Sunday, April 17, 2016

Some Alternate Equilibrium Considerations

Is it possible to generate a source of new economic growth, which is not dependent on preexisting growth? The reason this matters, is that direct forms of wealth creation are occasionally undermined, when policy makers and others lose faith in system dynamism. Even though governments seek to compensate with fiscal activity, losses in monetary activity also mean losses in fiscal revenue. When structural factors of general equilibrium get in the way of growth potential, alternatives to the strict economic requirements of general equilibrium, could help maintain economic access and long term growth .

Alternate equilibrium would connect locally generated knowledge based services with local asset formation, without making more demands on already existing budget obligations. Those who take part would no longer need to make claims on the time based product of general equilibrium - much of which is now caught in the crossfire of political struggle. By coordinating time and local asset value through internal means, greater clarification would be brought to wage potential in relation to resource use. Further, symmetric wage compensation need not be a limiting factor, given the potential of additional income for those who participate.

How might one explain alternate equilibrium, in relation to general equilibrium? Imagine a complete resource continuum as represented by money, alongside the wealth capacity that is the GDP of nations. Three kinds of arbitrage are possible along this continuum: resource arbitrage (in general), time arbitrage and skills arbitrage. While a complete continuum of resource arbitrage includes the value of both time and skill, skill arbitrage came to dominate over time arbitrage, often through staked claims on compensated value. Since little room exists for time arbitrage within general equilibrium conditions, alternative equilibrium can provide much needed space to monetarily compensate time arbitrage. Best, time arbitrage can contribute to economic activity, without subtracting time value from the skills arbitrage associated with general equilibrium.

New forms of corporate structure could provide assistance, for areas which have become marginalized "backwaters" in general equilibrium. Too many regions have insufficient means to generate wealth directly, and they often subsist on recycled government redistribution. In the U.S. this government provided income is also "recycled" through property taxation, so as to provide revenue for local schools. Some populations have gained enough from redistribution that they look normal in composition, which can lull onlookers into believing that all is well. But it leaves regions and governments alike too fragile, when so many places rely on essentially a backbone of social security and disability income, for a majority of local economic activity.

There's another way to think about the benefits that alternate equilibrium would provide. Why do governments limit the supply of important goods in the first place? As Arnold Kling noted in a recent post, these limitations include food, healthcare, education and housing. Of course, it helps to remember that arbitrary supply side limitations benefit more interested parties than government alone. Public choice is also private choice, in the marketplace. Just the same, there's no point in fighting a thousand supply side "battles" on general equilibrium terms, when it's possible to create supply side gains in a non threatening environment. This is the environment, that alternative equilibrium could provide.

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