From: yodaiken@chelm.cs.umass.edu (victor yodaiken)
Newsgroups: sci.econ
Subject: Re: Capital 'R us
Date: 11 Apr 92 19:20:54 GMT
Organization: University of Massachusetts, Amherst

In article <1992Apr9.192424.25722@clipper.ingr.com> ald@clipper.ingr.com (Al Date) writes:
>In article <45818@dime.cs.umass.edu> yodaiken@chelm.cs.umass.edu (victor yodaiken) writes:
>>Well, Al, as you say, capital formation is capital formation, and 
>>if the government manages to collect investment capital then its
>>still investment capital. The question is: who should make investment
>>decisions?  
>
>I dont think anyone can determine that in advance.  You have to let
>the chips fall where they may.  The Hunt family invested everything they
>had in silver contracts, and lost $3 billion.  The heirs of Cornelius
>Vanderbilt squandered thir inheritance over 2.5 generations.  OTOH,
>who could've determined that Jobs / Wozniak were on to something in their
>garage?
>
>What I am saying is that it is just as irrelevant who makes investment
>decisions as it is who accumulates capital.  Everyone who has capital,
>no matter how large or how small, has to manage it.  Those who succeed,
>whether by luck or genius, will then have more capital.  Those who
>fail will have less.  This is an ongoing process--fortunes are made

You make an assumption that the market is a force not amenable to human
control, but obeying laws of its own.  Suppose that the New England Banks
had invested in small manufacturing plants and local business rather than
funneling their money into real-estate and sun-belt speculation during the
1980's. The consequences would have been rather large for those of us
living in New England. As an example, the local machine tool industry is
profitable, but has been cut back, purely because of administrative 
reasons of the out of state owners. Clearly, a local company could have,
with sufficient capital, profited from this cutback. If money was being
invested in local industry, tax rates could have been kept low, while
services could have been maintained. Small businesses which served area
would have also benefited from a larger skilled work payroll ...
Or, consider the decision by the federal government to invest trillions
in military goods, rather than in research (which would have helped our
local economy) or in highways rather than railroads (which would have made
our industries much more competivie by opening new markets.) So, it seems
clear to me that the market is partly consumer preferences, partly
determined by natural constraints (e.g. shortages of some resources) but
mainly created by the actions of human beings. And so it matters a great
deal to me, who decides where investment money goes. While you want to 
think of investment decisions as purely private matter, they seem to me to
be actions which can be considered part of government. Note, I am not
suggesting that "The Government" *should* plan investments, I am arguing
that "investment" *is* a form of government. In the US now, decisions
over this very important part of administration are carried out mainly by
small groups of lawyers and accountants working for corporate or government
bureaucracies. 

>Victor, I think you are overly distracted by the actions of the leverage
>artists and scam artists of the 80's, who were on the fringes of 
>both ethics and law,
>and you tend to ignore the capitalist mainstream, which continues to
>focus on meeting the needs of customers and competing in a global
>marketplace.

The 3 largest banks in our region are all in or emerging from Federal
bailouts. High risk deals of borderline legality helped push them all 
to the edge.
It seems like the capitalist mainstream might be less mainstream
than you suppose.

>>The usual argument for cutting capital gains taxes etc. boils
>>down to an argument that those who already have investment capital should be
>>encouraged to set investment strategies. But, as the Reagan years have
>>shown, we cannot rely on the wealthy to invest in areas which are necessary
>>for national economic health. 
>
>I would argue that this was the direct result of the excessive federal 
>borrowing of the 80's, which created real interest rates far in excess
>of the historical norms, and thereby induced 3 trillion dollars of capital 
>into govt bonds/govt projects instead of into private investment. 

The private real-estate boom indicates otherwise. Private debt rose at the
same time public debt did.

>There was no recession in Washington, DC.  They all took raises and
>kept hiring, while the rest of us were trying to figure out where we
>could find a job.

As someone who worked on the edges of Wall Street in the early 1980's I can
assure you that the fabled frugality and efficiency of private enterprise
was nowhere to be seen in the financial markets of the time. The president
of one company I worked at used to tell us that "ready, fire, aim" was the
investment strategy of choice. there was always some more o.p.m. to be
found if needed. (o.p.m. -- other people's money). 


-- 


yodaiken@chelm.cs.umass.edu