January 12, 2004
Maybe It's Just You, Paul
So Bush failed to heed Paul O'Neil's economic and strategic advice. Does this make him a bad listener? Or perhaps the advice was no good?
"We didn't listen to [O'Neill's] wacky ideas when he was in the White House, why should we start listening to him now," said a senior official.
O'Neil's announcement that the Bush administration had plans for an Iraqi regime change is... boring. Any Administration that failed to have a plan for an Iraqi regime change would be irresponsible. Ditto Iran, North Korea, Cuba, and Syria.
O'Neil also advised against running deficits.
Some people don't get deficits. They think that a balanced budget is always a good thing economically. If so, then why do businesses sometimes run a deficit?
The fact is that in times of a shrinking market, or during times of infrastructural expansion, a business will run a defict. In management this is referred to as countercyclical investment. It means you spend more money when your revenues are low, so that when the market reverses, you are well-positioned to capitalize on it. Otherwise, you tend to overbuild during the exuberance of expansion, and then must react to contraction by shrinking, putting yourself in a poor position when the economy resumes growth. It's smart policy, provided you have a good reason to believe the growth will come.
I think we do.
Posted by Rip Rowan in at January 12, 2004 09:38 AM
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Comments
Well, for one thing, a government isn't a business... but even if you want to run it like a business, please point out to me a corporation that has run successfully with extraordinary debt and more years in the red than the black for the past fifty years.
Posted by: Russell Lutz at January 12, 2004 11:43 AM
Good point. I think one thing to take into account though would be what the natural cycle of such an institution would be. Amazon and Yahoo ran for years without profit, and that was expected, even though their model was a dotcom. Businesses are expected to operate on quarterly and annual cycles; I would hold the government to a decade-long cycle. In other words, multiple time by at least a factor of 10. So that would be like a publicly held company running in the red for 3 out of 5 years - hardly unheard-of.
Posted by: Rip Rowan at January 12, 2004 12:34 PM
Question - can I infer from your rebuttal that you think that deficit spending is always a bad idea; or that a balanced budget is always the right idea?
Posted by: Rip Rowan at January 12, 2004 12:40 PM
Maybe I'm just being conservative (tee-hee) but I tend to think that debt should be managed a little better.
As a nation, we have debt, so we should be working in the black to remove it, or at least make it removeable. Allow me to extend your 10x analogy: if we ran in the black until our debt represented only ten years worth of surpluses, then stayed there, I'd be a little more comfortable.
That would mean we could tighten our belts for a decade and remove the debt. We wouldn't need to, but knowing we could would indicate some sort of control.
Posted by: Russell Lutz at January 12, 2004 02:57 PM