patrick.net

Peter P Says:
"Concorde was probably killed by private jets. "

If those jets were supersonic I would be trumpeting the Concorde as a beautiful example of the model. But I think private and short-haul jets are more likely going to displace segments of the airline industry. This is why I brought up the subject because we could go in all sorts of directions. Would you or anyone here say Concorde was a success, failure, neither but valuable step?
One more thing, Ronald Reagan used government funds to develop a hypersonic space plane. Everyone here can remember or probably has seen the animation. The poster boy for the free market believed in public private partnerships as well. Hope that doesn't rock anyone's world.

justme Says:
February 28th, 2009 at 10:26 am
Frank,
"It is unfortunate, but free market fundamentalism is nothing but a religion that makes wholly unfounded claims based on certain dogma or axioms that quite simply are not valid in the real world. As such, is it as deeply flawed as many other well known pure ideologies."

My one criticism was based on a similar observation. Where I am confused and interested is that Frank seems to be well informed on hybrid economies but seems to preach with a very fundamentalist style things as unquestionable fact, which don't seem as true to me. In that style false premises not representative (such as, the only way government is involved is through coercion) of the different point of view is asserted. He simply ignores that in a public private partnership, all entities are willing participants. Many partnerships are initiated from the private sector.

Malcolm,

Regarding the Concorde, I'm not an expert in avaition, but I have to agree with DennisN. But luckly we can argue this without having to determine whether the Concorde was good for society or not.

My argument, the same one I gave in response to your other post, is simple and is that government solutions will be inferior market solutions.

Stiglitz, the guy you quoted and a nobel prize winner (albeit in economics:-), could not prove that government intervention would eliminate imperfections in the market. Baumol gave some excellent free market alternatives to bureaucratized R&D that favored entrepreneurship and were much more efficient.

I think neither of us believe that an unmotivated bureaucratic group people in the government would possibly make better decisions than the mulitude of profit-driven entities that make up a free market. What makes you think that such a government group could possibly add more value to a process than a free market alternative?

There is hardly a modern industrialized country that does not have deposit insurance.

Sigh. I never said just insurance, I said government insurance. Private insurance is one better alternative as is higher interest rates at riskier banks.

debunk your claim thoroughly.

Hardly.

Instead of changing the topic, please explain the logic of why A and B are treated differently.

Now you're just being dense. A and B are not treated differently. However there is an initial stage for A & B (pre-market solution) that is required to establish the rules for later stages of A & B. There is no contradiction here.

It is unfortunate, but free market fundamentalism is nothing but a religion

A quick trip to wikipedia will debunk your claim thoroughly.

:-)

He simply ignores that in a public private partnership, all entities are willing participants.

Not at all... the government is always very willing to spend our money and their private partners are very happy to take it.

Btw, you wouldn't happen to be working for one of those private companies in partnership with our money, ah... I mean our government, would you Malcolm? :-)

frank Says:
February 28th, 2009 at 1:28 pm

"I think neither of us believe that an unmotivated bureaucratic group people in the government would possibly make better decisions than the mulitude of profit-driven entities that make up a free market. What makes you think that such a government group could possibly add more value to a process than a free market alternative?"

I see this as an example of you just expecting us to accept something as true. Who says everyone in government is unmotivated? Many in government have their own private businesses. I also have had my fair share of private sector unmotivated bureaucrats. No, I am a self employed investor. My ownership position in solar and real estate companies and assets does put me in the category.

Regarding the Concorde, a fun read...

https://mises.org/story/1266

I use the term "unmotivated" in the economic sense. It is what we are discussing.

"(Larkin, 1994) touches on these ideas by suggesting that the partnerships must build on the strengths each side brings to the table. There must be respect for each others’ counterpart. He makes the point that managers from the private, and public sectors actually show the same personality traits, and descriptions of leadership behavior. He also notes that each side tends to have stereotypes of each other. "

"What makes you think that such a government group could possibly add more value to a process than a free market alternative?”

I never said it could. In fact to the contrary, that's why government should not participate in areas already served by the private sector, or those likely to be served by the private sector.

In fact to the contrary, that’s why government should not participate in areas already served by the private sector, or those likely to be served by the private sector.

So you are advocating government until a better solution comes along? That might be more tolerable (and necessary in some cases as Hayek suggests), but I remain cautious because sometimes government involvement precludes private interests taking a stake. How can you guarantee that government involvement yields to private interests?

Yes, that is my position. Different forms of the model eventually lead to private operation and or ownership.

Instead of guarantee, which is faith based, I believe more in the concept of controls in the process. I have a section relating to best practices and pitfalls to look out for. The planning is the important part but the goals and deliverables have to be very clear. Is the partnership specific to the project or is it ongoing? It brings the power of good business to the government who is trying to address a social need. In the case of R&D it releases technology to the private sector whose strength is the commercialization.

"Direct funding such as through universities, and direct grants occur where market failures are perceived to be the greatest. Because commercial applications may not be apparent, there is little or no incentive at all for firms to undertake the expense. It is usually after the research is completed that commercial uses are identified. Direct R&D traditionally has been used to fund direct government objectives such as space, defense, and health research (Stiglitx & Wallsten, 1999). Unfortunately many new technologies developed by the government are not being utilized to the fullest extent possible. In fact the term “Death Valley” has been applied to the phenomenon of technology becoming forgotten or disconnected without the full pull-through of private industry (Lyons-Johnson, 1998)."

Frank said:

Other countries currently have functional banking systems without government insurance for depositors.

In 2007, after incurring huge losses, UBS was forced to turn to the Government of Singapore for fresh funding. Since then, the largest shareholder of UBS is Government of Singapore Investment Corporation.

Can you find any real example of private deposit insurance and a "functional" banking system? I'm not going to be holding my breath.

I'm not going to use your own words and say you are being dense, but I might say that you are being disengenous.

Dogma does not make truth.

... (no italics)

The only industrialized country I know of that has only PRIVATE deposit insurance is Switzerland. Apparently their banking system has been long deemed “functional’, but not lately, as indicated by the following (from Wikipedia UBS entry)

....(end no italics)

I wish there was a preview and edit mode in wordpress...

Frank said:

Now you’re just being dense. A and B are not treated differently. However there is an initial stage for A & B (pre-market solution) that is required to establish the rules for later stages of A & B. There is no contradiction here.

In other words, once we reach the fundamentalist free market Nirvana, even law and justice will be a non-government free market function. Any other way would be illogical.

Good to know. I sure as heck hope it never happens.

He simply ignores that in a public private partnership, all entities are willing participants. Many partnerships are initiated from the private sector.

AKA Rent Seeking

My city has lost millions over the last decade enriching developers with public/private partnerships. This includes building hotels that go bankrupt before paying back the city loan, fizzed upscale retail centers that do not attact tenants and get dumped on the city partner, a failed Gateway Computer factory, and a seriously underused Convention Center. None generated anywhere near the promised tax revenue. Surrounding communities have similar experiences with apartment complexes, town centers, and malls.

In fact, here is a very recent example of the public/private "willing participants" in a nearby community:

http://www.dailypress.com/news/dp-local_marquis_0227feb27,0,7395205.story

I'm sure people on this blog could find similar examples in thier own localities.

By the way, did the Concorde ever make money for the operators? Or was it just a tax payer subsidized way for the very affluent to streak between London and NY for $10k a pop?

One in every 10 Californians is looking for work, the largest percentage since June 1993, according to figures released Friday.

The state’s jobless rate increased to 10.1 percent last month, compared to 8.7 percent in December — and 6.1 percent in January 2008, according to the state Employment Development Department. The current jobless rate is 1 percentage point from the record 11 percent in November 1982.

Data for Silicon Valley was not released Friday.

California lost 79,300 jobs last month compared to December — and 494,000 jobs since January 2008.

Alibaba Group Holding Ltd. Chief Executive Officer Jack Ma said he’s on a recruiting drive to lure Silicon Valley engineers to China and that the company needs 5,000 more employees this year to keep up with demand.

The economic slowdown is a “treasure,” letting the company recruit employees from Google Inc. and Microsoft Corp., Ma said yesterday in an interview in San Francisco. The company plans to double its U.S. staff to about 50, he said.

Ma and 10 senior managers from China are in the U.S. for the next two weeks. They’re meeting with eight companies, including EBay Inc., Amazon.com Inc. and Microsoft Corp., to try to form partnerships, Ma said. Alibaba, based in Hangzhou, China, also runs AliPay, which enables companies to exchange funds online.

Radio talk show host Rush Limbaugh wants Barack Obama's econimic policies to fail. He said it, he said it again, and he said it again at CPAC. Limbaugh was quickly accused of treason, more or less, and now he says he doesn't understand what all the outrage is about. All he said was that he hopes the economic recovery plan fails.

Why is this suprising? I'm not stunned that conservatives oppose President Obama's economic policies. Actually, I wouldn't have it any other way.

The only industrialized country I know of ...

The wiki page was your reference, wasn't it?

Wiki - some [deposit insurance institutions] are private entities with government backing or completely private entities.

after incurring huge losses, UBS

So you're blaming UBS's losses on it's private deposit insurance? LOL. That's gotta be a classic!

even law and justice will be a non-government free market function

For the second time, read the links I posted. That is, if you're really interested in another opinion. But I seriously doubt you are based on your comments, therefore consider our conversion over.

By the way, did the Concorde ever make money for the operators?

The simple answer is no. Definitely no.

A better question is just how much money did the combined effort truly cost (i.e. how much did they lose). Accounting being what it is in the government sector, you can bet that it was much more costlier than is claimed.

Malcolm, I certainly stepped into that one. For a moment I thought you were proposing a much more conservative role on the part of the government. But I see it's your original stance. My mistake. I'll reply to your post and try to hit on each point you make shortly, but not tonight.

IIRC none of the US carriers ever bought a single Concorde: they all were operated by the government-subsidized national carriers Air France and British Airways.

Was away for most of the day. Look forward to it Frank, take it easy.

As far as I know the Concorde never made a profit. In that particular case I don't even care since that kind of development, one which propels society forward has a different value than just the money.

Rush & Obama
Again, I join in rejoicing that Obama is our President. He is the most dynamic, self made, visionary leader I've seen in my lifetime. Ending the cold war set the bar quite high for Reagan, but every time Obama speaks I feel assured that he is making good choices. Rush is just a tired old man who is just looking for attention. I used to like him but I got tired of his dogma and just opposing everything Clinton did and ended up being proven wrong in hindsight on a lot of things.

Bad PPPs
Yes, we can dredge up all sorts of examples of failed projects both public and private. Examples might help make a point but can't be conclusive to a complicated issue. I would also state my conclusions that government only gets involved in areas with a high social need and low commercial potential. An agency who partners up in building a shopping center does so at its on risk and without my blessing for the very reasons Frank stated.

Frank,

>>So you’re blaming UBS’s losses on it’s private deposit insurance? LOL. That’s gotta be a classic!

I did no such thing. What I proved beyond any doubt is that the free market in Swiss deposit insurance did NOT prevent UBS from becoming a seriously troubled bank.

In general, all your dishonest arguments are not helping your case. Now you are just trying to create a smokescreen around your false claims.

You still have not produced a single example of an industrialized country that has private deposit insurance AND a functional banking system.

What is next? You are going to start arguing about what "functional" means? Clearly, the private "free market" deposit insurance in Switzerland did not have the market power or market incentive to prevent UBS from taking so much risk and having so large losses that it required investment from the Singapore government to survive.

Are you going to admit your claim is false? If not, save yourself the hot air. I'm not going to spend any more time arguing with a provably dishonest person.

The Original Bankster Says:
February 28th, 2009 at 10:48 pm
"ya Obama is a hero who is doing great things.
by spending 3 Trillion dollars of US tax money. What a genius!"

If he ends up balancing the budget in 8 years there will be a lot of people eating crow. I certainly like the way he is spending his budgets verses his predecessor.

Malcolm Says:
“How do we join?”
You could start a bank.

Seriously, how does one go about doing that?

Are there _other_ forms of depository institutions that are easier to start? I have been thinking this is a great time to start-up an ultra-conservative 'bank' that people could deposit their money into without worrying about whether the FDIC is broke.

# Malcolm Says:
I was happy to hear the news because it might indicate the economy (at least here) is back into a gear

That sounds dangerously close to a decoupling argument, which so far has not actually held up so well w.r.t. other economies.

what gear that is? Who knows.

Could still be R - sometimes that can feel like a forward gear if everyone else is going backwards faster. :-)

Malcolm Says:
No Peter, it is capitalism. If you own shares doesn’t that mean you own the bank? There is no corruption, cronyism, or excesses in private companies. How can you suggest a disconnect?

I am with Peter on this one - owning shares means diddley if you don't have control. I learned this lesson long ago when I had a 'share' in a tree-house, but my neighbor's kid had a controlling interest. :-)

Malcolm said:
There is credible theory that says firms invest less than the socially optimum level

That is more a matter of _risk_ tolerance than unwillingness to engage in such research. The short term thinking (in business decisions, institutional investors and executive compensation) is killing innovation from within the private sector. The other problem is that most companies are led by sales or finance types - it is difficult for them to trust some mad scientist who is working on a project with a four- or five-year payoff.

[btw, I don't mean to pick on you, but your comments were the ones I found the most interesting points to respond to.]

>> Seriously, how does one go about doing that? [starting a bank]

You should ask that famous Arizona woman, Francine Hardaway. Her applicaton for a bank charter got turned down. I feel relief.

Justme, here's a clue... ask yourself why UBS lost money in 2007 to require the investment from Singapore. You just might find that despite the more rigorous requirements of it's private deposit insurance, some very corrupt government supported cartels still managed to lead it astray.

You see, even though private insurance is better, it isn't necessarily perfect. So whatever you think you proved doesn't mean a thing. Free market practices are better for businesses and their clients, but they don't guarantee a successful business despite everything else. That's something the government would like to claim.

I'm probably doing your school assignment for you here, but worth it to just shut you up. This is by no means an exhaustive list:

United Kingdom. (Deposit Protection Fund, Banking Act of 1979 and 1987; Financial Services
Compensation Scheme) The fund in the UK was established in 1982. The system is government legislated
and privately administered and funded. The central bank made loans in the past but there is now no public
funding for the DIS. There is no permanent fund in place and membership is mandatory. Banks make expost
contributions when needed. Deposits of financial institutions are not covered by the system. The
coverage limits have evolved as follows over time: in 1982 compensation limit was 75% of first ₤10,000
which was raised to 75% of ₤20,000 in May 1987. In July 1995, the Scheme was amended by the Credit
Institutions Regulations and maximum payment was changed to 90% of ₤20,000 or EUR 20,000,
whichever is higher. The Financial Services Compensation Scheme came into existence in December 2001
and the scheme changed the coverage to 100% of the first ₤2,000 and 90% of the next ₤33,000. Currently,
deposits in all currencies are covered on a per depositor per institution basis.
Sources: Garcia (1999), IADI Survey: UK (2003), Kyei (1995).

Switzerland. (Deposit Guarantee Scheme) The deposit guarantee scheme in Switzerland was established in
1984. It is privately administered. The scheme is funded exclusively by the members. There is no
permanent fund in place. Banks make ex-post contributions when needed. Membership to the scheme is
voluntary. The coverage limit for savings deposits per depositor is currently at CHF 30,000 with no coinsurance.
Sources: Barth, Caprio, and Levine (2004), Garcia (1999), Kyei (1995).

France. (Fonds de Garantie des Depots) The DIS of France was established in 1980 and revised in 1986. It
is an unfunded scheme in which the banks contribute to the fund on demand. There are separate schemes
for commercial banks, and for mutual savings and cooperative banks. The system is privately administered
and jointly funded. Debt securities insured by institutions, deposits of the central government, insiders,
affiliated companies and money launderers are excluded from coverage. Initially, coverage was at 200,000
FF and after 1986 it was raised to 400,000 FF. In 1999, according to regulation 99-05, the limit was finally
set at EUR 70,000 per depositor per institution. Coverage extends to foreign deposits as well and there is no co-insurance.
Sources: Fonds de Garantie des Depots (1999), Garcia (1999).

Germany. (Deposit Security Fund, Savings Bank Security Fund and Credit Cooperation Security Scheme,
Federal Association of German Banks) The first nation-wide joint fund operated by private banking sector
in Germany was established in 1966 by the Federal Association of German Banks. The fund protected
savings, salary, and pensioners’ accounts up to DM 10,000 and other sight and time deposits of natural
persons up to DM 20,000. In 1974, the coverage was enlarged to cover up to 30% of the equity capital per
depositor, which is still binding in terms of the private Fund. There are separate schemes by the German
Savings Bank, Giro Association, and credit cooperative banks (the latter dates back to 1930s to the
aftermath of the Great Depression). These guarantee funds aim at protecting the institutions themselves and
hence, provide indirect protection to depositors as a by-product. In 1994, a voluntary deposit protection
fund was established by the public-owned banks. In line with the transformation to EC Deposit Guarantee
Directive, the official binding statutory deposit protection has been limited to 90% of EUR 20,000 for
commercial banks, which co-exists with the voluntary funds by various banking associations. In the official
and voluntary deposit protection schemes, coverage amounts are calculated as per depositor.
Source: WOrld Bank (2005)

Spain. (Deposit Guarantee Fund, Royal Decree Law 4 & 18) Spain has separate deposit guarantee funds
for its commercial banks (established in 1977), savings banks (established in 1980), and credit cooperatives
(established in 1982). The system is government legislated and privately administered.
Sources: Garcia (1999), IADI Survey: Spain (2003), Institute of
International Bankers (1997), Kyei (1995).

Hungary. (National Deposit Insurance Fund, Act XXIV of 1993) The deposit insurance fund of Hungary
was established on 31st March, 1993. The system is government legislated and privately administered.
Members of the board of directors are, the president of the National Bank of Hungary, the administrative
secretary of the state of the Ministry of Finance, the president of inspections, two persons delegated by the interest-representing organizations of financial institutions, and the managing director of the DIF. Deposits of government, insiders, professional investors, money launderers, and other banks are excluded from coverage. The government can guarantee fund borrowing from the central bank or private markets if
requested. Membership to the Fund is compulsory. The coverage is mainly extended to savings accounts,
certificates of deposit and foreign currency deposits. However, only currencies denominated in EUR or
other OECD countries are insured. The coverage limit was initially HUF 1 million (approximately $3700),
which was raised to HUF 3,222,222 on January 1st, 2003 and to HUF 6,555,555 on May 1st, 2004. The
maximum coverage is calculated per depositor per institution.
Sources: Garcia (1999), IADI Survey: Hungary (2003), Kyei (1995), and
Ministry of Finance of Hungary (1993).

Netherlands. (Collective Guarantee Scheme) The scheme of Netherlands was established in 1978. There is
no permanently maintained fund. The banks make ex-post contributions when needed. Ex-post assessments
are made case-by-case based on several items of data reported to the central bank.
Sources: Garcia (1999), Garcia and Prast (2003), Institute of International Bankers (1996), Kyei (1995)

Norway. (Deposit Guarantee Fund) The scheme of Norway was established in 1961. There are separate
funds for commercial banks and savings banks. Both of these funds are privately administered and jointly
funded.
Sources: Garcia (1999), Gerdrup (2003), IADI Survey: Norway (2003),
Kyei (1995).

Peru. (Deposit Insurance Fund, Banking Law 1991) The scheme was established in 1991. It is government
legislated and privately administered.
Sources: IADI Survey: Peru (2003), Garcia (1999), Kyei (1995).

Brazil. (Fundo Garantidor de Creditos-FGC, Resolutions 2197, 3024) FGC commenced its operations in
November 1995. The scheme is privately administered. Membership to the system is mandatory. The banks
pay a premium of 0.3 % of the insured deposits. The system does not extend coverage to inter-bank
deposits and the coverage limit is set at Reais 20,000. The EDIS was revised in 2002 but the coverage was
left unchanged.
Sources: FGC (2004), Garcia (1999), Talley (1998).

Australia, Hong Kong, Israel, New Zealand, Singapore, UAE, China, Iran do not have explicit deposit insurance. Sources: World Bank (2005)

SP Says:
March 1st, 2009 at 11:25 am
Malcolm said:
"[btw, I don’t mean to pick on you, but your comments were the ones I found the most interesting points to respond to.]"

Definitely don't feel picked on, I'm flattered.

Specifically, even though all your points are right, even the total elimination of the constraints you mention still leaves a cap, which limits the projects the private sector undertakes. If government determines that the project is necessary due to compelling social need it may be optimal for a PPP to be formed. In such a case the partnership costs less than if government tries to tackle the need on its own. A relatively small infusion makes a project commercially viable when it wouldn't be otherwise.

Frank,, Frank, Frank. What can I say. You still have not backed up your claim. Pasting material from Wikepedia that actually CONTRADICTS your claim does not help. Just give up, will you?

"It was the fault of government regulation that the private insurance did not work".

O-kay, If the facts don't fit the terrain, just change the facts.