I’ll Take “People Who Shouldn’t Be Writing About Finance or Economics” for $1,000, Alex

1 Dec

So this happened earlier today:

This, from a guy with 15,000+ twitter followers and a popular blog, who writes about Finance and Economics?  I remember back when the first transaction was created some non-finance people questioned this (and the non-finance media let them know), and that was one thing.  Now, two+ years later, this guy is so ignorant about basic freaking things about the Fed and its operations he has to not only take to twitter to get an answer (as if one was never given!) but then talks about Taibbi as if he’s some sort of authority?!?!

Unbelievable!

That he couldn’t even Google “Maiden Lane LLC” to get his answer makes it even worse.  Wikipedia spells it out in the 3rd sentence!

Ok, I’ll be fair: I tend to ask alot of questions on twitter, but I’d like to think I’m seldom called-out (deservedly, at least) for stuff like this.  I have dozens (and dozens…) of posts I’ve started but never finished over the years because part-way through, I realized I had no standing or expertise from which to speak authoritatively (or even intelligently) on the subject.  For other posts, really many if not most, I have to do some semblance of research, even if it’s just Googling a company to get some basic info like important dates or quotes or what-have-you.

Not to toot my own horn, but as a simple fact, those of you who’ve followed me know that I openly encourage and invite people to correct me if I say something incorrect or incomplete, and more importantly, if proven wrong have no problem admitting as much in an open forum.  (On a side note, most critiques of what I write are from people who seem to read half a post – or less – and thus miss the point entirely, sigh…)

This guy, though, doesn’t appear to have such a filter nor the knowledge to know that he does not know.  I follow him on twitter for kicks and because alot of people I follow do, but I’ve read maybe 1 or 2 of his posts to date, so I decided to go check some of his recent posts to try to get an idea of what this guy actually does – or doesn’t – know.

I try as much as possible to give people the benefit of the doubt, that I’m seeing something out of context or whatever I’m looking at represents a brain-fart or a post written while massively hungover, but here, I’m kind of at a loss.  What am I supposed to do with this post?  The title isn’t bad, and actually piqued my interest to the point where I was expecting something fundamentally sound with a creative, optimistic bend.  Unfortunately, we instead get crap like this:

But a businessman with a good idea who needs capital doesn’t need a tax cut to get that capital, he needs a loan or an equity investment. This is what we have a financial system for. Sergey Brin doesn’t need to first get rich, then finance Google out of his own pocket. He just needs to start Google and that’s how he gets rich.

Yes, all it takes is an idea et voila, Money Money Money!!!!!  Money as far as the eye can see!  One good idea and magically every good idea becomes a successful business that can employ all of our needy job-seekers.  Yes, thinks makes sense, tell me more…

The thing of it is, though, that your idea really only works if you have some customers. If everyone in Yuma, Arizona is unemployed then even a very competent proprietor of a dry cleaning establishment is going to have a hard time expanding his business. He won’t take out a loan to expand, he won’t get an equity investment to expand, and he won’t invest his own money in an expansion. You can give the guy all the money you want, and he won’t invest in expanding his business. That’s because unemployed people don’t need much dry cleaning and also don’t have much money to spend on dry cleaning.

So let’s go through the assumptions in this little scenario:

  1. You own a local business; people from far-off geographies are unlikely to be customers,
  2. Everyone, EVERYONE in your geographic area is unemployed,
  3. You had/have an installed customer base who frequented your business,
  4. Upon everyone becoming unemployed (presumably all at once?), they stopped visiting your business because they have zero interviews, zero reason to get “dressed-up,” etc,
  5. Instead of closing, selling, or trying to expand your business into other geographies (particularly natural/adjacent ones), you continue to stay open despite a dwindling if not non-existent customer base.

It’s unfortunate his assumptions are so utterly ridiculous and unrealistic because I actually agree – in concept – with his first sentence, although I’d reword it to say that “The thing of it is, though, that your idea really only works if you have some customers willing to pay enough to more than cover your expenses.”

He continues:

A guy with $0 and a good idea and a lot of potential customers will find a way to start his business. A guy with $1 billion and a good idea and no potential customers is just a guy sitting on a huge stockpile of cash.

Um, not to nitpick, but if the guy with $1bn has a good idea and no potential customers then it isn’t actually a good idea, at least in terms of how we measure good ideas in a capitalistic society.  Hell, even if its a non-profit, if there’s no target market for your service/product that still doesn’t mean its a good idea.

Look: I seldom tear-into anyone (besides Gretchen Morgenson, because she’s earned that honor), but I’m really fed-up with these quasi-intellectual usually political/philosophical liberal “free-thinking” types trying to write about Finance and Economics.  I’m not saying you need to have a relevant degree or work experience – there’s many who have neither but do fantastic work regardless – but don’t invent your own constructs and theories in the fields or ignore existing and widely-accepted ones for crying out loud!

Sure, in a perfect world every “good idea” would automatically be welcomed by the market with open arms (and wallets) and grow into a fantastically successful enterprise, but alas, this is not a perfect world; there are economic, legal, pragmatic, and other realities within which we must operate (or at the very least consider).

And lastly, he concludes:

Things like the availability of credit matter, but credit is currently available. What’s not available is customers with money and an inclination to spend it. More government spending and more money-creation will lead to more purchases, more customers, more business expansion, and more hiring. Then people with good ideas will make a lot of money and complain about their high taxes.

Sure, credit availability matters, and while lenders aren’t blindly allowing deadbeats with no income, job or assets to borrow uncontrollably anymore, credit is available, it’s just not available to everyone in unlimited amounts (this trend towards underwriting standards is for the better if it continues, by the way).  While Per-Capita Disposable Personal Income is down slightly from where it peaked in the 2nd quarter of 2008 (in 2005 dollars; in current-dollars  it was at it’s highest point this most recent quarter), it’s certainly still a huge part of GDP, as a matter of fact, per-capita personal spending was higher in the most recent quarter (2010q3) than it was in right before the S&P 500 peaked on October 9,  2007!

I’m not even going to touch the “more government…” sentence as that alone could be a series of posts, but do you see now what we’re dealing with?  People like Yglesias like to talk in vague, “theoretical” terms without any care for things like facts and data, and even more maddening, people like this are read and quoted as experts, EXPERTS, despite being easily written-off as nothing more than a hack spouting off uninformed rhetoric as truth.

Now again, in the interest of fairness, this is limited sample from which to draw any solid conclusion, so for now, I’m simply putting Yglesias on Ratings Watch: Negative, instead of downgrading him (several notches) outright to junk.

I don’t mean to hate on Yglesias, rather, I hope this post gets back to him and ideally, makes him realize that if he’s going to write whatever fun-sounding rhetoric he thinks should be the way it is, he at least has to support that view with some sort of facts or historical precedent or something, anything really.

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13 Responses to “I’ll Take “People Who Shouldn’t Be Writing About Finance or Economics” for $1,000, Alex”

  1. Kid Dynamite December 1, 2010 at 5:43 pm #

    “More government spending and more money-creation will lead to more purchases, more customers, more business expansion, and more hiring.”

    oy vey. I tweeted two articles pointing out the correct reality today:

    1) Bill Gross http://www.pimco.com/Pages/AllentownDecember2010.aspx

    “The United States in short, needs to make things not paper,”

    2) Steve Waldman http://www.interfluidity.com/v2/1004.html

    “Make-work is not a path to prosperity, and effort is not production. Prosperity is a matter of the rate at which goods and services that are highly valued can be produced, whether the production is labor intensive or capital intensive, however much or little people are working.”

  2. br_add December 1, 2010 at 6:11 pm #

    I think his post needs to be read in context with the Chait post about unemployment benefits vs tax cuts.

    With this in mind, it appears his thesis is something like: “Job creation is more likely to come from unemployment benefit extensions than tax cuts for those in the top tax bracket.”

    This doesn’t seem ridiculous to me, although its an open question whether his hypothetical Yuma dry cleaner is the best illustration of what he’s trying to get at.

    You have an excellent point about the fictional guy with a “good idea” sitting on a billion dollars. That was a bit ridiculous haha

    • Anal_yst December 1, 2010 at 6:32 pm #

      That’s definitely a fair point, but even if that is his thesis, how will unemployment benefit extensions create more jobs (or create more jobs, faster) than the other alternatives? It seems very much that Yglesias’ political/philosophical ideals inform his economic reasoning, instead of the other way around. Of course he’s not alone in doing this (nor am I innocent), but that does not excuse such silliness in my opinion.

      Appreciate the comment!

      • br_add December 1, 2010 at 10:19 pm #

        Well, to use Matt’s example, more jobs would be created in Yuma if there were more people that can afford to use the dry cleaner (because they are receiving unemployment benefits) rather than the proprietor merely receiving a tax cut.
        In the former, the proprietor would have more demand for his business’ services, and might have to hire an employee to keep up with that demand.
        In the latter, there wouldn’t be any more of a demand for his business’ services, and he is unlikely to hire an employee merely because he has some more money in his bank account.

        • perrymecium December 4, 2010 at 9:54 pm #

          Rubbish. We’re back to the question of the post: when has government giving free money to consumers ever resulted in a significant change in business hiring? We need facts and data, not vague hand-waving scenarios.

          We’ve been trying this for last two years and what we have is a jobless recovery.

  3. Jr Deputy Accountant December 1, 2010 at 9:17 pm #

    I just rubbed one out to this post. Excellent work!

    I have to give Yglesias credit, there was one time when he said something not completely asinine. Which is a pretty good record if you look at the bigger picture of other asinine things he’s said.

  4. boredgamergirl December 6, 2010 at 3:37 am #

    I agree with Jr Deputy Accountant, Yglesias has been rambling a lot, but what he said now actually makes some sense and it’s also pretty sane. Go figure!

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