Saturday, March 28, 2015

Start With "Okay", Become Consistently Better

How to move from investment structures which are too passive and reliant on (now sluggish) credit formation, to more dynamic investment structures which would need less credit to begin with? Too many factors in what could be considered a primary equilibrium, have long since matured. Unfortunately - instead of building from new horizons - governments have instead attempted to put long term growth on hold. The fact that today's investment strategies were intended for a limited number of participants, means new systems are needed for others who are ready to take on vital economic roles. Of course, new strategies wouldn't always look polished or "smart" in the beginning...

No doubt, starting over processes can be difficult to visualize! Plenty of stumbling and experimentation would be involved. Even so, there's more at stake for society as a whole, than the goals of productive investment and greater economic dynamism. Hence this is one time when goal setting isn't quite enough, because daily routines are what will eventually provide important clues regarding incremental progress. Perhaps since I neglected to consider the role of systems a few days earlier, I ended up scrapping a version of this post which mostly focused on future investment goals.

What's the difference between systems and goals? Shane Parrish of Farnam Street, links to an earlier (2013) post which highlights Scott Adams, creator of the Dilbert cartoon which made the rounds this week. He provides examples from Adams how goals can backfire, in "How to Fail at Almost Everything and Still Win Big":
If you do something every day, it's a system. If you're waiting to achieve it someday in the future, it's a goal...One should have a system instead of a goal. The system-versus-goals model can be applied to most human endeavours...Goal oriented people exist in a state of continuous pre-success failure at best, and permanent failure at worst if things never work out. Systems people succeed every time they apply their systems, in the sense that they did what they intended to do.
Consider for a moment: how has land become the prime expression of capital, instead of other capital components? Today's most valuable land benefits from a long term systems process. In other words, land prices are the highest in places where economic coordination by large groups of people has paid off to the greatest degree possible. However, these locations are limited relative to populations as a whole, in part due to how the coordination process has played out - particularly in terms of knowledge use. Any growth goals for the future need to take this knowledge use limitation problem into account.

Rather than expecting citizens to increase population densities in the most prosperous regions (which are not always clamoring for new residents in the first place), new communities and cities could provide better options for all concerned. New chartered communities - utilizing tighter living and working densities to begin with - would start with "okay" results and with a little luck, gradually become better over time.

But in order for this to happen, some knowledge use "urban crowding" factors still need to be resolved. Some institutions are going to be dubious, because they will have to be convinced charter communities will not be in direct competition with them. And some onlookers may charge that "starting from scratch" is needlessly reinventing the wheel. Just the same, it has become increasingly apparent that today's knowledge use/services structures cannot be expected to carry entire populations, much longer.  Hence knowledge use systems would begin with plenty of questions, and they can hardly be expected to duplicate the economic or cultural patterns which came before.

Today's investment challenges include coordinating human capital to build wealth capacity over time. That's a long term strategy, as apposed to the short term strategies some still seek in terms of redistribution. For instance it can be tempting to tax "special" land further, given its esteemed wealth creating status. But what does land have to do with it? What caused land to gain that position in the first place? Another important aspect of this dilemma is the fact that much "special" land has been occupied all along, by not for profit, knowledge based institutions.

Just as one should not reason from a price change, it can be misleading to reason from wealth based results. Land value benefits from a series of systems building events which have been taking place for a long time. In other words, be careful regarding the seemingly easy solution of taxing land value - which was also a suggestion from an otherwise excellent post from Noah Smith. The option of generating new economic growth from time arbitrage, is a better solution. Time arbitrage simply has more new wealth to offer, than taxation from valuable land which already benefited from coordinated knowledge and time use. Human capital went missing in action, when land wealth came to the fore.

Even though prosperous regions are highly professional and successful beyond anyone's wildest dreams, there is a sharp dividing point. The ideological divide between these regions and everyone else is downright scary. One hears in casual conversations from residents (if not Chambers of Commerce) of prosperous U.S. locations (including those that are still expanding): "This city is already 'full'. Don't move here!" Well...I'm perfectly willing to respect "full": if and when people do not insist knowledge use is "full" hence everyone else needs to settle for being a little less than human. As Scott Sumner noted:
Intellectual property rights are barriers to entry that tend to create a winner-take-all situation...And other types of regulations (financial, human resources, etc.) are especially burdensome for small firms, and this favors the growth of inequality-intensive large firms...Industry is dominated by knowledge intensive sectors.
Inequality will not be overcome by taxing land or forcing wage smoothing within large companies, but by allowing people to utilize the forms of knowledge which are standard expectations for relating to others in the 21st century. In order to resume growth in the present, new rights will be needed - not just for the use of one's time, but also to utilize the common knowledge anyone requires just to take care of the basics of life. Too much time has been spent generating societal wealth from education, all the while not allowing enough economic environments to apply formal education once a student finally graduates.

Only consider that economic gains from human capital (in aggregate) have slowly and quietly been "disallowed", practically since education "took off" in the mid twentieth century U.S. This is doubtless a factor in the supposed "stagnation" of the present. In the above linked post, Scott Sumner stressed that business promoting capital formation has been stalled for at least three decades. Meanwhile, too much wealth and income remains parked in housing. It's time to move past passive holdings of wealth, into a more dynamic state.

In order to do so, allow knowledge use systems that encourage those who actually live in close proximity to one another, to help each other. Allow charter communities to innovate in ways that one person's new innovation need not be the "death" of another, because it exists in the same local unified framework. Schedule daily time for the spontaneous, the seasonal, the ongoing, the immediate need, the planned, and the changed circumstance. Oh, and knowledge use? If you really love knowledge...

Free free, set them free

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