Wednesday, November 12, 2008

Paulson highlights the drawbacks of having a businessman in government



Government exists for the public purpose; businesses exist to make profits. Governments should not be run as profit seeking enterprises. If they are, they immediately crowd out private enterprise. (Because they can tax and often issue the "chips" with which we play the game, at least the Federal Gov't does. So they have a huge advantage and by applying this advantage they can quickly own all the means of production.)

The Federal Government is never spending constrained, but even the biggest corporations sometimes can be.

Businessmen like Paulson have been honed to think in terms of profits and constraints. Their view of what can and cannot be done is always colored by that.

This is why you hear him say, "There is nothing the Government can do by itself." Or, "We need the help of other countries." Or, "This is going to be a long and difficult road back."

Statements like the ones above can be true for businesses and even for state governments or nations that are not sovereign currency issuers. They are NOT true for governments that issue non-convertible currency and that spend by crediting bank accounts.

Paulson does not understand this, nor, unfortunately, do many members of Congress. As a result we will continue to operate under these self-imposed constraints. The road back will be long and difficult, because we will make it long and difficult by adhering to misconception and myth.

It doesn't need to be this way.

2 comments:

Billy said...

I hope President Barak is naming his TS (Treasury Secretary) soon. This is going to be more important that Sec of State and only a little less important that Sec of Defense.

Mike and I have named our choices, I think the markets will feel better once this choice is announced.

Interesting that Treasury was one of the first to have its transition offices ready.

Billy

Go Summers (if we have to have a Democrat)

Mike Norman said...

Billy,

After seeing Obama's lineup, I am not optimistic. There are a lot of deficit hawks among them.