Jul 7, 2010

The false value of inefficiency.

Would you raise capital by getting a second mortgage to start a business; then, run it in such an inefficient way that it is doomed to fail within a few years? It sounds absurd and ludicrous but government officials think it’s a good model as long as the enterprise creates jobs – even for a short time.

It is like a road project that purposely chooses a manual intensive operation instead of using heavy equipment. Instead of steam rollers, people pound the ground with stumps. There are no tractors, just shovels and picks. So, the roads costs 3 times as much, takes 3 times longer to finish and is 3 times weaker than one built with machines. On the other hand, it employed 10 times more people. And that is the benefit of waste and inefficiency.

That is how the stimulus money ran out without jump starting the economy. Instead, that money could have been used to encourage private businesses; those plan to stay around by being profitable. Businesses run operations tightly and watch every penny so there may not be much employment immediately. However, as the business thrives, it expands and as it does, continue to hire more. But it takes time.

For those who care about a lasting recovery, then this is the way to go. It may not show quick and dramatic results; but, the results will be real. For those who care about appearances and popular support, then putting the stimulus money is wasteful products will achieve their aim. By the time elections come around, the people who were employed temporarily would reelect those officials to come up with more inefficient projects. But sooner or later, the country will run out of money just like an entrepreneur who has to close shop and lose their home and possessions used as collateral. But that will be down the road many years from now and the politicians who would destroy this country will be long retired on fat pensions and benefits. I guess they don’t care about their children and grandchildren.

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