Monday, June 29, 2015

Design for Economic Freedom

What does economic design have to do, with the freedom to interact meaningfully with others? Plenty. I have as much appreciation for Adam Smith's "invisible hand" in the economy as anyone. Just the same, spontaneity in the marketplace can be difficult to come by, when governments and special interests hijack the nature of product formation and infrastructure options. Unfortunately, excessive control in this regard has been going on for a long time.

Adam Smith also wrote about the multiple instances when governments and business interests refused to be supportive of free markets for manufactures and exports. Even though governments have made considerable progress in this regard for tradable goods, other design innovations are long overdue - especially for knowledge use and the asset formation of non tradable sectors. What would be required, to generate the economic freedoms which could better preserve political and economic sustainability?

There are several basic principles involved, beyond the need to match and coordinate time arbitrage equally to generate new wealth. Most important is the right to produce, on the part of as many individuals as possible in any participating system. Production of time based service product is completely different from production of product which benefits from scale, because more personal involvement is needed for time and knowledge based product - not less. And more time based product involving skills capacity, means more individuals and human capital involved in economic life, not less. Because matched time becomes new wealth, these forms of knowledge use and skills capacity are beholden to no special interest or benefactor, beyond the local systems which make them possible.

While production reform is important for time based knowledge use, skills sets, and services, production rights are also important for basic structural innovations within any given community. Knowledge use systems would seek to locally define product through as many means as possible, and through the assistance of as many individuals as possible. However, these forms of product diversity are not to be confused with tradable goods, which for the most part would continue to be sought both regionally and internationally on the part of knowledge use systems. Production reform is needed mostly for non tradable sectors.

A second principle for economic freedom, is that of the right to consume what one wants. Importantly, the right to market one's ideas and product comes first, before lifelong consumption of knowledge based services is a realistic possibility for lower income levels. Also, a clarification: the right to consume is not to be confused with claims on what governments have sought to make available in the marketplace, such as "rights" to healthcare which is already in short supply within primary equilibrium. Individuals need alternative equilibrium options, in which they are able to produce the knowledge sets and services they desire.

A third principle would be a broader understanding of wealth which exists beyond monetary terms. Even though one recognizes that money is only a part of wealth, there have been too few means, for anyone to turn this wisdom into something more concrete. Time arbitrage would eventually allow other factors of wealth to come into play beside monetary compensation, and monetary policy would also face less pressure to solve social issues which lie beyond its reach.

Another aspect of economic design, is the need for a structural response to changing trends in consumption. Baby Boomers have understandably become more pragmatic in recent decades, and in any circumstance, one generally decreases spending as they age. But pragmatism on the part of youth is a new development, which speaks volumes as to what production reform needs to take into consideration. Without a doubt, some of the frugal spending habits of today's youth will persist through the course of their lifetimes. A recent Time article listed 10 ways how spending patterns have changed for millennials - three of which I will touch on here.

First, millennials have become somewhat wary of investing, in terms of equities. Even though the Great Recession was (ultimately) contained by the Fed, the fact that monetary policy suffered a severe initial setback, is now reflected in lowered expectations on the part of those who were just getting started in the workplace. Now, some among this group will save for retirement by putting their money into a sock drawer, instead of normal investments.

Granted, some of the younger millennials will have more faith in the economy, as workplace opportunities have improved of late. Even so, those who were getting started during the initial downturn, will likely seek more practical environments than are currently on offer in the marketplace, for the rest of their lives. Because of these circumstance - if for no other reason - there needs to be regions where both housing and knowledge based services innovation are allowed to take place. It is wrong for nations to expect populations to wait for years or even decades for a stronger economy, when better results could be generated much sooner without the needless sacrifice.

Also, the Times article spoke of a lack of spending for both housing and cars among millennials. While some will eventually commit to traditional housing and cars, low cost commuting options are needed for transportation, besides the dedicated roads and highways for automated vehicles. Again, the highly debated transportation of the future will become feasible options in cities, rather than outlying areas. Many who live in rural areas will need substantial changes in density and infrastructure patterns, in order to gain economic diversity where they already live.

In summary, economic design needs to respond to the kinds of choices that people are now able to make, which in many instances won't be similar to upper income spending patterns. Some will still seek higher income options, but others will want choices designed for more practical and flexible ends. As things stand now, primary consumption choices in non tradable sectors do not offer much in the way of economic freedom. There's a reason why Milton Friedman said of freedom, that it is a rare and delicate plant. that too many still take for granted.

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