Saturday, January 18, 2014

Externalities: Got Negatives? Make Positives

Dialogue can be a tricky thing. Thus, a lot of economic issues are conveyed, depending on how they are ultimately framed. Sure, it's easy enough to emphasize context, but how could that turn negatives into positives? Presently, the most important economic "externalities" are the unemployed of all nations. Their problems need to be addressed both at home and everywhere - in a world that needs immigration and focused domestic efforts at the same time. The unemployed and underemployed are the negative realities which today's institutions no longer have room to include - at least not to the degree that individuals prepare for. However, the ways that economists try to explain unemployment, are being brought into question.

The reason this matters, is that society does not have other cultural or social places for the unemployed which make much sense. Only consider the degree to which people marry those who are in similar circumstance as themselves. Just to marry someone with "subpar" health or related circumstance, can mean a life of struggle (in spite of one's hopes to the contrary), for anyone who marries for love. In the past, people without perfect "report cards" could still have a life and raise families. Whether because of land holdings or the ability to emigrate, they generally had options to the institutional ones that came to define the 20th century. Thus in the aggregate, most still had ways to contribute. What's more, it didn't really matter in a larger sense, if one's contributions for the world appeared "subpar" by industry standards.

How can we rationalize that anyone without a straight "A" report card, doesn't have what it takes to be responsible for anything...or even not be expected to "have a life"? Hmm. Invisibility only goes so far, especially for negative externalities such as unemployment. Hence, some dialogue can make the unemployed seem like so much "pollution", i.e. more of a nuisance factor than anything.

Or, some simply reason that these people do not want to be employed. And in many locations, marketplaces are not set up well for full employment, either. What gets missed: any system that does not have ways for all of its participants to contribute beyond consumption, is going to end up fragile. Humans don't do well, when consumption is their only real option. The longer that anyone lives with primarily a consumer role, the harder it becomes for them to maintain reciprocity and understanding, with others.

In some ways, it makes sense for an institution to refuse employment to someone with a chronic illness. On the other hand, the institution has thereby created a negative externality. It does not make sense for society to think that the individual with chronic illness still has the ability to carry their weight or pay their bills, if they are not in fact employed or otherwise able to participate in economic activity. Disability payments (beyond medical need), are little more than a result of the fact that no one has come to terms with this problem. Even though nations worry about the plight of the unemployed and underemployed, the greater worry over middle class issues, now gets in the way. Consequently, governments expect businesses to address inequality and access, at the precise moment businesses find themselves able to do less.

What this means: in the aggregate, fewer people are gaining the positive side of the ledger which institutional validation provides. Oddly enough, when too many people find themselves on the negative side of the ledger, so too do interest rates and investment opportunities. At multiple points in history, individuals could provide their own resourcefulness for better outcomes. But there are not as many means in the present to do so. As a result, a growing number find themselves on the negative side of the ledger. That's often true, even though they may have limited access through part time or work representing a portion of their actual capacity. The growing negative on the part of individuals, translates into the larger societal negative interest on return. How to turn that around? How do we contribute to the positive side, outside the role of institutions?

After all, making positives is not easy because it implies the need to rearrange basic elements and even starting over, in some instances. At the very least, this is not the only discussion for starting over with something simpler to use, all around. NGDPLT or nominal targeting is a way for central banks to start over. Also, simpler tax systems are sometimes argued for in similar terms. Indeed, by providing incentive to allow everyone to contribute knowledge and skill,  much present day taxation for services might eventually prove unnecessary. People would be willing to contribute their part in matched services to the bottom line, if they had real means by which to do so.

A more positive return overall is something we can generate, by stepping beyond the bounds of what our institutions are capable of providing. That doesn't mean that we abandon them. Rather, it means a broader definition of skill set applicability than our institutions are capable of harvesting. Our institutions not only pointed the way towards broader skills delineations, they tried to take us there, before the Great Recession intervened. In the process, they have also shown us how we would like to be able to interact with one another, both socially and economically. There is a wealth of skills possibilities which could readily be adapted for use at local levels.  

One interesting aspect about the unemployed and underemployed creating their own knowledge based marketplace: it might be the most comprehensive experiment in overcoming IQ limitations the world has ever known. No doubt, institutions could observe the work these individuals prove capable of and say, "Hey, you don't have to do all that - after all that's something we can do instead!"
Likewise I know the limitations of my IQ. Often, posts that take me the better part of a day to complete, could be knocked out in an hour by someone with a higher IQ. But that's just the thing: people with high IQ, tend to find their time is in high demand, and there is only so much time to go around. Therefore, they can only attend to so many who ask for their help. The same is true of those who can only hire so many, for limited jobs. Let alone doctors, who can only tend to so many patients.

Yes, these institutions would handle all the knowledge work and the decision making if they could. But they can only do so - under present day demands - with the best and the brightest; those who win the popularity or talent contests, the ones with the fewest sick days, bright minds with the best math abilities. However we live in a world where everyone needs to participate, not just the best and the brightest. By arbitraging skills sets between time use similarities - perhaps even age related "handicaps", production value and wealth aggregates need not be lost in the quest for economic inclusion. It's time to turn "lemons" into lemonade.

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