Economy Zombie companies

[Jack V Savage]

That's not remotely close to the upshot of my position. The upshot of my position is that banks should be allowed to fail because banks will return. Not that there shouldn't be banks.

OK, it's not that there *shouldn't* be banks, but that there won't be. Banks in general cannot survive panics without intervention. You can wish it were not so, but it is.

Or we could just develop better banking practices.

We have. Better banking practices include things like deposit insurance guaranteed by the gov't, regulations, and bailouts when necessary. It works! We have seen massive improvement since the time when we did things more similar to your way.

And I certainly am appreciating agglomeration effects, it simply changes none of what I'm saying. I'll simplify it - long term things will return, therefore there is no reason to avoid short term pain.

You're not, though (you're not even addressing the key issue). The effects are contingent historical realities rather than something inherent to the model. If they go away, the business case changes, but that's not because the case is "bad" in some kind of vacuum.

All of your arguments are arguments that the existing models should not change and we should do everything possible to hold them together. My argument is that change is essential and that when they fail, we should trust that something new will replace them.

Zero of my arguments are arguments that the existing models should not change. I agree that change is essential. The difference between us is that I understand agglomeration effects and you do not.

The only foolish idea is that we can avoid economic turndowns and recessions if we just bail out enough companies.

Good thing that's not an idea that anyone has, then! It's not the only foolish one, though. Another foolish one we've seen ITT is that going back to constant banking panics that destroy economic growth is good and that agglomeration effects don't matter or exist.

Good explanation here for anyone else who doesn't get agglomeration: https://www.incontext.indiana.edu/2020/mar-apr/article1.asp

 

[panamaican]

Economic restructuring at this point is politically untenable. I just can’t envision that changing. The next 50 years in World history is going to be an expose on the inherent weaknesses of Democratic systems; it pains me to say that and is in no way an endorsement of totalitarianism. We need to get our shit together, pronto, and figure out a transition to a successful low/no growth system.

I don't think that's a failing of democratic systems, it's more a failing of the intertwining of corporations and the government. Where the government, driven by profit seeking in the private sector, has married itself to the constant growth model. A model which is not sustainable, something I think you would agree with. Neither capitalism not democracy require constant economic growth to be successful.

 

[ultramanhyata]

Depends. If they'd fail because of a short-term, economy-wide demand shortage, keeping them alive is better. If their underlying model is failing in normal times, it's not.

Do you consider Uber an example of the latter?

 

[Jack V Savage]

Do you consider Uber an example of the latter?

I think it's an open question at this time. It's not looking good.

Interesting one, though. Basically so far investors and workers are subsidizing consumers, with some help from the gov't.

 

[Sketch]

Jack trolling again

 

[panamaican]

OK, it's not that there *shouldn't* be banks, but that there won't be. Banks in general cannot survive panics without intervention. You can wish it were not so, but it is.

Yet we've have had banking for centuries. Long before we started bailing modern institutions out. Somehow the banking industry has managed to survive the rise and fall of entire empires, it will survive short term economic crises.

We have. Better banking practices include things like deposit insurance guaranteed by the gov't, regulations, and bailouts when necessary. It works! We have seen massive improvement since the time when we did things more similar to your way.

Great, then we can continue to improve.

You're not, though (you're not even addressing the key issue). The effects are contingent historical realities rather than something inherent to the model. If they go away, the business case changes, but that's not because the case is "bad" in some kind of vacuum.

What are you talking about? I addressed the key issue already. This section of your post doesn't address any of it.

Zero of my arguments are arguments that the existing models should not change. I agree that change is essential. The difference between us is that I understand agglomeration effects and you do not.

No, 100% of your argument is about things not changing. I already addressed the agglomeration issue, you never even made a real point related to it. Regional stickiness, blah, blah, blah. There are other regions, things can rebuild elsewhere. Nothing requires things to stay in the same place. Centers of industrial concentration have changed before and they can change again.

Good thing that's not an idea that anyone has, then! It's not the only foolish one, though. Another foolish one we've seen ITT is that going back to constant banking panics that destroy economic growth is good and that agglomeration effects don't matter or exist.

Hmm, you seem to be saying things that no one else has said either.

Constant banking panics that destroy economic growth...held up against hundreds of years of consistent economic growth. As I said and keep saying - short term pain avoidance at the expense of long term improvement. Somehow, we've managed to build a global economy over centuries without constant bailouts yet only in the last 30 years has it suddenly become impossible to do? That dog don't hunt.

 

[Jack V Savage]

Yet we've have had banking for centuries. Long before we started bailing modern institutions out. Somehow the banking industry has managed to survive the rise and fall of entire empires, it will survive short term economic crises.

We've had panics and near-zero growth for centuries. We fixed the issue. Not sure why we'd want to go back. It's like saying, "people survived for 200,000 years without cars and airplanes. We should get rid of them."

Great, then we can continue to improve.

I'm all for it.

What are you talking about? I addressed the key issue already. This section of your post doesn't address any of it.

No, you didn't address agglomeration effects, which are the reason for the auto bailouts. You don't even appear to be aware of the issue.

No, 100% of your argument is about things not changing. I already addressed the agglomeration issue, you never even made a real point related to it. Regional stickiness, blah, blah, blah. There are other regions, things can rebuild elsewhere. Nothing requires things to stay in the same place. Centers of industrial concentration have changed before and they can change again.

If you're just going to (wrongly) tell me what my argument is, why even bother? Find someone else who believes that things should never change and argue with them. I'm saying that banking panics are inevitable without intervention and that agglomeration effects justify bailouts for certain industries at certain times.

Constant banking panics that destroy economic growth...held up against hundreds of years of consistent economic growth.

Might want to check your facts on this one, bud. Economic growth was basically zero on a per-capita basis until less than 200 years ago. Here's England, for example:

We really want to bring those growth rates back? Obviously not saying that improvements in banking are the sole reason for the explosion, but no, the kind of growth we've seen in the past century is not normal and can't be taken for granted. And the fact that practices are newer doesn't mean that they're inherently bad.

As I said and keep saying - short term pain avoidance at the expense of long term improvement. Somehow, we've managed to build a global economy over centuries without constant bailouts yet only in the last 30 years has it suddenly become impossible to do? That dog don't hunt.

We've learned and applied lessons from the Great Depression that have more or less solved the problem of constant depressions.

 

[ElKarlo]

It seems like one of those things that is here to stay. All of the aging, stagnating European countries have this problem. Seems like they’d rather have mediocre companies afloat over a potential economic restructuring.

Hard decisions, I don’t know what the answer is.

I agree. This is a cure that should be temporary like antibiotics or topical steroids, yet it is being used longer term and that’s creating different problems. This addiction to easy money is definitely going to have a withdrawal and it’s going to be a long hard process

 

[ElKarlo]

I said back in 2007 and 2008 that we shouldn't have bailed any of the corporations out precisely because it would have been keeping companies in business that needed to finally die and be replaced by something newer and better.

I agree. I think I agreed then. Should have bailed out the workers with unemployment
The Japanese banks took almost two decades to recover. Which wrecked havoc on the economy in the mean time.
Creative destruction needs to be allowed to exist if you’re in a capitalist society. Otherwise you’re messing with the system and perverting it

 

[JohnnySagebrush]

I don't think that's a failing of democratic systems, it's more a failing of the intertwining of corporations and the government. Where the government, driven by profit seeking in the private sector, has married itself to the constant growth model. A model which is not sustainable, something I think you would agree with. Neither capitalism not democracy require constant economic growth to be successful.

Do you know of any actual Democracies not intertwined with corporations? And if not, in theory you must not believe them to be inextricable. How do you disentangle them while preserving Democracy? A return to Penny Capitalism? At this point that seems improbable.
I would agree Democracy does not require constant economic growth, at least in theory. In practice, I’m not so sure. Capitalism on the other hand, I just can’t see how it lasts without growth. Feel free to flesh that out a bit more. It’s an interesting subject, I just don’t see it.

 

[CantCucktheTuck]

It’s kinda weird to hear democrats demonize corporations, yet they are always the first in line to advocate for bailouts.

 

[Jack V Savage]

It’s kinda weird to hear democrats demonize corporations, yet they are always the first in line to advocate for bailouts.

LOL! Not the same people, Corky.

 

[ElKarlo]

Do you know of any actual Democracies not intertwined with corporations? And if not, in theory you must not believe them to be inextricable. How do you disentangle them while preserving Democracy? A return to Penny Capitalism? At this point that seems improbable.
I would agree Democracy does not require constant economic growth, at least in theory. In practice, I’m not so sure. Capitalism on the other hand, I just can’t see how it lasts without growth. Feel free to flesh that out a bit more. It’s an interesting subject, I just don’t see it.

Does all intervention have to be so that the company and it's stock holders are made whole? Banks can be bailed out, by just protecting the loans and the deposits while wiping out the shareholders. I think the level of intervention is too intrusive and is probably damaging. As we are skewing the risk/reward relationship and making sure no one faces risks. Airlines know they get bailed out. They should have sat on more money than they did. They knew they could play fast and loose, as there was no incentive not to.

 

[Jack V Savage]

Does all intervention have to be so that the company and it's stock holders are made whole? Banks can be bailed out, by just protecting the loans and the deposits while wiping out the shareholders.

Yeah, that's fine. Lots of investors got wiped out in the GFC, for example, and billions in fines were paid (plus the bailouts were profitable for the public, as they were paid back with interest). The key is to keep the economy running, not to protect investors from risk.

 

[CantCucktheTuck]

LOL! Not the same people, Corky.

One example of thousands.

https://www.nytimes.com/2020/04/05/us/politics/democrats-mnuchin-airline-bailout-coronavirus.html

 

[Finding Deebo]

Economic restructuring at this point is politically untenable. I just can’t envision that changing. The next 50 years in World history is going to be an expose on the inherent weaknesses of Democratic systems; it pains me to say that and is in no way an endorsement of totalitarianism. We need to get our shit together, pronto, and figure out a transition to a successful low/no growth system.

When the average person is selfish and short-sighted, democracy is bound to fail. There is no perfect system, different systems are needed at different times within a society. The goal, I think, is to keep the cycles of a society small. They always occur, and trying to eliminate them all together usually just makes the inevitable return with vengeance.

 

[Prefect]

I thought more unemployment, in the short run, was a necessary evil. Propping up failing companies or industries because of a fear of unemployment is the wrong approach, imo. New companies and new industries will replace the failing ones and they will absorb the workers.

This textbook 'well academia says that supply and demand should be such and such' is flimsy as hell in something as complicated as the world economy. The auto for a large part still exist in the U.S. because Obama took a winger and loaned the auto companies so they could stay in business. Loaning them money could have easily created a zombie situation. Had the auto industry shutdown, it could never come back because the expertise would evaporate. You can't magically make a machinist with 30 years of experience in pressing out parts. Academia and academics never call themselves out on their overly simplistic ideas when they don't work in every real world situation. Way too many ideas only work as you would expect in very small bubbles. If their ideas were so valuable, they would all be incredibly wealthy, which is nearly never the case.

 

[Jack V Savage]

One example of thousands.

I don't think you understood the point.

This textbook 'well academia says that supply and demand should be such and such' is flimsy as hell in something as complicated as the world economy. The auto for a large part still exist in the U.S. because Obama took a winger and loaned the auto companies so they could stay in business. Loaning them money could have easily created a zombie situation. Had the auto industry shutdown, it could never come back because the expertise would evaporate. You can't magically make a machinist with 30 years of experience in pressing out parts. Academia and academics never call themselves out on their overly simplistic ideas when they don't work in every real world situation. Way too many ideas only work as you would expect in very small bubbles.

Just FYI, academics in the relevant field would overwhelmingly agree with you rather than Pan on this.

 

[ElKarlo]

Yeah, that's fine. Lots of investors got wiped out in the GFC, for example, and billions in fines were paid (plus the bailouts were profitable for the public, as they were paid back with interest). The key is to keep the economy running, not to protect investors from risk.

The early companies went under like Leahman brothers. GM had its shareholders wiped out and it is doing well. Meanwhile GE was bailed out and it’s in the last two years that it has actually started to recover.
I think that there is nuance and a fine line to walk between not crashing the economy and not babying companies into complacency.

 

[ElKarlo]

This textbook 'well academia says that supply and demand should be such and such' is flimsy as hell in something as complicated as the world economy. The auto for a large part still exist in the U.S. because Obama took a winger and loaned the auto companies so they could stay in business. Loaning them money could have easily created a zombie situation. Had the auto industry shutdown, it could never come back because the expertise would evaporate. You can't magically make a machinist with 30 years of experience in pressing out parts. Academia and academics never call themselves out on their overly simplistic ideas when they don't work in every real world situation. Way too many ideas only work as you would expect in very small bubbles. If their ideas were so valuable, they would all be incredibly wealthy, which is nearly never the case.

That would be true if the autos just fell apart. Cerberes amongst many were circling HM and would have bought it. The trick would be to make bankruptcy til buy out as painless as possible