Neither Simple Nor Effective

Thursday, March 30, 2017

Over at MarketWatch is an article that considers a proposal made by Donald Trump during his campaign to sell off federal assets in order to reduce the deficit. Paul Brandus describes the proposal as follows:

Candidate Trump sold this in his usual simplistic terms: I'm a real estate guy, I know how to make the deals. We pay down the debt while putting Americans back to work in the oil and gas industry. We become energy independent and screw the Middle East. What's not to like?
But then Brandus goes into details, such as the small matter of finding a buyer:
It's important to remember that in absolute terms, oil companies make tons of money. But it's also a capital intensive business, meaning that profit margins are much narrower than people think. For example, Apple's net profit margin over the last nine years, according to S&P Capital IQ, was 21.5% -- but Exxon Mobil's was 8.29%. Translation: energy companies often spend more to make less. They always want access and drilling rights, but given the margins involved, and the volatile nature of the market, there always has to be a margin of safety. Interior has yet to place a value on what it might sell, or develop a process to do so. So we're a long way off from any of this coming to fruition, if indeed it does at all. So if Trump -- who is to be applauded for at least thinking out of the box on issues like this -- thinks he'll be able to slash the debt this way, he may want to think again. [bold added]
I agree that we need out-of-the-box thinking, but I give only one cheer. Why? Any fool can spend money like a drunken sailor, and end up in debt. So, even if this proposal were the easily-executed slam dunk Trump seemed to think it is, it wouldn't make a difference in the long run without the government also spending less money, which Trump's proposed budget doesn't do at all. And no Trump budget will, because Trump is far from being a principled advocate of laissez-faire. For the same reason, this idea is not part of the kind of broader plan necessary to rein government in to its proper purpose. (And this is the real issue -- of which entitlement spending and resulting debt are just a symptom. Very few people are talking about this, and Trump isn't one of them.)

That said, Trump's proposal has provoked an interesting thought experiment about the nuts-and-bolts of what transitioning from a mixed economy to capitalism might entail even on something less controversial than phasing out entitlements.

-- CAV

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