Monday, October 15, 2012

Austerity Doesn't Work

There are a number of articles on this subject because the head of IFM started to talk about the subject. See a G&M article I can link you to. Austerity measures in recessions/depressions have never worked. You need to do more than just cut back on spending.

What you need to do is structural changes. Greece especially should be working on reducing corruption and reducing red tape. Of course, the problem with reducing red tape is that it would require politicians to think. They would actually have to think about what they are trying to accomplish with the rules they have and whether or not they are effective.

The problem with governments and generally with a lot of organizations, the longer they exist the more rules they have. As if more rules are better rules, which, of course, is not true. What you need is clear, concise rules that do the job they were meant to do.

Yes, they have to bring the debt under control. However, they could try to soften the blow to the economy by doing some structure changes also. Yes, they have to bring the debt under control, but this cannot be done if we first destroy the economy.

They need to look at all spending programs and see if they are getting value for money spent. Are the programs doing what they should be doing? Are they making a difference?

Every time we have a crisis governments bring in new rules so that we would not have that crisis again. They are like generals fighting the last war. When there are crises, governments want to appear to be doing something. Unfortunately, you cannot produce rules against every eventuality. But you can bring in rules to make life more difficult for people who are trying to make a living.

You would want to get rid of rules that are of no benefit, but which cause business money and make it more difficult for the economy to grow. However, as I said, this might involve the politicians and government workers to have to think and this seems to be a problem.

Government can sell off assets. The governments that seem to make the most money in this are the ones that sell off slowly. Government assets because of the way they have been managed cannot initially be sold off at their potential value. Governments that privatize assets and sell off shares over time make the most money from privatization.

I know that Canada and US has one big problem that I see. That is the schools in poor area are very poor schools. If we really want to help the poor, we would provide better education. In Canada, Alberta seems to be the one province that has helped poor schools and they brought in some reform, including vouchers.

Raj Chetty did a study that showed early exposure to a teacher of excellent standard resulted in an enhanced lifetime income. See write-up on this economist. I think that this points to the fact that we should be putting our best teachers into poor area class rooms.

On my Investment Talk blog I am today writing about Brookfield Asset Management (TSX-BAM.A, NYSE-BAM). Today, I am discussing the stock price and what analysts say about the stock. To read about this stock go here....

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