Monday, May 8, 2017

To Preserve Free Markets, Make Sure There's Enough of Them

Sometimes I find myself a bit fidgety, whenever "spontaneous economic order" is celebrated. Why? Because the context for free markets, is - more than ever - woefully incomplete. Granted: Where decentralized order can properly function, it often does so quite well. Nevertheless, there are many ways in which the economy badly misfires, which are begging to be understood. Ultimately, ignoring these hidden economic dimensions, could endanger the prosperity of the spontaneous order we do have.

Clearly, political events have been sounding the warnings. When viable marketplace options become too thin - especially for a nation's youth - populations are likely to respond either with calls for more local manufacture (mercantilism), or simply frustration: "Markets no longer work!"

Alas, I understand the impulse to reply to both of the above complaints, "Yes, markets work! Why can't you see it?" If only the sentiment of Russ Robert's poetic tribute to free markets, "It's a Wonderful Loaf", were enough to make things right. Arnold Kling highlights Robert's poem in "A Poem to celebrate Decentralized Order", and adds:
I believe the challenge that economists face in promoting pro-market views is overcoming small-community intuition. If your model of society is that it is a family or small community, then your intuition will not supply any benefits for markets. 
Where once a familial economic perspective made sense (prior to widespread markets), I agree with Arnold Kling, that family rationale isn't well suited for productive economic complexity. That said, I'm not sure if he's given enough thought to the local community potential which needs encouraging in the present.

For instance, consider the 20th century economic rationale for school models which still applies today, even though the world has dramatically changed. Small communities or otherwise, schools exist to promote economic potential for individuals beyond the limits of local community. Nevertheless, this school model has inadvertently encouraged economic input (or economic access) at the expense of aggregate human capital output. And as human capital becomes integral to output, most institutions are not well designed to benefit from this bounty, in a prevailing paradigm which still requires reductions of total hours worked to increase productivity.

Even though local schools focused on human capital investment, there's no real institutional means to internally complete the production cycle for time based services. Consequently, there's still few means to correlate human capital input, with local settings for economic output of the same. This is the free market decentralized order, which has yet to evolve.

We are each allotted the same amount of daily hours, in which to take care of what needs to be done, and to maintain our responsibilities to others. Yet when we have no marketplace option which allows us to utilize time as an economic point of entry, there's no free market for time based services generation. In the meantime, nominal income continues to be shorted, as it mostly covers specific skills sets rather than the full potential of aggregate time value.

Time value has the potential to provide additional wealth, if it is utilized as a point of spontaneous generation for free markets in services. When economic coordination mostly takes place for highly invested skill sets, individuals lose the capacity to coordinate their lives with one another. If we are to maintain the prosperity and decentralized order of tradable sector activity which so many celebrate, why not promote a decentralized order which also makes free markets possible, for time based services generation.

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