Arbitrage and Collective Capacity: A Wrap Up

There are so many ways to think of this subject matter that my notes quickly got away from me, since the last post! Suffice to say, we need to rethink skills arbitration possibilities for future economic stability. However there is a useful way to frame the discussion which I can touch on here. Governments can utilize forms of economic centralization, and forms of economic decentralization as well. Together, a sort of lockstitch effect is created, such as one would use to prevent a garment from unraveling. Remember the old phrase "think globally, act locally", and consider how it still needs to apply in this sense. Of course, many people unfortunately lost their belief in globalization, even before mortgage backed securities unraveled the "garment" of housing.

The housing crisis was an excellent example of such a "forgetting" why local knowledge matters. All those tranches that were created for different clients forgot to embed the most important information of all: local circumstances and conditions of the properties that were being repackaged and resold. One doesn't just set up systems of courthouse records to expedite economic activity one day, and then pretend the next that they are unimportant without negative effects. But that's what people did, and it was not just the courthouses or finance customers who were left out of the knowledge loop. Imagine what it felt like to call the "neighborhood bank" when you needed to sell your house for instance, only to discover that they could not find the records for it! Small wonder that so much trust in overall systems took such a serious hit. Even as people reacted against globalization, many strategies for economic integration at local levels had already disappeared.

 Because previous aspects of local life have changed so much, it has not been easy to envision how coordination between local and global efforts could take place.  As long as product does not involve a meter or communications consumption bundle (results of sub-optimal localized wealth capture), some forms of economic centralization work reasonably well. An example of workable centralization is that of tradable goods networks, in that centralization can optimize overall flows. However, governments falter when they finally take centralization too far, because they still need to rely on the strength of their citizens.  Citizens in turn need effective forms of decentralization in order to maintain their strength, to begin with. When skills are arbitraged to capture wealth in limited settings, efficiency depends on "hollowing out the middle" to maximize gain for the firm or institution. But as the hollowing  out continues (now happening in health care), again citizens are weakened and so governments in turn, as well.

Decentralization is possible wherever each economic actor has full sets of potential actions that can be taken in coordination with  those of other actors. This is also a roundabout way of saying entrepreneurs can make individual decisions with other entrepreneurs which also add up to a cohesive flexible whole, and yet an overall process still occurs which is not coordinated from the outside. However, such spontaneous processes never had a chance to happen in some service industries. Many services that we rely on continue to move away from the individual entrepreneur capacity for organized action. This is what leaves local economies the most vulnerable to the hollowing out processes, leaving overall employment and total economic access diminished in the process. These processes are not irreversible, but they require coordinated efforts to change. While it seems counterintuitive that decentralization actually requires some planning, perhaps that is indeed the case. Common sense tells us that no one can grow up strong if they are not allowed to make their own decisions. Governments now, should they want to be strong again in real terms, will need to trust the decisions of their own citizens, first. Communities can more readily capture the abundant wealth of their citizens. Governments can help network provisions for overall wealth capture in scarce resources. We need to be able to take advantage of the incredible differences between the two.