Are recessions/depressions natural in a economy ? If the Uni

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Yes--but define "excess." Stimulus spending that staves off contraction may, in fact, do more good than harm--particularly if it is used to create value that will persist over time. After all, why should we, in 2012, pay the full cost for building a road that drivers in 2032 will still be driving on? Infrastructure is one clear area in which the deferral of costs, and their distribution into years in which benefit is received is a valuable choice.

I all comes down to net present value.



It's important to remember that it doesn't matter whether government does something directly, or funds somebody else to do that same thing. It's still money injected into the economy in either scenario. In truth, there is incresingly little activity in which government is a direct provider of services--especially in senior levels of government. (It's different for munipalicities, which are very much "at the coal face" of service delivery).

I completely agree with you on the net present value calculation. I'd define "excess" in this case as expenditures with a negative NPV. In the case of the road, it would be much more sensible to pay it up front, but then charge a toll on it, thus gaining a cash flow from that road that over time will repay the investment to a large degree. However, a lot of the spending that is done, is spending which has a negative NPV, especially in the case of european "welfare" states.




The reason why I had the idea of the government providing loans to the private sector is that the private sector tends to be more adamant about ROE. Then again, I subscribe to the ideology or religion if you will that money that belongs to someone is cared for in a better way than money that does not belong to anyone.

I think I've figured out the source of our disagreement.

Two things, I'm not anti-Hollande, I'm left wing and very pleased that he won.
The second thing, I've not been exposed to any US press opinion on Hollande and I haven't been following the election through US sources.



Hollande has always been left, he worked under Mitterand when France had a coalition government with the Communist party in the eighties. I do not believe that Hollande is secretly an economic rightwinger pandering to the left on economic issues, I believe he is an economic leftwinger pandering to the right on immigration issues.

That is not to say that he is a far left communist, but he is a full blooded social democrat. If the US is expecting him to turn into a french Tony Blair I'll wager you are in for a shock. For example I very much doubt you will see Hollande start privatising national assets the way Tony Blair did.



Like I said, I like Hollande and I agree completely with you about the irrationality of both markets and people. That is why I like Hollande!

I assume the US press has painted him as Stalin reincarnate?

I don't think that we are too far apart in our ideas.

I might disagree with you about the value of public sector spending--particularly program spending--but I think those disagreements would be largely trifling.

My view on public sector spending is that public sector spending needs to result in an asset gain for society, for instance providing unemployment so that people can focus on getting a new job rather than being preoccupied with not being able to pay their bills etc is a net gain. Same for health-care, a worker who can work is a higher value asset than a former worker on disability.

My problem with public spending is that the cost/value ratio is too high.

Also the provision of vital infrastructure at public expense is required for the healthy operation of our society. Where would we be without roads and clear municipal water supplies. Even the Romans knew to the key to city life was a clean and adequate water supply and a working waste disposal system. Without baths and toilets city life would cease. This infrastructure items are usually provided at public expense.

ruveyn

The way i see it, the cost/value ratio does not even come into play.

There are simply some infrastructure and some services which are of the greatest public value when available to all or nearly all of the public on an equal basis.

water and sewage services are a facile example, as is the highway system.

Doing the cost/benefit calculation is essentially masturbatory. The benefit is a given. That the benefit is greatest when the availability to all members of society is a given. There is no sense in arguing the cost/benefit ratio.

And yes, I feel that basic medical care falls into this category.

Actually, I don't really think that our disagreement on Hollande is very important. In fact, you have educated me on him considerably. However, I was trying to use his election victory as a case example of something I was talking about. Maybe, when I have time, I ought to approach this subject again and try using a better example.

I didn't get the impression that you were a Sarkozyist. I am glad that your man did well. I think that Sarkozy could be a bit of a loose cannon at times. However, he isn't nearly as weird as Chirac. I actually liked Chirac on some-level, even though he did come across as a tad daffy.


Interesting. However, I think that we ought to reconsider whether "immigration" issues is a right-wing issue or a left-wing issue.

Immigrants actually benefit owners of capital. Considerably. They act essentially like "scabs" if local labor leaders try to pressure their employers. They are willing to take jobs and work at a pay grade that others are too self-respecting to tolerate.

Therefore, isn't restricting immigration economically a more leftist idea?

Yes-yes, this is what I meant! You put your finger on it! He is a social democrat, but the problem in MY country, please understand, is that a lot of right-wingers go into "Red Scare" mode every time they hear the word "socialist."

And it is very weird because the same people often are wedded to some very leftist ideas that would be considered attractive to a social democrat, even though they are socialist in effect, not in actual fact.

To understand the American psyche, you have to understand that "Socialist" is a very dirty, bad word, but Americans actually love socialism in actual effect, even if not in fact. All "socialist" or "communist" means in this country is "them" or "the enemy." I am not kidding.

Based on what you say, I would certainly be ridiculous to suggest that, yes.

They don't have to. They just have to say "a socialist won in France," and the investors say, "oh, no! They're going to commit economic suicide!" I am really not exaggerating. However, they are daffy, but they are not stupid. Eventually, they will realize that Hollande is a level-headed enough man and willing to compromise, and they will come to their senses.

I think it is a mistake to approach public sector program spending from too strict a cost:value perspective.

First of all, depending upon your perspective, there's the phenomenon of the fiscal multiplier. This is the idea that every dollar of government spending creates a certain multiple of that dollar in government activity. (My salary puts $x in my pocket every two weeks, I turn around and spend that $x on various things, the people that I have purchased goods and services from turn around and use that money, etc.). That fiscal multiplier is never less than 1.0, though.

So if you are looking at a strict cost:value assessment, then you have to consider that every dollar spent by government is creating economic activity, and that's good, in and of itself. Could it be better spent elsewhere? That's a legitimate question, of course. But if your attention focusses no father than the immediate transaction, you may lose sight of the larger benefit.

At root, I take the view that government is not a business; and it should not be run like a business. Government certainly needs to be aware of the dollars and cents, but often the motivations for creating a public sector program are very different from profit motives which lie at the heart of cost:value assessments.

All that being said, I am perfectly happy with the questions, "Why is government doing this?" and, "Are we spending to much to accomplish this goal?"

@Ruveyn, blauSamstag and Visagrunt.
I was a bit short in the cost/value department and I see I need to elaborate. When a government project is undertaken, the cost of the project tends to become higher than it needs to be, this is where an NPV calculation is useful. I don’t disagree with that public infrastructure should be funded by the state and that the net gain of these assets is very high. My contention is that the costs are higher than is required for the assets. It becomes like paying $2 for a return of $1.

@Visagrunt.
The argument here depends on if one is a “fan” of monetarism or not, since monetarists imply that each dollar spent by government is a dollar not spent by the private sector. There is a need to have a long view, and I was not advocating a cost/value analysis on a single transaction removed from the consequences of that transaction. However that government should strive to keep costs down and value up.

I think a perfect analogy is Warren Buffett on Berkshire Hathaway dividends, he is against dividends because A: His shareholders would be taxed on them and B: Every dollar he could have paid in dividends he has made into more than one dollar.

The majority of funding for government expenditures tends to come from taxes, (even loans have to be paid back with future tax revenue), so it’s a question of whether the citizens who are paying taxes could get more for their dollar than the government could. It’s the same argument I make for developmental aid, that if only a small percentage of the total funds end up actually aiding development, a new method needs to be found.

An example of the kind of cost/value calculation I’d do for a government project would be something like:

Cost of capital for the project / Value added by the project.

Under cost of capital it would be a number consisting of borrowing costs and a comparable investment
.
Under Value added by the project it would be the value added directly by the project, such as fiscal multiplier, effect on other aspects of “life” by the project and other reasonable variables. However, also alternative projects in order to determine what would be the best way to use the capital.
It’s a complex calculation, but it’s not simply a matter of dollars spent/dollars gained.

Government has a moral dimension which is necessary for a commercial society to both survive and flourish. There are cannons of justice and right that have to be superimposed on our dealings with each other. That is the function of Law (or ought to be). For this we need government. It is difficult to put a monetary value on the presence of justice and charity in our dealings with each other, but these thing must be present in our society else we would perish.

ruveyn

At this moment, I would like to pause at take note that there is a mature meeting of the minds taking place in a thread in the PPR forum.

I just want to savour this rare moment.

Utilitarianism is possibly the best way to describe the moral dimension of government, in that it should strive to increase the total overall happiness amongst the citizens. However, there is a need for an individuality-influence here as well, since there is a tendency for legislation to be based on taste rather than reason.

Given that the interest on US bonds is currently less than inflation, and people continue to buy them in droves, we should then borrow as much as we can right now. If we were a corporation, we might even be /obliged/ to do so for our shareholders.

Wrt. Public vs private, there are occasionally public sector cost overruns but I submit that it's often because public sector projects are over-engineered, whereas private sector projects are only as good as they need to be to make a profit. The result is that public infrastrucure often works better and lasts longer than the private equivalents.

The danger with borrowing is that the cost of the debt will go up, similar to what happened in Greece thus making the loans very costly. I haven't done the calculation for US treasury bonds, but there is always the risk of rising interest rates. However, from what I've read on the topic, the US could borrow more and then pay it back once the economy gets going again, because the current "medicine" is killing the patient. It doesn't matter if the private sector creates 150.000 jobs per month if the public sector cuts at the same rate. The debt is huge, but its still manageable.

According to Aarhus University, 86% public projects ended up with cost overruns. It also indicated that technically difficult projects were no more or less likely to have overruns than less difficult projects. I'm not being a source monger I think if I ask you to document the claims in relation to over-engineering and costs.

Wrt bonds: aren't they fixed at the interest rate of when they're bought? I'm genuinely asking; I don't know the answer. Wrt. Infrastructure, I don't have a source, just the basic premise that private corporations /exist to make a profit/, and won't expend a penny more than they have to in order to do so.