Throwing Money At Problems Usually Is Not The Solution
from the time-to-work-smarter dept
Thomas Friedman has stirred up some controversy with his suggestion that the government (instead of giving it to dying automakers) should give $20 billion to top venture capital firms and have them invest in new innovation. The initial thought makes sense, and, in fact, we discussed something quite similar a few months ago -- though, concerning a new venture fund in the UK, rather than giving money to existing funds. Indeed, if we must throw money at the economy, it should be to invest in new innovation, rather than throwing good money after bad. However, Fred Wilson points out that the top VC firms don't want or need the cash, and in fact, adding more money to the venture investing pool at this point might cause a lot more harm than good.And, that brings up an important point, worth discussing, that the government seems to be missing: throwing money at problems is very rarely the best solution. Often the problems are caused by too much money sloshing around (see: Wall Street). Dumping more money into the system just encourages the same inefficiencies and bad decision making. The real fix to problems is to wipe out the broken parts of the system, not fund them further. Yes, letting some of these businesses fail will have rippling effects into other parts of the economy -- but shouldn't the focus be on helping out those aspects, rather than rewarding companies like GM and Chrysler that have screwed up dreadfully?
While there's something to be said for taking money when it's available, plenty of experienced entrepreneurs know that having too much money on hand is almost as bad as not having enough. Having too little money makes you focus and makes you creative out of necessity. Having too much money makes you lazy and puts you in a position to hide or ignore the real issues for way too long. What we should be working on right now is fixing the systemic problems throughout our economy -- not papering them over with cash.
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Filed Under: bailout, congress, stimulus, venture capital
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Bailing out perpetuates the death spiral
Don't bail them out, they will be forced to file Chapter 11. We can hope they will be taken over by somebody who knows something about making cars.
And yes, I do think a healthy automobile industry (and all the supporting businesses) is essential to a healthy United States. Having them on perpetual life support so they can continue to service outdated labor agreements is not the way to make them healthy.
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Re: Bailing out perpetuates the death spiral
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Re: Re: Bailing out perpetuates the death spiral
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Re: Re: Bailing out perpetuates the death spiral
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Throw some $$ at me
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Entanglements and Unintended Consequences
By accepting the money, the auto industry giants are seeing the strings attached (salary caps, government over-intervention). The same can be seen in the bank bailouts...in talks of bonus caps. And now the recent "stimulus" bill appears to have strings attached requiring states to make permanent changes, which may or may not be in their own long-term interest, to accept the money in the short-term.
The tentacles of our governing bodies seem to be spreading deeply into new facets of our lives in ways that won't be understood, appreciated, or felt for a long time. And cutting those tenticles off will be difficult at best.
And consider the corporate behavioral changes which may result from these bailouts..."why try too hard...I'm too big to fail". Which person is blessed with deciding that this industry deserves a bailout but not that one. Shouldn't the people buying the products decide that? Doesn't a government-subsidized price (isn't that what we have now?) for a car seem a little unsustainable...if not just plain strange for our country's history?
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Re: Entanglements and Unintended Consequences
This is what happens when you put children in charge of the cookie jar.
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Re: Re: Entanglements and Unintended Consequences
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Ignorance !
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Re: Ignorance !
That's a nice accusation. Would you care to back it up?
Let's then not even have a stimulus plan.
There's plenty of economic evidence to suggest that the stimulus plan will, in fact, make things worse.
We'll just let the economy "fix itself".
Talk about ignorance. There's a wide spectrum of things that can be done between (a) nothing and (b) throwing a trillion dollars at the people who screwed stuff up in the first place.
If you can't understand that, then you shouldn't be commenting.
Allowing the backbone of this nation (American auto industry) to collapse would put this nation into a nearly unrecoverable depression !
First of all, the auto industry is not the "backbone of this nation" by any stretch of the imagination. Second, letting the big three *restructure* is not the same as letting "the auto industry collapse." Again, you seem to be totally clueless that there are areas between "give 'em billions" and "let 'em collapse." Finally, should the big three auto makers go out of business entirely, it would not put us into an "unrecoverable depression" at all. It would certainly create quite a negative shock, but hardly one that we could not recover from -- and recover from in a way that makes us much stronger.
Sure, bad decisions have been made by automaker's management, but the biggest failure is congress!
Aha. Something we agree on. So I'm not sure why you think it's acceptable for that huge failure of Congress to hand over so much money to the failures in Detroit. Why would you throw good money after bad and think it's a good idea?
American automakers have not been allowed to fairly compete in decades.
Um. No, you've got that mixed up. You mean, American automakers have not been *able* to *compete effectively* in decades. And that's their own fault.
For every one UAW worker who loses their job, 10 more auto industry related workers lose their's.
If true (and that's a much bigger number than I've seen anywhere credible), then doesn't that represent a huge problem that needs to be done away with? Shouldn't we unwind things so that this doesn't happen? When you have so much economic impact dependent on one group, then it's a problem that needs to be fixed.
During World War 2, the auto workers opened their doors to help assemble the machines and equipment needed to win the war. Had this not happened, we might not have the freedom to have this discussion.
That, of course, has absolutely nothing to do with today's economic situation, but, um... thanks for playing.
It's not "throwing" money at the problem, it's saving a nation !!
If only that were true.
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Re: Re: Ignorance !
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Re: Ignorance !
That is 11 more workers that could be doing something more productive for society. Having a job that has no valuable outcome for an employer introduces inefficiencies. The idea that you should be paid because you need money and not because your work is valuable is just ridiculous.
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Does this seem insane to anyone else? The fact that these companies are so large and cumbersome is part of the problem. If anything, they should be split up.
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I beg to differ
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Warranties
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Throwing money at problems
By far the best long-term strategy would be to let the inefficient, out-moded business models of, say, US auto makers fail.
However, ignoring the pain felt by the population as a whole would be even worse; the fact that drying up cash would result in long-term health of the economy is little solace for people in trouble NOW!
Unfortunately, "conservatives" are tied to funds from the wealthy, and to keep the money flowing they must embrace the worst business model of all - tinkle-down economics (aka "trickle-down" to make it more attractive to the middle class, the ones being urinated on).
Further, to have even a ghost of a chance at any type of bi-partisan politics, these "conservatives" will have to be accommodated to some extent; so some "Welfare For Wealthy" (WOW) programs must be tolerated, even if they increase the burden on the middle class (a must for free-spending "conservatives").
To get some money to people who are really hurting, with a 2/3rds vote requirement, the administration must continue fattening up the GOP base to some extent.
Hopefully the 2/3rds vote requirement can be done away with.
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Re: Throwing money at problems
Um... wait. Who's pegging now?
No one said to ignore the pain felt by the population.
That's not the same as dumping a trillion dollars into failing businesses though.
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Re: Throwing money at problems
I have seen several of your posts that use the term "pegging". I wonder if you know what that means in todays lingo?
In the past, the term referred to an analog meter that had reached its maximum. There was a peg in the meter to stop the further travel of the needle so that the meter would not be mis-read as indicating a much lower value than actual.
I assume you are using the terminology from the olden days and therefore would like to know what the artifical limit is. Certainly there are viewpoints which far exceed those expressed here - so what is up with the term.
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They made their bed, why shouldn't they have to lie in it?
"American automakers lobbied for laws and statutes that heavily favored protectionism over competition in their early years, those protectionist measures are now standing in the way of US automakers competing with the global market."
At least have the guts to realize that the US Automakers are almost solely responsible for the situation they are in. They didn't want to have to compete with cheap foreign autos in the past, so they had laws created that made many of those foreign cars illegal in the US (the laws also prevented US manufacturers from building similar 'cheap small' cars of their own). Why do you think Europeans have had small diesel cars that get 50-70 mpg for decades, when we are just starting to get a few models in the US? Because US Automakers didn't want to compete, so they lobbied for laws that made the vehicles illegal (or prohibitively expensive due to taxes/regulations).
Waaa, we can't compete with those small cheap foreign cars, make them illegal so we can survive.... Waaa, we can't make a profit after we eliminated most of our competition.... Waaa, Waaa, Waaa, Waaa
Do the automakers do anything but whine? Whine for laws so they don't have to compete, whine once the competition is gone and they have nothing driving them to innovate, whine when foreign autos are finally allowed in the US because they have to compete again, whine when protectionism and lack of competition cause companies to stagnate and bloat, whine that they are 'too big to fail'. Bail em out, but make them a government owned company (because we all know they would operate at maximum efficiency then, right).
You don't have to have all the answers to know that the game is crooked and you have no chance, but most of us continue to play anyway..... Back in the USSR.... er USA
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Financial obesity?
Maybe the concept of "financial obesity" from _Paths_to_Otherwhere_ (James P. Hogan) actually has something to it?
(as for cash-strappedness promoting creativity, that was mentioned in _Bellwether_, by a different author (Connie Willis).
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Money
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