Just because people respond to perverse incentives created by the government in the free market, you can't then argue that the market is a failure for being unable to absorb said perverse incentives. This is the new liberal tactic of blaming all failures on the part of government programs on markets themselves for not playing along exactly as expected.

But we'll all just have to watch this dance continue.

Sam_262

You are just blaming the victim. The victim here being the free market system. If people were actually forced to pay for their educations, their wouldn't be a perverse system of colleges acting as diploma mills. The only way to solve the problem of people abusing subsidy is for a central power to control everything. Who gets the money, what colleges are acceptable, which degree programs are acceptable, and what constitutes a "real" college all have to be controlled by a central body.

If people thought that they weren't getting their moneys worth, they wouldn't attend those schools in the first place. A college survives on the basis of its reputation, and only when the government is perverting incentives does this system fall apart.

Just because a government program might "work" in the sense that people get money and do stuff, that doesn't mean that it is good. Recessions occur for a reason, and most government solutions work, but perverse incentives and require theft to be successful. Yes, if somebody receives money to go to school and they get their degree, the program has arguably"worked." However, if the government spends 50 grand to get you a degree so that you can earn an extra twenty five grand a year, they are still perverting incentives, as you might get a degree that adds less value to the economy than a degree you might of otherwise chased, had you actually been responsible for paying for your degree. The government is able to minimize its losses by only offering money for specific degrees, but this is also a backdoor way to subsidize an industry, thus perverting incentives further to keep an industry afloat that would die if people actually had to pay to be educated in that field. People who like government of course will point to the success of the industry and the increased earning power of an individual and claim victory, but of course they are ignoring what goes unseen. Maybe that subsidy is allowing you to live a higher quality of life, but it must come at the expense of something else, maybe even someone more needy than you. It's hard to see the job that doesn't exist thanks to a program, and any change in statistical indicators can be argued to be a success.

If you want an example, I pay taxes so that my parents can be teachers earning 60 grand a year each (when you include benefits), even though in the existence of a voucher based educational system, they would probably earn much less (they are grammar school teachers, so arguably overpaid babysitters). I only make 20 grand a year, so I feel less than enthused about this situation. I also feel less than enthused any time I have to pay taxes to a public college so that somebody can get their flashy degree, only to see them get another job that required government investment just to exist. Those of us who get real jobs outside of the credentialist system have to keep subsidizing the BS system of socialist corporatism.

Of course you'll just point to higher paychecks and say, "See....."

When there is hope,
There comes the Dogbertian way of dealing with hope :

For those waiting for Times.com loading :

This article is about,
How for-profit school are draining Pell's grant money
deceiving students from working class to pay top dollar tuition,
With the pretense of high earning job

http://www.nytimes.com/2010/03/14/business/14schools.html?pagewanted=1&ref=homepage&src=me

Although a lot of people assume that bright and determined people would never use such programs, I have to disagree. Here in relatively leftist Canada, we have a couple of programs that allow recently unemployed folks to apply for government funding to either return to school and further their education, or start their own business.

In each case, you have to apply for government funding, and there is a great deal of cumbersome paperwork involved. This is specifically designed to frustrate you, thereby ensuring only those participants who *really* want it, will go through the whole process. Once completed and accepted, you can then have (up to) your tuition and books paid for, along with having your employment insurance extended throughout the whole of your time back in school. Depending on the program, you can go for 1-3 years (in Ontario at least).

I used this program as did my fiance (different times) and both received educations priced at more than $10k for free. We are both now employed in our fields; I make about twice what I used to, and while he makes about the same amount, he changed fields. With no student loans to pay back, it was worth taking a year out of the workforce to upgrade.

The government is 100% involved in this process, and yet it has a very high success rate.

As for your "tutor" idea, this is in place here as well. My fiance's 60 year old mother, who is a new Canadian and speaks a little English is clearly not a prime candidate for entering the workforce, and certainly she doesn't need to earn money, as she has 4 adult children to support her. However, a seamstress by trade, she has been here less than 3 months, takes English classes 5 (half) days a week and is already teaching sewing classes to other new immigrants and getting paid for it through a government funded multicultural centre.

This centre works basically as Scott's model: The government gives them money, and gets reports regarding the continued "success" of the programs, but otherwise the centre is run by individuals with the skills to run it. In addition to facilitating her sewing classes, they connected her with church groups that will allow her to display and sell clothes she makes, so that (a) she can make a dollar, and (b) she can get her name out as a seamstress in the community.

No one would give her a job at her age and with her lack of English skills. Without the government funded program, she would be more or less forced to stay at home, and not contributing the community or economy in any way.

I'm not saying Scott's model is perfect, but a version of it exists and works very well here in Canada. Not all of the unemployed are prepared to go through what I did to get a free education, or what my future mother in law is doing to feel useful, but many people do. I don't think it needs 100% of the unemployed using it in order to justify its existence.

How about you combine energy and exercise? Put the people who are out of work on stationary bikes and let them cycle to create power? Sort of like a low tech “the Matrix”?

:-)

Hi Scott,

I'm working in a company that supplies software to government and administration. In Germany, to be precise. I suppose that German government runs things a little differently than your one, and ideas like your idea might have a slightly better chance to come true in Germany than in the US (for example the photovoltaic stuff, we do a lot of that here, and so on).

However, my point is the following: The company I work for is competing with government-owned companies for several years now. Yes, we have quite a range of government-owned companies and enterprises here in Germany, not exactly working after your model but anyway.
And a government-owned company has some competitive advantages compared with a private company (exactly due to the effects you mentioned, it has less need to make a profit). This does not mean the government-owned company will pick the high-hanging fruits - it will grab the low-hanging fruits anyway and push private competitors out of the market. It can offer cheaper prices and it of course has easier access to customers in the public sector. Therefore I don't think it such a good idea to promote government-owned enterprises.

On the other hand, let me add that an enterprising and active private company does not really need to fear the government-owned competition because those public guys tend to be sluggish and inert. But don't tell anyone that I said that.

Dear Scott, I just registered so I could tell you I hope you will write a book again one day. Your blogs are great, but I love having more of you between Plato and Asimov on my bookshell. Maybe you feel that after God's Debris and The Religion War you have added enough positive and futuristic philosophy to the world, but I would like to see more. Have a nice day !

I need to clarify the following:
To those that say the bank's aren't lending, I waive my paw and say "Bah!" They may not be lending to YOU because YOU don't have (1) cash flow that supports repayment, (2) sufficient collateral, or (3) a really bad credit history.

It should read:

To those that say the bank's aren't lending, I waive my paw and say "Bah!" They may not be lending to YOU because YOU (1) don't have cash flow that supports repayment, (2) don't have sufficient collateral, or (3) do have really bad credit history.

A good credit history is key to obtaining a loan. SBA is not for bad borrowers as my first version of the comment could be taken to suggest...

Scott,
There is already a program similar to what you've described and it's the lending programs administered through the US Small Business Administration. There are a few issues with your description, however. Regardless of the industry, the government is not permitted to "show preference" of one industry over another unless it's a sexually prurient operation (i.e., no loans to strip clubs, !$%* shops or !$%* movie producers), or providing instruction of a religious nature (i.e., no loans to churches, synagogues or mosques unless the church, synagogue or mosque owns a for-profit business that is NOT engaged in providing any religious product/ instruction).

The qualifications to fit in with the SBA loan programs (including Micro Loans, Express Lines of Credit, 7(a) loans for working capital and/or capital acquisition and real estate, and the 504 loan program, for real estate and /or capital equipment acquisitions) are wide and encompass a lot of the small businesses owned in America today.

The criteria created to define a small business are done in part to ensure that only small businesses are receiving these loans and larger, hugely profitable corporations are not reaping the benefits of relatively inexpensive credit on terms not available elsewhere (size standards include ceiling of $8.0 million for tangible net worth and last two years average income of about $3.0 million). They also stand to help limit any accusations of industry preference. The main issue with your suggestion is that it creates preference for specific industries. While preference within government happens all the time (just look at the sweetheart deals on the healthcare "reform") it's not supposed to be publicly acknowledged.

The SBA requires that those loans be paid as agreed and generally speaking, holds the lenders "feet to the fire" when it comes to lenders who attempt to exercise the government guaranty of debt if the loan goes into collections or foreclosure. I've read and heard about instances where the SBA has pulled their guaranty due to a lender's non-compliance with the loan program and the lender has to take the loss. The SBA program is designed to get lenders to put money out in the market, but when the SBA decides to pull a guaranty for a reason as lame as an error in documentation (which is an error clearly not intended to create any harm for the SBA or the federal government, but rather was a minor error), lenders become less-willing to participate with the government's program. Once bitten, twice shy.

The reason the SBA loan program works is that it's the bank's still putting up 100% of the capital and the federal government lending its name/ guaranty to the paper.

Regarding the benefit of tax revenues to the government through creation of jobs (even if the business only breaks even) is part of the rationale behind the SBA's loan programs. Through the SBA's 504 loan program, for instance, the loan program is billed as an economic development program. For every $50,000 to $100,000 in dollars loaned, there are to be X number of jobs created or retained. This is where a large part of the "jobs creation" and "jobs saved" figures come from that the President has been speaking about. What happens with the 504 program is that a borrower moving into a building or buying a large piece of machinery is in theory supposed to be creating jobs. The jobs are supposed to be created within 2 years of occupying the building (I don't recall how it works for equipment). While the actual jobs are not created immediately, it is my understanding that the SBA counts those jobs when the loans are approved/ funded. But in a recession, the SBA does NOT count the jobs lost due to contraction within the economy. The government relies upon the bogus unemployment numbers produced by our government. (Anybody ever notice that the government lately says "unemployment was lower than forecast" and question the original forecast? Anyone ever question whom it is that is creating those "forecasts"?).

In my opinion, the jobs creation and jobs retained numbers are not totally without merit, but they should not be relied upon or taken at face value. When a borrower does not create the 6 jobs s/he intended to create when they obtained their financing, the government is not going to penalize the borrower with anything but a "technical default". Any financial consequences (fines or other charges) only serve to do further harm and damage to a company.

The jobs retained figure is arrived at with the notion that if we don't provide financing to ABC Corp. for their building, they may be forced to move into another location and therefore these jobs *could* be lost (due to commute into another city becoming onerous, which is not likely). While there are times that warrant use of the jobs retained argument. For instance, there are some landlords that are horrible and want tenants out immediately to raise rents and financing a new building stabilizes occupancy costs to enable the company to control its spending better to hopefully hire more people. Or there are some landlords that offer a tenant a first right of refusal on a building and they accept, because they can't afford the $50,000 to $100,000 to move all their equipment to a new location, but they can fund a down payment with that money under the SBA's loan program.

I believe when our President speaks of jobs saved, he's referring to SBA loan activity.

To those that say the bank's aren't lending, I waive my paw and say "Bah!" They may not be lending to YOU because YOU don't have (1) cash flow that supports repayment, (2) sufficient collateral, or (3) a really bad credit history.

The principal reason that the program you propose won't work, Scott, is that our government (especially our current President) wants to be in control of every major decision people make and he wishes to discuss everything in committee. He is the Pointy-Haired Boss.

Another issue I think that people here do not grasp is the difference between PROFIT and CASH FLOW. The two are not the same. I've seen many clients who report a loss but it's what comprises the loss that counts. If the loss is comprised principally of non-cash adjustments to earnings (i.e., depreciation and amortization) then the company may have very good cash flow. When a company invests in capital equipment - say a new CNC machine - the government allows considerable deductions to income for this equipment because purchasing the equipment puts money into the economy, as does hiring another machinist to run the equipment.

If you look hard enough, you'll see that the government has already created these programs to influence the economy. The real issue is getting banks to lend and accept their own risk, and not letting them sell bad portfolios of high-risk loans as high-yield investments. If you lend to someone that has a history of not paying obligations, don't be surprised when you don't get paid either.

It's also about getting investors to realize that investments are RISKY which is a gamble they took when they bought the investment. Don't many of the disclosures state something like "this investment may lose some or all value..."

I think it boils down to responsibility over selfishness. GM is being killed by the UAW's unwillingness to step into the 21st century and realize that if people aren't buying GM's cars, the GM pensioners are S.O.L., so lets work together to avoid losing ALL the benefits. Wall Street is too short-sighted, focused only on the short-term returns on investment. Same with most banks.

When the lending all but ceased in 2008, many banks cut their entire SBA loan departments. Rather than ride out the downturn, they let everyone go, flooding the market with unemployed bankers. Now that lending is picking up, some of those same lenders are now scrambling to get an SBA department back together and will very likely have spent more money on hiring and training than if they'd evaluated their staff, kept all necessary people and not undertaken massive layoffs. Doesn't fiduciary obligation to shareholders extend beyond the next quarter or fiscal year? Does it not extend into the future, to ensure that the 'investment' (i.e., bank stock) remains strong, even if it drops a bit with some losses and fluctuation in the industry? Every industry is cyclical.

I'm actually a huge scott adams fan. I loved the dilbert future and the dilbert principle. I think it is great that you float ideas and accept criticism. Kudos scott.

Wrong on so many levels... I can just wave with my paw and say: "bah"

I enjoy 'circomventing' the system.

Sorry.

Let's all agree to spell it, 'circomstances' from now on, so Scott's cuss filter doesn't bleep it out.

Just saying.

I'm done. SOrry for the multiple posts.

"For education, imagine all of the skills that the current unemployed possess and would be able to transfer, if only there were a company to organize them. There's a huge demand for student tutoring. In my area, the kids who are struggling use tutors, and the kids who are doing well also use tutors to get an advantage for college. Tutors charge up to $40 per hour."

This is true and a great idea, but it can already be done with no action on the part of the government. I'm not sure why this is included in your blog post.

How about we give out tutoring and education vouchers to students that are less than what we spend now per student? Some new studies have uncovered some hidden costs in the public school system. The new numbers are shocking, as there are several school districts spending almost 30 grand per student per year! At 40 dollars an hour, that is 750 hours of private tutoring. The average school is only really spends about 15 grand per student, but that is still 375 hours of private tutoring. You really only spend about 6 hours of the school day actually learning anything (at best lol) multiplied times 180 school days, that's 1,080 hours of instruction. That sounds like a lot, but remember, the average classroom has approximately 25 kids. I'm sure that the tutors would reduce their per child rate if they could teach multiple kids at once. I'm sure a tutor could teach 4 or 5 kids at once without it hampering development. And all they need is a place to study. Really, once you got 3 kids in a room, the tutor has already beat the school system's prices.

Maybe it wouldn't work in practice, but let's all take a moment to really digest these numbers and try to figure out if our current system couldn't be improved.

Personally, I believe that the government is essentially one big jobs program. Instead of paying somebody 50 grand a year to do something nobody gives a crap about, why don't we just pay them 20 grand a year to sit at home. That's a 30 thousand a year savings, and we don't really have to give up anything except make work jobs.

In fact, you could replace the 6 trillion dollars in jobs programs that currently exist in the country with about 8 or 9 subsidies and vouchers given directly to individuals and employers (on a per employee basis). This is a liberaltarian idea that i agree with. If we all agree that the government exists to help the desperate, why do we spend so much money creating jobs for people who are simply middle class folks or higher chasing the government cheese? We're aiding people who make over fifty grand a year and we create make work jobs that pay more than any real private sector job, when we could give 4 grand to somebody who is poor and really make a difference in their lives.

And !$%* politicians who talk about "the middle class." No class recieves more government money and support. BOth republicans and democrats wax poetic about the middle class, because that way you can seem like you're not shilling for the rich or the poor. However, everybody believes that they are "middle class." I'm actually on the lower end of middle class to poor, but I know people whose parents make 120 grand a year who attend public schools and drive on public roads. Oh yeah, and some of them actually work for the government too. So much aid for people who are already well of when there is still so much suffering.

Your government investment plan would just be more wasted money chasing risk to give jobs and money to the people who pretty much already have it (relative to the actual poor) at the expense of the desperate we could actually help.

A liberaltarian is a liberal who has realized that the government is one huge jobs program.

Even simply acting as the investor of last resort, the government is still keeping failed businesses afloat, and distorting incentives in a negative way.

1)YOu are simply continuing to subsidize risk, this time putting tax payers at risk.

2)The government will take active control over the economy in the event of any "crisis" it can cook up.

3)Keeping people in jobs that otherwise wouldn't exist stifle real economic growth.

4)The government could raise taxes more and more causing more businesses to be dependent on government investment. In a high tax environment where the government is the main investor, politics becomes more relevant to CEO's than viable private business strategy.

You're simply putting the apparatus in place for a dictator to appear and wreak havoc. Sure, obama might not be that guy, but what about the next president? What about Bush? Think of all of the presidents you didn't like, and now imagine that the government controlled the purse strings of the economy during their presidencies. Still think it is a good idea? You're basically sitting in front of a loaded gun, hoping the owner doesn't actually pull the trigger.