How might we think of recent inequalities in developed nations, when a rising tide has not lifted all boats? For one thing, agreed upon frameworks for growth which could increase aggregate wealth, are all but missing in action. Limitations in knowledge use settings mostly serve to make further redistribution efforts ineffectual. Plus, what appears as inequality is oftentimes pooling of resources around existing access points for skills use - something no amount of money really addresses. Over time, those access points have become too limited in scope, hence no longer provide the usefulness they were once capable of.
This post picks up from the last one, where I considered elements of the first chapter in "Capital" by Thomas Piketty. I can't help but contrast a book about capital just published, with "The Mystery of Capital" by Hernando de Soto. Perhaps de Soto's book was inspiring - in part - because it was written at the turn of the century, prior to the Great Recession. At that time, few nations questioned the ongoing potential of economic growth. That level of optimism spilled from Wall Street to Main Street, and it could still be found even in the rural backwaters of the U.S.
It wasn't so long ago that inequality was not uppermost in people's minds in the U.S. After all, until recently, a reasonable amount of economic access still existed for lower incomes. Granted, such access was not as significant as previous decades, but at the turn of the century one could still easily take on an affordable fifteen year mortgage for some properties - for instance - even with a near minimum wage income.
What concerns me most about discussions of inequality, is that they are not really intended to address these kinds of changed realities. Most individuals need to own something that they can manage themselves, even if it is not structurally permanent in the sense of traditional housing. Often, rental properties are not good housing otions for lower income levels and they generate additional security concerns as well. Incentives are skewed for low income landlords in terms of maintenance, and housing provisions on the part of government are even worse.
This is why I advocate flexible housing components for lower income levels which can be purchased and sold individually, and adjusted as needed whenever circumstances change. Rent should be that of property, which contains sturdy forms for flexible housing components to exist on. That way each "property" can be maintained when no renter is using a specific form. Local recycling can create new components through 3D printing, as old ones deteriorate.
There is nothing inherently wrong with the idea of greater equality, especially equality of opportunity. The problem now is that the context for discussion is somewhat misleading, in that it is taking place in an environment of diminished economic possibilities. Few agree, as to the kinds of economic activities which could replace recent patterns of consumption led growth. Indeed, there have been no real discussions for local visions including the public (in the U.S.), as far as I know. Unfortunately, those who are convinced that little further growth is possible, still want to continue the old growth patterns which have proven so unwieldy - albeit in a diminished capacity.
Perhaps a lack of agreement as to future growth potential, is partly responsible for the heavy focus on inflation targeting by central banks. After all, inflation targeting is an indiscriminate cap which does little more than stop economic activity in its tracks. That could have had some bearing on Bernanke's reaction in 2008, when he severely shorted nominal spending for just a brief moment in time, in response to rising oil prices. But that brief moment was enough to trigger more widespread wealth loss and social instability, than ever should have happened. Indeed, the fact that it did happen, created a downward shift in the growth trajectory which only has a recent counterpart in the Great Depression.
For instance, look closely at a graph in an earlier post from Marcus Nunes, which shows the nominal growth trajectory for 1870 forward. Consider that even though the recent drop and loss of nominal output was not as significant as the Great Depression, a continued faith in spending capacity nonetheless created a strong rise in the growth trajectory shortly after the Depression began. That rise didn't happen this time in the U.S., and it remains to be seen whether lost output will be regained. Whereas after the Great Depression, growth finally returned to trend after a decade. What happened to faith in economic growth? Why have governments not convened their citizens to address this together?
That earlier faith in economic capacity was on full display, when Hernando de Soto published "The Mystery of Capital". His was the hope and certainty that the 20th century had offered, in terms of progress. Of course one might reasonably ask, "Didn't you disparage houses just a little, in your last post, as wealth? After all, a big part of de Soto's work was about bringing people's homes into the formal economy". Yes, and context is everything here, because of what these informal economy homes represented, as opposed to the homes which Piketty counts as real capital now.
Just as de Soto made clear, aggregate growth is not possible, if people are not willing to acknowledge the efforts to thrive, which the downtrodden actively make on their own behalf. Such initiative holds just as true for broader knowledge use and simpler home construction models in the developed world, as it does for the recognition of informal home building efforts in the developing world.
In the present, knowledge use needs the same role that de Soto assigned to housing, in terms of allowing a significant portion of the population to engage in economic activity at more formal levels. Only consider the difference in housing capital in the construct which Piketty highlights. He argues for further redistribution from a portion of fixed capital which derives not so much from production potential, as it does pre existing consumption. Such redistribution also lowers growth potential in the aggregate.
Whereas, de Soto advocated for what would in effect also create a higher growth plateau than had previously existed. Newly recognized housing created not additional economic elements of growth, but more concentrated areas of economic activity as a result. Just as newly recognized housing wealth led to stronger growth trajectories, recognition of informal and in Piketty's description "non tradable human capital", could instead create new, tradable human capital. Doing so could go a long way to restore the growth trajectory which was lost in the Great Recession.
The human drive to succeed was inherent in the mystery, which de Soto sought to capture. More than anything, he wanted human motivation to count for economic purpose in concrete ways. Those homes were a representation of the quest of those outside the formal economy to make their lives count. In the same way those owner built homes become a part of developing nation wealth, today's developed nations could extend a helping hand to all who wish to use the materials they have invested in - their educations and skills sets. Who wants to get back to the future?