government

1 Comment Posted on by trevor_rogers1 20th century, Uncategorized

Is The Government More Entrepreneurial Than You Think?

Image result for tesla government subsidies political cartoon

image from wattsupwiththat.com 

 

When most American’s picture the relationship between government and capitalism, they see a stark divide. On one side, there is the government, creating roads, funding the military, bettering education, in general putting money into sectors for basic needs. On the other, there is capitalism, Titans of Industry creating inventions like the iPhone, Facebook, or even the Tesla Model S. Mariana Mazzucato is a professor of Economics of Innovation and Public Value at University College London, and she seeks to show how government and capitalism are much more connected than we think.

The glaringly obvious Big Idea that Mazzucato uses is capitalism, and this is how she defines it;

[The] Defining feature of capitalism is how it “has really broken down all sorts of walls, that it’s constantly changing how industries operate; how production, distribution, and consumption work”

She begins her argument by pointing at her definition of capitalism. She argues that the government puts in significant resources into funding early-stage research, largely contributing to the success of technology, pharmaceuticals, and energy. By funding this research, Mazzucato believes that the government is changing how “production, distribution, and consumption work” and are therefore active participants in the capitalist system. Mazzucato points to several government agencies, specifically NASA, DARPA, and the National Institute of Health and how they contributed to inventions such as the internet, GPS, and HD displays. She believes that without these innovations, companies like Google would have no internet to run on and Tesla would have no GPS to lead its cars.

Mazzucato continues on by affirming that not only is government investing billions upon billions of dollars into research, but they aren’t getting credit for it, and they’re not getting much of a return. She illustrates this belief with two companies; Tesla and Solyndra. The government investing 1 billion combined in both companies. Solyndra failed and the government lost its investment and the American people were upset that the government was attempting to act as venture capitalists. Tesla on the other hand succeeded tremendously, and the government got no recognition for it, and no return on investment. Mazzucato suggested that the government should have required tesla to give them 3 million shares and after the significant boost in Tesla’s stock over the years, the government would have to been able to make its money back from the loss on Solyndra. She affirms that if the government is going to spend this money investing in companies, that it should also get a pay-out from them.

Mazzucato also delves into the market on pharmaceuticals. She states that most research during the beginning stages isn’t funded by private institutions, but by the government. She continues by saying that most large pharmaceutical companies don’t speed that much money on research and development, but instead on stock buy backs and dividends. Mazzucato believes that since the government funds so much of the development on these drugs they should be able to influence the price, specifically, by putting a price cap on drugs.

Overall, Mazzucato believes that the government is already an active participant in capitalism. She wants the government to be a co-shaper, and co-creator, not just a worried parent who sits on the sidelines waiting with band-aids for something to go wrong.

1 Comment Posted on by noah_roberts1 business, state, and society, unacknowledged assumptions

The Private Business of the Public Government

Noah Roberts

To an extent, almost every American values, or is at least told to value, the free market society. We often hear references to Adam Smith and his proclamation for a free market and automatically pair it to the idea of no government interference in corporations. Many will often argue, “Let the government deal with the issues of the government, and businesses deal with the issues in business.” But, what if we shift our perspective on the relationship between innovative corporations and the government? We often look at the relationship as a black and white issue; government regulation or no government regulation. However, we should be focusing on the degree to which the government helps innovate, not regulate.

On her Freakenomics podcast “Is the Government More Entrepreneurial Than You Think?”, Mariana Mazzucato, a professor in the economics of innovation and public value at University College London, further explains this relationship. At the very start of the Podcast, Mazzucato completely flips the argument that Adam Smith wanted a free market separate from the state. She mentions how he actually wanted a free market from rent-seeking, which were activities that would extract value. This sets the foundation for the rest of the podcast where Mazzucato shows how the government is actually very involved in the innovation and investment of new companies. The state has been involved in many startup companies and industries. They are often the first to invest in the innovation of risky and uncertain technologies that private firms don’t want to invest in. This fuels her stance that the state shouldn’t be thought of as a last resort, but as a “first resort investor”. They have had plenty of successful investments, as well as plenty of failures. She brings to light, however, that the failures are always talked about and not the successes. This led to Mazzucatos’s point that the government has done a poor job of making returns on their successful investments, and that the private companies are benefiting the most of these tax funded loans given to them from the government.

The big idea most evident throughout this podcast, is the relationship between business, state, and society. Mazzucato mentions how many people think that to be more innovative we need less government. However, she disagrees. One of the most innovative parts of the U.S. economy is Silicon Valley. Most would assume that this is because of the private companies’ own research and advancement. What most fail to realize is that the government was deeply involved in investing in innovative research with programs like DARPA and ARPA-E. The government was also a leader in the exploration of fracking in the late 1920s, spending more than $130 million on extraction techniques. This point alone shows how essential the governments involvement with business innovation is. Other private companies didn’t want to take the risk of investing that much money into a business that may fail, but the government’s leadership into that field led to a very essential part of our economy. The government has also loaned money to, and invested in, multiple outside corporations. A successful company that most of the public fails to realize was given state funding is Tesla, which was given a $465 million loan. On the other hand, when the state funded company Solyndra failed after receiving a $500 million loan, every taxpayer was told about it on the news and as a result, angry with the government. The question is why was the success drowned out and the failure brought to the attention of everyone? The answer lies within the governments poor marketing of themselves. They don’t publicize their affiliation with companies like Tesla enough, which results in heavier criticism when they invest in a failing company.

The government also makes the unacknowledged assumption that having businesses give them stock when they can’t pay off the loan will cover the debt of the money given. Mazzucato mentions that the government will ask for 3 million shares of stock when a company does not completely pay off its loan. This policy doesn’t make much sense to enforce, however, when the stock is most likely not going to be worth very much. The government actually needs to be doing the exact opposite. Every time the company is able to pay off their loan, they need to give the government 3 million shares of stock. If we revisit Tesla, their stock was worth 9 dollars in 2009 and increased to 90 dollars by 2013. Mazzucato noted that this increase multiplied by 3 million would be able to pay off the debts of other loans that were not paid back in full, like Solyndra. Instead, Elon Musk has made a profit of $5 billion, while the government is left with the debts of their unreceived money.

Lastly if we revisit the relationship between business, state, and society and the capitalist nature of corporations, we can see why industries like the pharmaceutical industry are able to charge such high prices. Like the companies mentioned earlier, the state is loaning money to pharmaceutical companies for research. These loans of course come from the tax payer. Then, in the capitalist ideal of maximizing profit, the company will charge outrageous prices for new pharmaceuticals. People then have the choice to either let themselves or a family member stay ill or pay the price set before them. Essentially, this results in the customer paying for the drug twice. Once through the tax funded loan, and again on the overpriced market. The most frustrating part about the high prices may be that even though the government has the right to set a price cap for publicly funded products, they choose not to in fear of pushback saying they are anti-free market.

Overall, these points are not trying to prove that we need more government investments in the business world. What they do prove though is that the government needs be recognized as more than a by-stander waiting for things to go awry. As Mazzucato put it, “it is to be an active co-creator and co-shaper.”

 

(Picture found on politicalcartoons.com)

 

 

 

2 Comments Posted on by haley_beard2 20th century

Big Government Cheese

When reading about President Trump’s promise to the farmers, the article kept mentioning how it will bring back the “government cheese” event from Jimmy Carter’s campaign. Prior to reading this article, I had not even heard of the term “government cheese”. To hear about more on the subject, I listened to the Planet Money podcast on Big Government Cheese.

Within this podcast, I was informed about how in 1976, Jimmy Carter was running for president and proposed to give farmers an equal break. He planned to do this by raising milk prices by 6 cents per gallon every 6 months. Carter followed through on his promise to the farmers and tried to figure out a way the government can step into the market to make it happen. They figured out they can either make demand greater or lower supply. USDA decided to go down supply the chain one step to find milk products that could store well. They came to the conclusion of cheese, specifically cheddar cheese. The government sent out sheet of paper to farmers that states they will buy as much butter, cheese or nonfat dry milk they are willing to sell at certain prices. By the government buying more cheese, cheesemakers buy more milk which in turn drives milk prices up.

Consequently, the government had an issue with storing cheese and had to store cheese in caves in Kansas because they had no other place to store the cheese. By early 1980s, the dairy support plan for cheese was costing tax payers around 2 billion and the government was buying 1 in every 4 pounds of the country’s cheddar cheese. This dilemma reached the point where the Agricultural Secretary held up hunk of cheese in a press conference and talked about the mold deteriorating cheese and how there wasn’t a market for it. A new program was created to give cheese away through food banks so that the market for cheese wouldn’t take a huge hit.

Government cheese became a symbol of crappy government handout as well as a parable in how government intervention in markets can have a butterfly effect, Jimmy Carter makes an innocuous announcement to help farmers and then the government ends up spending billions of dollars filling caves with cheese they couldn’t get rid of fast enough. The most prominent “Big Idea” for this course that is brought to our attention within this podcast is unintended consequences. Failing to acknowledge what might happen to the markets or the fact there will eventually be a large surplus for cheese came come back to bite the government. After finding the solution of food banks, the caves slowly emptied and the price for milk automatically froze every 6 months. The government did not foresee that price controls would be hard to unwind once they are started. Because of this, the government pondered how to get out of cheese business without harming the farmers too much. They ended up paying money to the farmers to encourage them to stop producing milk.

Due to the argument that our country has to be able to produce its own food because if our farmers go out of business, then we become reliant on other countries for food which is a security risk. It’s one thing for the government to provide stability and it is another to step into the market in a big way and possibly the wrong time because playing with price controls is like playing with fire.

 

(image on the left from twitter and image on the right from the podcast)

2 Comments Posted on by noah_roberts1 20th century, business, state, and society

Lobbyists: Their Opinion Means More Than Yours, Or At Least To Congress

Noah Roberts

Junior year, after we had completed the AP government and politics exam, my class watched the movie, “Thank You for Smoking” starring Aaron Eckhart and Cameron Bright. The movie focuses on a slick lobbyist, Nick Naylor, who works for the Big Tobacco Corporation. Throughout the movie, Naylor is often spinning the reported negative effects of smoking and trying to work out deals with the government on how to brand and warn society about the effects of smoking. The twisted agenda of Naylor and the Big Tobacco corporation was to market cigarettes in the most appealing way possible. They didn’t care that they were deceiving the public into buying goods that were damaging to their health; they were focused on maximizing their sales and profits. Although this movie satirized to show the extremes of lobbying, it holds some truth in the relationship between businesses and government.

To learn more about the state of lobbying within our government, I read,”How Corporate Lobbyists Conquered American Democracy” written by Lee Drutman from The Atlantic. Drutman brought to light the continual growth of lobbying in our government. Lobbyists reportedly spend $2.6 billion a year, which is more than the $2 billion that is provided to fund the House of Representatives and Senate combined. Compared to the 1950s and 60s, where special interest groups and labor unions had much more impact in the government, business lobbying has become the strongest force in government influence. The relationship between government and business has completely flipped in the last 50 years, from corporations shifting their focus from avoiding government involvement in their business, to focusing on how they can be business partners with the government. This has resulted in more lobbyists being more politically active and proposing and supporting more laws and legislation.

The most obvious “Big Idea” to me, is the relationship between business, state, and society. The actions of business and government are not so separate, and actually go hand in hand. The businesses and government are proposing new laws that can benefit both of them. For example, the article states how in 2000, the industry lobbyists were able to get Medicare Part D passed, which would benefit them by $205 billion in the span of a decade. The lobbyists were able to use the government as a vehicle to a major profit, while Congress was able to get legislation passed. So, if both sides are getting what they want, it makes sense the lobbying relationships have grown so rapidly. This relationship, however, ultimately effects the everyday people in society. For example, when a deal with Medicare Part D was made between the government and corporations, it resulted in different Medicare options offered to the people. Or when a cigarette company like the one portrayed in the movie actually does lobby for less regulation on their products, more people will be attracted to consuming more of their product.

Lobbying in the government doesn’t always result with a harmful outcome for the people in our society. What it does do, though, is take away the voice of the people. Everyday workers who are a part of labor unions or special interest groups now have less of an impact with what legislation is passed. Congress is listening to the people with the money, and not the people who have to deal with the outcome of whatever is passed. The article mentions that for every dollar spent by a special interest group, lobbyists are spending $34 and that each corporation has about 100 lobbyists. With no way to compare to these resources, the interests of the common man are being drowned out.

In his 1961 Inaugural Address, John F. Kennedy stated one of the most famous quotes, “Ask not what your country can do for you; ask what you can do for your country.” I think that corporate lobbyists should reflect on this quote, as it seems to me they are trying to see what our government can do for them.

1 Comment Posted on by katie_shore1 20th century, business, state, and society

It Ain’t Easy Being Cheesy

Katie Shore

(Image from NPR: “Uncle Cheese”)

Who would have thought that the government cared about cheese? Believe it or not, they did. The government and cheese have interacted in the past and affected our country’s economy and society.

Let’s go back to when it all started: Jimmy Carter’s campaign promise to give farmers what he called “an equal break.” It makes sense that Carter would want to help the farmers because he knew what it was like to be a struggling farmer: in 1954, his farm’s net profits were a mere $187. After winning the election, Carter went to work trying to fulfill his promise. First, he raised the price of a gallon of milk by six cents. The interaction here between business, state, and society is quite remarkable. The government came into the dairy industry and raised prices by using a price floor. I wonder how other businesses felt about this decision by the government. They must have been asking why the dairy industry was getting bailed out; surely, the dairy industry wasn’t the only struggling industry at the time. The state’s involvement in the pricing of dairy clearly shows Carter’s bias towards the farmers. While these dairy farmers and their businesses might have benefited from the government’s help, the rest of society was stuck paying more for their milk.

Let me pull out my notes from my Economics class (thank you, Dr. North). Because of the government-instituted price floor, dairy farmers were ramping up production; at a higher price, producers wanted to make and sell more goods to earn more money. Consumers, however, didn’t want to pay this higher price and demanded less than the producers were producing. This led to a surplus, which led to more government intervention.

The government started buying and trying to store lots of milk, but milk has a short shelf life. The solution then was to turn this milk into products that didn’t expire as quickly, such as powdered milk, butter, and cheese. Next, the government told dairy farmers that it would set a price and purchase as much as the farmers were willing to sell. Unfortunately, farmers took advantage of the situation and tried to sell the government their worst cheese. That’s where cheese graders – not graters – came into play. These people traveled the country evaluating cheese based on specific criteria including its flavor, acidity, fruitiness, and so on. The government bought cheese that met all of the grading requirements and then stored it in caves.

This whole cheese-buying extravaganza was costing billions of dollars, and the government needed to find a way to get rid of its cheese. Rather than flood the market with the cheese, destroy it, or send it overseas, the government decided that it would process the cheese, package it, and then give it away. These blocks of government cheese – pictured below – were given to schools and food banks to try to provide for the hungry.

(Image of a Block of Government Cheese from a magazine titled Rolling Out)

Government cheese often gets a bad rap, primarily because of its unintended consequences. First, the government’s efforts to help the farmers led to very expensive cheese for consumers. Second, the government’s supposedly beneficial price controls were actually harmful and very difficult to undo. Third, the government had to start paying farmers to stop producing milk while simultaneously instituting campaigns to convince people to buy milk. Got milk? Today, instead of directly buying farmers’ products, strategies such as direct subsidies work much better – and don’t require the government to store billions of dollars worth of cheese in caves.

You would think that we had learned our lesson from the past, but it appears the government is going back to its old ways. As of August 31, there are plans to purchase $85 million worth of dairy for schools and food banks. I’ll leave you with a quote by philosopher George Santayana: “Those who do not remember the past are condemned to repeat it.”

If you have time to listen to the NPR episode of “Planet Money” about the history of government cheese, I would recommend that you do so. Who knows? We might have another cheesy situation on our hands very soon…