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November 29, 2007
Taking the Long View
Don Boudreaux
Here's a letter that I sent a few days ago to the Washington Times:
Carl Henn asserts that "Congress can . . . react in ways that protect our long-term interest, while marketplaces can't, due to the tyranny of short-term monetary pressures" (Letters, November 27). Mr. Henn mistakes imagination for reality.
Although imperfect, markets routinely take the long-run view. The reason is that assets and firms designed for long, productive lives generally have higher values today than do assets designed only with tomorrow in mind. If, for example, Southwest Airlines were tyrannized by short-term monetary pressures, it would never spend hundreds of millions of dollars buying or leasing a fleet of 737 jets.
Where short-term pressures truly reign tyrannically is in politics. An elected official's time horizon extends no further than the next election. If spending money today will buy votes, experience shows that such spending will occur regardless of its long-term wisdom. I challenge Mr. Henn to defend the federal budget as being a shining example of long-term planning for the greater good.
Sincerely,
Donald J. Boudreaux
Posted by Don Boudreaux in Myths and Fallacies, Politics, Property Rights | Permalink
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Comments
Mr. Henn mistakes imagination for reality.
Brutal, but deserved. Nice letter.
Posted by: Mason | Nov 29, 2007 11:15:46 AM
An excellent example of this was the incessant increasing of social security payments by the pre-1994 Democratic Congress to buy the votes of senior citizens. Heck, even a social security's founding, there was an understanding that there was going to be long-term harm, but FDR needed the votes to win re-election.
Posted by: Chris | Nov 29, 2007 11:36:01 AM
Donand,
". . . mistakes imagination for reality."
Which is the great fun of theater, and what grander stage than our increasingly international politics.
With Macbeth's witches and Richard III's prophetic dreams, did not Shakespeare have it nailed?
John
Posted by: John S. | Nov 29, 2007 11:56:08 AM
Donald,
Pardon my typo.
John
Posted by: John S. | Nov 29, 2007 11:57:34 AM
Mr. Henn barely missed being elected this month to the City Council of Rockville, Maryland. Asked what was the most urgent problem facing Rockville today, he responded:
“Global oil production will soon enter decline, and we aren't ready"
Did the 2300 people who voted for Mr. Henn believe the Rockville City Council could enact solutions for declining global oil production?
Here's the responses to the same question from the winning candidates:
Phyllis Marcuccio: “Zoning code revisions … current codes are inadequate for dealing with the increased pressures on our city toward urbanization.”
Anne Robbins: “the very negative impact of overdevelopment in the region, and in particular the growing traffic congestion resulting from this”
John Britton: “Uncontrolled and mismanaged development.”
Peter Gajewski: “Preserving the 'home town' character of Rockville's many neighborhoods while ensuring that infrastructure and services keep up with growth ...”
So Rockville voters were more concerned about traffic and development than about global oil production. Perhaps Mr. Henn's large vision for Rockville was just too advanced for the electorate.
Posted by: John Dewey | Nov 29, 2007 12:07:15 PM
I'd say that the markets respond well to short and long term, though they will stop working on the long term when faced with disincentives. I'd say the government responds well to short term vote buying and patronage schemes, but very poorly on long term. E.g., wars they don't see coming, continuous cost increases and unintended consequences of long term patronage schemes, inability to utilize new technologies for things like private accounts, etc.
Posted by: Randy | Nov 29, 2007 12:19:53 PM
I challenge Mr. Henn to defend the federal budget as being a shining example of long-term planning for the greater good.
Smackdown!!!
From Randy @12;19,
unintended consequences of long term patronage schemes
I take issue with the word unintended. I think it is precisely the intent to steal (legally, with government being the enabling tool of the theft in question) from some and give to others in the long term. In addition to the intent working out as thought out (for the recipient of the legal theft), they could care less about the tradeoff consequences on the victim of the legal theft, in either the short or long term.
Posted by: happyjuggler0 | Nov 29, 2007 12:55:30 PM
Speaking of:
"Global oil production will soon enter decline, and we aren't ready"
You can buy 84 month crude oil futures. I wonder if he is putting his money where his mouth is.
Posted by: Floccina | Nov 29, 2007 12:56:46 PM
Good point, juggler.
Posted by: Randy | Nov 29, 2007 1:25:23 PM
"If, for example, Southwest Airlines were tyrannized by short-term monetary pressures, it would never spend hundreds of millions of dollars buying or leasing a fleet of 737 jets."-DB
“Global oil production will soon enter decline, and we aren't ready" - Mr. Henn
Perhaps a better example of market success in long-term planning would be Southwest Airlines' well-publicized hedging of fuel prices that kept fares low and and their stock profitable.
http://www.usatoday.com/travel/flights/2007-04-19-southwest-posts-first-quarter-profit_N.htm
Posted by: Kevin S. | Nov 29, 2007 3:18:05 PM
That's a good point, Kevin S. Southwest's hedging program allowed them to resist price increases floated by competitors many times in recent years.
One of the key factors to Southwest's profitability - and perhaps the most important - has been its ability to keep its planes in the air for more hours each day. These expensive assets only generate revenues when they fly. So Herb Kelleher's company years ago devised a system that allowed for maximum flying time. Southwest's aircraft turn times are legendary in the industry.
Posted by: John Dewey | Nov 29, 2007 3:54:56 PM
I wonder why no one has said something yet "well maybe a big reason businesses are having problems with long term outlook is because money is made up of highly depreciating paper, if people went back to good ol' gold then many people could now save up lots of capital for long term projects".
Posted by: Gil | Nov 30, 2007 1:03:48 AM
Gil: I wonder why no one has said something yet "well maybe a big reason businesses are having problems with long term outlook"
They probably didn't say that because most large businesses are not having problems with long term outlooks. Japanese automakers build U.S. plants they plan to operate for 30 or 40 years. Energy companies are acquiring leases and drilling wells that will generate revenues for 20 years or more. Paper companies are planting trees that won't be harvested for 20 years. When Walmart built each one of its $25 million food distribution centers, it wasn't planning to abandon them in two years. As Professor Boudreaux pointed out, Southwest Airlines plans to get 25 or more years service out of each $50 million Boeing 737 it buys.
Of course, Carl Henn is probably meaning 50 or 100 years when he writes that corporations cannot "protect our long term interest". But Professor Boudreaux is correct that governments have proven to be even more inept at such planning.
Posted by: John Dewey | Nov 30, 2007 6:16:31 AM
Maybe we're not gold bugs, Gil.
Posted by: Russ Nelson | Nov 30, 2007 9:07:45 AM
These examples of long term business planning are great. Most non-econ folks forget that the expected future value of assets and commodities always has a bearing on their current price.
Posted by: Nathan Bowers | Nov 30, 2007 1:06:35 PM
Regarding the "gold bug" comment by Russ-
as an aside...I have seen very few posts here about fiat vs commodity money. Am uncertain where the hosts' stand(s) are. Am less aware of my own. Econ undergrad major 12 yrs ago and have spent past year reading and trying to remember all that I forgot and never never learned originally. Silent partner here about one year. Have learned much from many of your thoughtfull comments. Salient link from here I may have missedwould be appreciated.
Posted by: tc | Nov 30, 2007 1:34:43 PM
John Dewey says: "So Rockville voters were more concerned about traffic and development than about global oil production."
Well, the euphemism for "managed growth" is "concurrency", and to me it seems akin to "smart growth" in opposition to "urban sprawl".
Thus while Rockville voters see this as a concern (and no doubt it is), it seems to challenge the principle of individual liberty and property rights.
Peter Rebmann is a self-described concurrency advocate in Florida, and despite the red herring, it's not hard to see his agenda: http://tinyurl.com/2cmpk4
Posted by: True_Liberal | Dec 1, 2007 8:32:20 PM
true liberal: "while Rockville voters see this as a concern (and no doubt it is), it seems to challenge the principle of individual liberty and property rights."
Of course, I agree. But it's not just that smart growth is an assault on freedom. It also doesn't accomplish its objective of reducing congestion and pollution.
My point, though, is that reducing congestion is a problem that city councils might reasonably direct their energies. Addressing the real or imagined "problem" of declining oil production - Mr. Henn's apparent goal - is not.
Posted by: John Dewey | Dec 2, 2007 6:19:54 AM
I hope Henn gets a hold of this piece and reads it. He deserves to feel gobsmacked after writing such drivel.
Posted by: Jay | Dec 2, 2007 7:43:04 PM
I just found this and read it. I don't feel particularly gobsmacked. No, I can't defend the federal budget or political process as being more farsighted than the market. It was my hope in writing the letter to the editor to which you are responding to encourage adoption of measures that would be more farsighted. Alas, the bill as passed wasn't very farsighted at all and probably does more harm than good.
In acknowledging the energy bill's failure, I still contend that government action can advance the public good. Actions like the banning of leaded gasoline and appliance energy efficiency standards come to mind.
America will be gobsmacked when oil production enters decline. We use far more oil per capita then our economic rivals. Google "export land model" to see why we may be hit by declining oil availability sooner and harder than simple depletion projections alone would suggest.
Carl
Posted by: Carl Henn | Dec 23, 2007 10:34:36 PM
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