billion in cash and short-term investments, which accounted for about 12% of all its assets.
The WSJ is, of course, worried about The Savers:
Meanwhile, though, savers are seeing some of the worst nominal returns in decades. As of June, the weighted average interest rate on deposits, money-market funds and other highly liquid investments stood at only 0.29%. Returns on riskier investments aren’t great, either: The average yield on near-junk bonds with maturities close to 30 years stood at about 5.9% this week.
As Brad DeLong said recently, in a slightly different context, “I share [the] belief that these numbers ought to be higher. But I also think that I don’t have very good reasons to claim that I am right that they should be higher.”
Neither does the market.
And it’s not as if those companies were all saving during the Good Times. Indeed, they were arguably more poorly managed than the government. As Floyd Norris noted almost two years ago:
Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S&P500 showed:
Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion
The net flows there is -$220B, give or take a billion. It’s spending roughly $1.10 for every dollar you earn. And, to make matters worse, nearly twice as much was spent to make people go away (buybacks) than to reward loyalty (dividends).
If the government really were to be run like a successful business—the way the S&P500 are run, the way IBM is run—they would be borrowing long-term right now at that 2.82% 10-year or even than 4.00% 30-year rate.
If it’s good enough for IBM, it should be good enough for the U.S. Government. The Mitt Romneys and Ross Perots have been telling us that for years; many we should listen?
What about governmnet debt ratios sersus business. Corporate borrowing is not bad, until you borrow too much. Ask GM>
We Spaniards are also accostumed to hear that “run-Government-like-a-business” motto… and we hear it from the mouth of some people who should keep silent! For those of you who can read Spanish, here is a funny example:
Gerardo Díaz Ferrán, boss of the CEOE (the Spanish Confederation of Employer’s Associations), 6th june 2007: “The best public enterprise is the one that does not exist!!!”, “The gestion of all public services should be privatized, because private enterprise works better and is cheaper!!!” (http://www.expansion.com/2007/06/07/economia-politica/economia/1002982.html).
Gerardo Díaz Ferrán, 10th June 2010: “Ooops! I am afraid I have wrecked every single business I have run… You see: government is the root of all evil!” (http://www.elpais.com/articulo/economia/Marsans/grueso/imperio/Diaz/Ferran/entran/suspension/pagos/elpepueco/20100610elpepueco_1/Tes).
It is urban legend that private enterprise runs government services better and cheaper than government organizations.
The US military industrial complex, excessive profit for very little, very late and over cost, when the government has to keep an industry it does not need going it is not better.
And that is because the one government buyer scenario leads to corruption, where the profits come back to buy the customer and the congress.
I have never understood the concept of running government like a business. The number one goal of business is to turn a profit. Government is not meant to make profits. If it did, we really would be taxed too much. Government’s role is to do things that benefit society, but don’t show profit.
If you take a myopic view, privatization works. Look at Blackwater, they make huge profits on government contracts, but the massive support for them to do their jobs is provided by the armed forces. Their contractors are usually former military, their training was provided by the government.
The motto is really run government like an old fashioned business where debt was evil, and you only grew as the money came it. (Neither a borrower nor a lender be). There have been businesses that have succeded at this, but it is of course sneered at by Wall Street because it puts them out of business, if you can self finance, then who needs the investment banker and their crew?
So we run government like a business, which today is to make money from money. Who the counter to government if it gets to the point of taking done the world economy? Not the tax payers, as they are not part of the business.
Act like a business. What about those private arsenals?
Good thing all those expensive profitable weapons from the private companies in the military industrial complex are not needed, and the US has a unlimited amount of money, plundered from the weak and old.
Look at Boeing Textron: MV 22 killed 30 aviators and marines during development and test , itwas 15 years late and is so unreliable as to need twice the repairs than planned. And it cannot land in a hot LZ.
Look at F-22, unit price rose so that for the money got 188 instead of 750 15 years late, and no one knows what it costs to operate.
Look at Littoral Combat Ship, multiply original price.
In the “real world” if the DoD were “run like a business” the buyers would have sued these too big, too importantineptitudes into bankruptcy with penalties for the delays and defects.
The first step to running gumint like a busienss is to make gumint suppliers act like businesses.
It is not just DoD, look at DoE, DoT and NASA.
“Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion
The net flows there is -$220B, give or take a billion. It’s spending roughly $1.10 for every dollar you earn.”
Well, not exactly. This is just dealing with the net. The fact that there is a net means firms are making more than they spend (ignoring account this-and-that), prior to efforts to maipulate the stock price. The $220 bln you have in mind represents a tiny fraction of the gross on either side of the ledger.
Borrowing is not bad per se, but it does matter what you do with the borrowed money. Is that borrowed money going to lay the groundwork for something productive?
Some economists didn’t recognize the regime shift. They went about their business using the same old models in a new world. Comments about the length of a typical recession or about how sharp declines are followed by rapid recoveries were clear signals that the speaker didn’t understand the situation.
Some economists were fooled by the stimulus. The rules of accounting cause government spending to be reflected as an increase in economic activity. Stimulus plans such as Cash for Clunkers and tax credits for home purchases moved the timing of transactions, artificially reinforcing the direct spending impacts. Similarly, bailouts and foreclosure prevention programs postponed the recognition of losses.
Many interpreted the resulting increase in last winter’s reported activity as permanent, but that could not be. We were not building anything or laying the groundwork for sustained prosperity.
“We were not building anything or laying the groundwork for sustained prosperity.’
Particularly true with the war machine and wars of stalemate.
The money is always better used than for unneeded archaic military formations with no wehrmacht or imperial army to tilt against.
However, money spent through SS, welfare and health care is flowed into the consumer economy which is uninvested due to the ravages of the military industrial complx and other command economy suppliers to the 40% of USG spending that competes for funds against humane uses.
Beat the spears into ploughshares.
Maybe the question should be changed from “Should government be run like a business” to “How much influence do government operations have on businesses and consumers?
Government should set the example for proper spending.
In my opinion, government has influenced people to overconsume, in relation to their income.
Agreed, now more than ever we must shift our focus AWAY from defense spending. My prefereance, is take defense spedning and put it back to states/municipalities to increase police forces. Not only would this help prevent general crime from ocuring in the first place, a larger portion of forces could then be devoted to prevent terrorist acts from occuring in the first place, without taking away from resources spent on general crime.
Reaganomics, voodoo economics ,and Milton Freedman monetarism: makes everyone: “overconsume, in relation to their income. “
By defintion the way the Chinese and the Japanese have greenbacks to lend back to Uncle Sam is from the US G and peoples’ propensity to: “overconsume, in relation to their income.”
Makes it easier and less inflationary to import stuff than “overconsume, in relation to their income.” on the US production base, for a while anyways.
Until there is no longer any US productive base because the things the US G “overconsume, in relation to their income. ” on are not for things US people use.
The balance of trade is linked to US G “overconsume, in relation to their income.”
Works until the sellers demand the same resources the US “overconsume, in relation to their income.” Then resource prices go up.
Inflation then results from the “overconsume, in relation to their income. “
Then the printing of money becomes a problem.
It seems to be a spiral down, rather than a cyclical thing the “overconsume, in relation to their income.” effect.
Sort of like what bankrupted the Soviets.
I always want to ask those ‘run the government like a buisiness’ politcians if they ran their business without a balance sheet? Government you see claims no assets on a balance sheet. Goverment accounting consists of simple cash flow entries.
While this is obvious I think it goes a long way to explaining so much antipathy to government. Since it cannot demostrate or claim any assets or depreciate them business minded people come to the conclusion that governement has no worth at all. No business can exist without a balance sheet after all. Such a business does not exist.
The US government has more assets by far than any entity in the history of man, which is priced at $0.
Good stuff overall, but Gary Ross wrote Dave. Sorkin wrote The American President and The West Wing (seasons 1-4).
Not to mention the biggest “asset” of all: the power to tax. Which is kind of like corporate scoring of ‘good will’ but with a lot more teeth.
Haven’t commented in a while, but couldn’t resist on this one. Treasury bonds are not “callable”, so the gov can’t call high interest bonds early and refi at new low rates. That is what successful companies do, which is also why I don’t like buying corporate bonds. Then there is the Micheal Milken Way. The USofA in 2020.
All Uncle Sam can do is spend a ton of money and finance new spending at low rates. If this spending resembled anything like an investment, it might be cool, but we don’t do it that way. ( We are going to IPO Iraq and double everyones social security payment….ya right. OK, I put the glue tube back down)
The fact that all the rich people wannabee politicians missed this point makes me think “running the government like a biz” is a talking point that played well in the focus group.
Ha ha. Which business? Goldman Sachs? GM? Enron?
Businesses are risks, a poor decision and they could be bankrupt. They are often seen laying off workers in order to drive up quarterly numbers, a tactic that has long term negative impact on the bottom line and the company as a whole. Many businesses offshore their manufacturing to lower costs to the detriment of the local economy which has supported it. For the most part businesses are focused on doing what’s right for it’s few elite executives and shareholders rather than it’s customers or it’s employees. It’s the nature of business to be selfish and greedy.
Do we really want that kind of government? Some might argue that we already do.
Maybe we should look at government like a not-for-profit business whose mission is the “general welfare.”
As Bruce mentioned, the ability to tax is like goodwill.
However, the idea of running deficits adinfinitum is bad will, if the government feels its full faith and credit standing is immune to any lowering.