Sunday, July 23, 2017

Is Today's Economy Viable as a "Stationary State"?

Not likely: Due in large part to today's non tradable sectors, which can no longer be maintained across diverse income levels, as they are currently structured. However, I'm using "stationary state" as a relative term in this post. Complex economies could either evolve or devolve more quickly, than the stationary settings in existence just prior to the Industrial Revolution, for instance.

Some presently hold high hopes for a positive stationary state, in response to economic stagnation. Yet the main problem for such expectations, lies in what this particular stagnation consists of. High skilled time based services as revenue dependent activity, are beginning to crowd out other important elements of GDP. Fortunately, non tradable sector time based services are only part of the picture, for tradable sector services rely on internal resource flows. It's the time based services of non tradable sectors, which rely on the system wide flows at the heart of general equilibrium dynamics.

This equilibrium dependent status, means an uncertain future for vital time based services which are deprived of direct resource matching capacity. The aggregate value of (dependent) non tradable sector time based services, cannot long exceed the sum of tradable sector nominal income, asset revenue flows, and the rents that accrue from productive agglomeration - especially when monetary tightening is occurring at a global level.

I might not have had sufficient context to respond to Adair Turner's hopes for a stationary state, in "Is Productivity Growth Becoming Irrelevant?", were it not for an interesting discussion regarding the stationary state in "The Growth of Economic Thought" by Henry William Spiegel. First, from Turner:
The growth of "zero-sum" activities may, however, be even more important. Look around the economy, and it's striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare , but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons, cybercrime and the army of experts defending organizations against it...the huge resources dedicated to US election campaigns...
Adair Turner  provides an apt description of unproductive activity. Indeed, I give him credit for using this term, since some have attacked it as derogatory. It makes more sense to think of unproductive activity as a descriptive term - one fully capable of being positively addressed.

Unfortunately, however, I have to disagree with Turner's assessment that productivity - as an organizing principle - may not even matter. As far as that goes, the possibility of a stationary state would become even less likely, if accounting balances were substituted for the factors that contribute to accurate monetary representation and the revenue origination for time based product. Instead of assuming accurate representation of GDP isn't important, we need to know how different components of services generation might contribute to a stationary state, should societies actually prefer limits to growth.

Whatever happens, no one can afford to take for granted, that society will continue to embrace knowledge complexity, if new means and organization for the measure of knowledge use aren't adapted. After all, knowledge as resource is quite different, from the scarcities which occupied the minds of economic thinkers in an earlier era. Henry William Spiegel explains how John Stuart Mill viewed the possibility of a stationary state:
In the absence of countervailing tendencies, Mill believed, profits would within a short time be so low that the further accumulation of capital would cease and the stationary state would ensue. But with these tendencies in operation, the stationary state would in all likelihood not soon be reached in any of the great countries in Europe. When Mill comes to the assessment of the stationary state itself, he takes a position explicitly at variance with his predecessors. To Ricardo, the imminence of the stationary state was an alternative to the removal of agricultural protection, and since he favored such a removal he had no incentive to look for redeeming features of the stationary state. The picture that Mill unfolds of the stationary state is by no means displeasing. Provided always that the further growth of population is kept in check, it will be a boon rather than a bane for mankind to be relieved of the relentless pressure for increased production.
Of course, Mill's thought was greatly influenced by Malthus, and the majority of agricultural gains were yet to be realized. How to think about these earlier circumstance in relation to the present, and the worries of "relentless pressure for increased production"?

Perhaps "Why do we produce?" is the best way to pose the question. Do we produce because the government has bills to pay and scarce enough revenue to pay them, or do we produce because we perceive a societal want or need, for what is generated? If we produce because we desire to fulfill societal wants and needs, it would help to orient the non tradable sectors in our midst toward what we actually want, instead of them having to depend on the "produce as much as possible" mentality, of government revenue "necessity".

Before anyone reasons that a stationary state is inevitable or even desirable, we need organizational capacity which provides economic access to those who previously placed their hopes on a strong growth trajectory. In the meantime, too much non tradable sector activity is still organized, as if though the revenue capacity of the twentieth century were still in effect. It's not, but there is still plenty of wealth creation potential, which could take place on 21st century terms.

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