Wednesday, October 19, 2016

Notes on First and Second Mover Activity in Equilibrium

Primary markets can be thought of as "first movers" in the marketplace. Nevertheless, the follow through activity of secondary markets has been substantial in developed nations, due to the dynamic activity of primary market potential in recent centuries.

When secondary markets can contribute to existing growth patterns, much of their core structural framework exists as societal permission (time based services) and financial services. While government involvement in the economy is often said to detract from private options for growth potential, secondary market activity is associated with both public and private interests. Importantly, private interests in secondary markets could be crowding out the first mover potential of primary markets, for some among their representatives impose substantial and unnecessary limits on both output potential and monetary policy.

Real economy conditions have complete representation in the tradable sector activity of primary markets, whereas real economy circumstance are partially represented in secondary markets which comprise both real and nominal value factors. Primary markets contribute new product which does not need "permission" (on the part of redistribution or existing discretionary income) to take place. While some of today's time based services appear to move the market forward (think state of the art teaching hospitals for instance), their present organizational structure requires a shift of monetary and other resource value, from already existing primary and secondary markets.

How does asymmetric compensation fit into this framework? The asymmetric compensation which occurs for labour in primary markets, also holds a first mover position in terms of newly created wealth. In other words, asymmetric compensation for labour in tradable sector (or primary market) activity, moves marketplace capacity forward - even though asymmetrically compensated labour is a residual function. Whereas the asymmetric labour compensation of secondary markets, could be thought of as a holding pattern for existing marketplace activity. First mover activity generates more output in real market terms, while second mover activity consolidates the resource capacity gains of primary mover activity, and assigns them further value in pricing mechanisms and nominal value.

Even though secondary marketplace activity has the ability to move primary markets forward in the short term, it loses the capacity to do so, once in an overly dominant position. Secondary markets have great capacity to supplement primary market activity in vitally important ways. However, economies can falter if primary market formation becomes too thin in relation to secondary market formation, as has become the case in the present.

It is not always easy to distinguish the wealth of primary versus that of secondary markets, and the imbalance which has resulted between the two, helps to explain why global debt has hit an all time high. Even though one associates government activity with excessive debt, rigid private sector dictates for production and consumption, have also contributed to this unfortunate reality.

Two things need to occur, in order to address the problem of rising global debt. First, less rigid consumption definitions are needed on the part of non tradable sectors, to help ease the burdens of publicly and privately held debt. Further, the purposeful creation of new primary market activity would help to restore economic balance, so that the expectations and responsibilities of today's secondary market activity would no longer be stretched so thin. Regular readers know that I suggest a new marketplace for time value as a basic commodity, for this role. While this would be a long term approach, it could still help to ease the present uncertainty of economic conditions.

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