Dishonest or Just Incompetent?

Robert Shiller wrote a recent New York Times editorial, suggesting that the United States Government sell shares of the gross domestic product (GDP), similar to how corporations sell stocks. Mr. Shiller is obviously a very smart person. He is an economics professor at Yale University and authored various books on finance and the economy. He should know what he is talking about. So let’s look a little closer at his proposal.

People buy stocks of corporations because they have an underlying value. Yes, there are real assets that the paper certificate represents, but the fundamental value to an investor is the cash flow that is ultimately expected. In essence, a business sells shares in the present value of its anticipated future profits. The investor believes that the future dividends and capital appreciation will pay back the investment with an additional return. That is a very rational expectation. Those companies that perform well enough to have excess cash flow can reward the investors with dividends, or with capital growth and higher future earning potential if the money is plowed back into the business. Investors pay more for stocks of profitable ventures.

It is an obvious fact, one that is the foundation for investment in stocks, that the company owns productive assets and processes. It also owns all of the profits that those assets and processes earn. Because it owns them, it can also sell them to others. The business sells the right to future profits and cash flow in exchange for cash in the present.

Gross domestic product is a very different animal. It is a crude and rather arbitrary gauge of the productivity of all of the people in an economy. It is a measure of your wages, your business income, and your investment income added to that of everyone else. The assumption is that the higher the GDP, the more productive the population.

Mr. Shiller’s proposition is that, just as businesses sell shares of their earning potential, the government should sell shares of the GDP. They could issue what he calls “trills”, or trillionths of the GDP of the entire economy. The logic is that, if significant trill markets could be developed, it would be a vast new source of revenue for governments. Investors, like you, or like the government of China, would be able to count on a return from future economic growth, which would, presumably, mitigate the risk of investing in increasingly risky government debt alone.

There is one itsy-bitsy problem with your proposition, Mr. Shiller. The government doesn’t own GDP. It doesn’t own my salary, my business income or my investment returns, nor does it own anyone else’s. By selling a portion of GDP that it doesn’t own, it is stealing that productivity from the people. It is assuming that people are slaves of the state. It is nothing more than another clever stealth tax so that irresponsible politicians can spend more money buying votes and power.

Mr. Shiller, are you being dishonest, trying to scam the people of this country and any other country brazen enough consider it, or do you really not know what GDP is? Whether it is lying or incompetence, the result is the same. You are not telling the truth.

That is nothing new. Shiller is one of the large and growing breed of influential economists who don’t let truth or economic laws get in the way of shilling for politicians and big government. His 2009 book, “Animal Spirits”, was written in conjunction with George Akerlof, another smart, influential and arrogant economics professor, who’s idea of practical economics is to think of a problem in the world and then decide what he and government should do to fix it. The underlying assumption in the book is that economic cycles are caused by a mysterious psychological manifestation called “animal spirits.” According to them, it is the government’s job to direct those unruly spirits so they don’t get out of hand. Seeing that they have been actively directing those spirits for decades, we can see just how well that works out.

There really are generally accepted economic laws that even Shiller and Akerlof must recognize. True economics has helped to understand cause and effect relationships in societies. It is extremely unfortunate for the people of the world that the profession has been taken over by a bunch of scam artists. It is a black mark on the economics community that this proposal is treated with anything other than scorn and ridicule.

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