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Stimulus: buy unproductive assets

  1. Jan 17, 2008 #1

    EnumaElish

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    A type of stimulus that I've thought of is the government buying unproductive/defaulting assets from the owners. That includes out-of-date plant & equipment, as well as property in default.

    This kind of stimulus would be "targeted" and "temporary," and no doubt "timely."

    Anyone care to comment?
     
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  3. Jan 17, 2008 #2

    chemisttree

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    Would you have the government buying or replacing old equipment so that the new equipment could be shipped to China at a huge profit?
     
  4. Jan 17, 2008 #3

    EnumaElish

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    No; I am thinking that this would give the U.S. producers the incentive and funds to purchase new technology, which would boost up machine tools, which would spread to the rest of the economy. My assumption is that current level of U.S. tech. exports will more or less continue but that will not provide an extra stimulus to the U.S. economy.
     
    Last edited: Jan 17, 2008
  5. Jan 17, 2008 #4
    I'm curious as to how this will be paid for.

    Isn't this just another form of government trying to redistribute wealth?
     
  6. Jan 17, 2008 #5

    EnumaElish

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    Only, in a deliberately productive way.

    It has two components:

    1. Government seizes unproductive assets, then destroys them.

    2. Government pays out cash for replacing these assets with new ones.

    Technically 1 and 2 are separable operations, although practically (and legally) they are not.

    "2" can be replaced by "government-subsidized (low interest) debt." This, IMO, is a more targeted course of action than the Fed lowering the interest rates for everyone.
     
  7. Jan 17, 2008 #6
    Maybe foreign aid could be part of your plan. The government notes what needy country needs what kind of equipment and posts "want ads" for such used equipment. They donate it abroad as part of the foreign aid program so this is more or less financially neutral. But it facilitates the process of upgrading for businesses.
     
  8. Jan 17, 2008 #7
    You need a beaurocracy for that, i.e. setting the criteria for said assistance, installing an assessment and distribution mechanism(s), allocating budget, etc. Also, you'd have to set some sort of regulation on the market, making sure no one is cheating. At the end of the day, you'd probably end up with either a handout for businesses with clever accountants, a pricey beaurocracy, or both.
     
  9. Jan 17, 2008 #8

    Art

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    When France the UK and Italy introduced a capital grant scheme to allow industries to modernise the US gov't introduced countervailing duty charges to even the playing field for their own domestic producers. I presume the WTO has this covered.
     
  10. Jan 17, 2008 #9
    The EPA sets environmental standards and congress creates environmental legislation. For example, a car manufacturer may be forced to put in a new EGR system because of a new standard and a piece of legislation to go along with it. The EGR stinks, costs constumers and hurts the manufacturer because no one wants to by his cars. The government has jsut purchased unproductive assets. But in the long run, the EGR becomes better and the manufacturer benifits.
     
  11. Jan 18, 2008 #10

    EnumaElish

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    Not necessarily. All depends on the cleverness of the mechanism. Here is an example:

    Say there are N manufacturers (of a certain product). Each manufacturer has a machine associated with a certain present value (PV), a function of the future profits that the machine can generate. Suppose the PV's are randomly distributed between $0 and $100.

    A government official invites these N manufacturers to a meeting. In the meeting, the official makes the following announcement: "We ask each of you to write on a piece of paper your name and the value of your machine. We will collect these from you and rank these numbers in descending order (from the highest to the lowest). Once I have ranked these N numbers, I will buy the least productive machine and pay its owner the next highest value that anyone has given to me."

    Question: what number would you have written next to your name?

    I would have written the exact value of my machine. Why? Suppose my machine is worth $10. I'd scratch my head and think: "There is a chance that mine is the least productive machine here, if so I could be the winner. Let me see... I can write down $10.5. Will that make me richer than writing down $10? If the next highest value is $11, no. But if the next highest value is $10.25 then I'd lose. So I gain nothing but can lose. Therefore I am not going to write anything higher than $10." Then I'd think: "Let me see the other way around. What if I wrote $9.5? If the next highest value is $11, I'd still get paid $11 had I written $10. But there is a chance that the next highest value is $9.75. Then I'd have sold a machine worth $10 for the price of $9.75. Again, I don't gain anything but open myself up for a loss. Therefore I am not going to write anything less than $10, either."

    I am not saying that it is the only or the best way that would accomplish the objective, but it is one way that does not need a lot of red tape and paperwork.
     
    Last edited: Jan 18, 2008
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