Tuesday, December 23, 2008

Were Bill and Dave right?

Much of the focus in righting the economic system seems to have focused on lending: fixing the effects of bad loans to get good lending going again so that companies and the economy can once again grow.

Yet, thanks to Justin Tilson, I discovered Chris Martenson's Crash Course. It makes the claim that debt is a key factor in creating growth and the problems of growth. I found the series interesting, but I wasn't in tune with his recommended solutions. They struck me a bit too much as "run for the hills" and not enough "here are some ways we together can craft systematic solutions." I should listen again to see if I get a different impression in a second pass, but I don't have the time. That's why I usually prefer well-written and -illustrated text to video—it's faster to read and faster to review—but that's just my personal preference.

Later, reading (or reacting to) James McCusker's Federal loan guarantees mean more jobs made me wonder: did Bill and Dave get it right on a more global scale than they perhaps realized?

What does that mean? If you know that I used to work at Hewlett-Packard and you recall any of the twentieth century history of high tech in the USA, you likely know that I'm talking about Bill Hewlett and Dave Packard. In one famous case, which you can find described in multiple books, Dave returned from his stint working in the US Department of Defense to find that HP was about to raise money through significant borrowing. His reaction made it abundantly clear to a generation or two of HP managers that HP did not raise significant money that way; HP funded future growth out of current profits.

Putting McKusker's commentary, Martenson's ideas, and Dave's values together, I wonder if a focus on supplying real needs and growing through profits rather than growth for growth's sake and growth through borrowing would be better for businesses, better for the economies of the world, and better for people.

Incidentally, McCusker is in favor of more loans right now to get the economy moving again. With so many people out of work, I realize that something must be done and that interim measures may not match long-term solutions. I'm musing about long-term approaches here; how to get from here to there is a different matter.

What do you think?

PS: If you wonder what Dave's reaction to debt was, ask an HP veteran of the time, or check out Chuck House's and Ray Price's upcoming book; I'm sure it will mention it.

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Blogger Tom Fiddaman said...

The whole stimulus/bailout response leaves me feeling a little uneasy. The reliance on lending to create the money supply seems like a key part of the problem (a positive loop that turns ugly when it runs in reverse). But I wonder if the effectiveness of the Keynesian response (spending/tax cuts) isn't to some extent contingent on running a balanced budget on average. I don't get a good feeling about running a huge deficit to sustain a level of consumption that was already reliant on a twin-deficit binge.

Seems to me that a different way of viewing the task at hand, in line with your comment above, is to figure out what we really need to consume, at a level we can afford (5 to 10% less than what we've been consuming). Then figure out how to unravel the debt taken on in expectation of the ongoing higher level.

An obvious way to do that would be to print money, and let the resulting inflation and dollar depreciation adjust real consumption. That's a pretty unmentionable approach though.

09 January, 2009 08:31  
Blogger Bill Harris said...


You and I are touching on what I think is a very important topic, and I'd really like to get more involved in making sense of it and helping work towards a solution. While I don't think simulation is the answer to every question, I think it can play a key role in this case.

For example, your last paragraph could lead to a very interesting concept model, and it would be interesting to see what effects it would generate.

While I appreciate George Richardson's comments in his Feedback Thought in Social Science and Systems Theory that SD differentiates itself from cybernetics by attending to both positive and negative feedback loops, I wonder if we need significantly less emphasis on positive loops in society today. I sense that may be what you're saying in your penultimate paragraph. One challenge, of course, is how to do that without a planned economy, which we generally believe to be another unmentionable and thoroughly disgraced concept.

I have a few questions queued up for (I hope) my next posting that pertain to your questions; I'll be curious to see if you or others have any responses or answers to those questions.

Thanks for stopping by and sharing your ideas!

09 January, 2009 12:18  
Blogger Bill Harris said...

Might the alternative to a planned economy be changed mindsets? Changed mindsets are certainly something Dana Meadows emphasized, judging by her writings, and something that John Schmidt and Cynthia McEwen of Avastone Consulting are quite interested in fostering, as I recently posted.

09 January, 2009 13:57  

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