Saturday, March 12, 2016

Donald Trump, Protectionism and Income Consumption Ratios

A little advice for Donald Trump, given his protectionist stance: Protectionism won't improve our economy, or the economies of other nations for that matter. There's no sense in politicians chasing after tradable sector wealth and production which exists elsewhere. Even if companies were somehow "forced" to return - an unlikely scenario in any event - tradable sectors would no longer provide employment on the same scale as decades earlier. Greater efficiency for tradable sectors still means more is produced, from fewer time aggregates. There's no getting around that.

That said, I understand why too many are turning to protectionism as a form of political and social retaliation, now. More public dialogue should have already taken place in the last decade or so about future work potential, and this didn't happen. In particular, non tradable sectors have yet to come to terms with their own internal inconsistencies. For non tradable sectors, greater efficiency and productive capacity, means more is ultimately produced (from equal time coordination) from more time aggregates, than is presently the case.

Instead, non tradable sectors have solely relied on the same asymmetric compensation as tradable sectors, which has meant less work and less potential social support, for all concerned. When all knowledge/time based product is compensated on asymmetric terms (i.e. from preexisting wealth), various factions can only struggle over the services pie they believe to be possible. Problems of immigration, race and class are among the unfortunate results of the struggle. And yet, they can be thought of as intentionally defined consumption problems, due to arbitrary limits in supply side services structure.

Early in my studies for this project, I remember arguments that there was little need to be concerned about our economic future, given the fact that everything was still okay in the present. That's precisely the problem. Once problems do appear - especially in the form of serious political backlash - people become overly focused on the resulting chaos, instead of "backing up" mentally to (calmly) consider what might have been accomplished to begin with.

James Pethoukis expresses the problem well, in this recent AEI post titled "Politicians should address the challenges of automation, not try to reverse globalization." He acknowledges that the transition to a digital economy is going to be a bumpy ride. Regular readers are familiar with my suggestions in this regard. New forms of employment and wealth creation in non tradable sectors, would be able to address growing budget deficits on monetary terms. Instead of more deficit creation and wishful fiscal thinking, real progress would be possible.

It's taken me a long time to return to the subject of income consumption ratios, which I touched on in some early posts. How exactly might this term be used? The answer depends on whether one is describing the existing conditions of general equilibrium, or what one would seek to achieve in terms of a small and specific alternate equilibrium. Non tradable sectors do not always consider broad variations in equilibrium conditions. As a result, government attempts to impose production/consumption terms across an entire spectrum can backfire.

In general equilibrium, income consumption ratios apply to given sets of non tradable sector conditions. These conditions in turn affect the bottom line, for costs of living in specific areas. Local areas have specific imprints for non tradable sector costs, due to local monetary flows as captured by income and productive activity in the region. The most prosperous regions benefit from both international and national flows. What might be referred to as second tier areas in this regard, receive some benefit from national monetary flows. Whereas regions with limited economic complexity, tend to be dependent on local production and government redistribution - mostly in terms of fixed income.

The problem in general equilibrium, is that government defined services formation is structurally generated to represent the wealth of the first two regions described above - in spite of many existing claims on the part of fixed income in rural regions. In the U.S., many areas with strong reliance on fixed income, lack economic complexity. This has bearing on the growing struggles for populations to "keep out" anyone perceived to be yet another draw on limited services pools.

Okay I need to back up, briefly. In general equilibrium, an income consumption ratio can be thought of as already existing non tradable structure, due to locally available monetary flows. In alternate equilibrium, local participants would determine local asset values, based on the internally generated monies of time based services formation, over time. One way to think about this, is that neighborhood gentrification also would not occur, because local asset structure values would not be exposed to the monies of international or national redistribution. This lack of exposure to broader non tradable sector flows would preserve a local delicate balance of knowledge based services structure, created over time.

Knowledge use systems would eventually allow local groups to generate valuable services, which need not draw from already existing services capacity elsewhere. In the process, local time value would become anchored to local resource capacity, so that different groups would not end up opposing one another for mutually desired outcomes. This is the income consumption ratio potential which is possible, in small and locally contained group settings. Normal economic porosity still exists for all tradable sector activity.

In a symmetric system, time value purchases time value, while monetary compensation for that time value purchases local asset formation. Most important, the newly generated money from services formation would not be intended for the purchase of asymmetric time based services product of general equilibrium. After all, dependence on today's asymmetrically generated services can put just about anyone in an outsider position. Protectionism - economically devastating though it is - is a rational response, in part because too little has been done to generate a broad services marketplace which needs no government subsidies or protection. Citizens "need" protection now, because of the protection which special interests received at the outset.


  1. Trump complains about the trade deficit, bad trade deals taking everyone's job and the kitchen sink... But the reality is that even if he got his way on trade, the trade deficit would become worse because the US doesn't have advanced raw materials supply chains built up to produce goods here. They were eroded away over the decades since intense environmental regulation began in the 70's. He must believe in the supply chain fairy or something...

  2. So true. This post had already rambled on too long, and I took out a link by Matthew Robare of Market Urbanism which talked about how protectionism had already hurt America, starting decades earlier as you pointed out. Here's the link: