Monday, June 3, 2013

Really Simple Production Stories, With Examples

Aahh, I had to shut out the world for a brief time, interesting links and all, to return to this line of thought from a post a couple days ago, before I lost the extra notes (I lose things way too easily). What happens to all the "good deflation" of tradable goods that meant progress for - quite literally, now - centuries? It's not too far off the mark to suggest that local economies have "eaten up" such progress and "gotten away with it", in any number of historical ways: two of the most important today are new definitions of limited economic access, along  with the unfortunate illusion of declining wage capacity.

The clearest manifestation of this economic self limiting phenomenon (which is nothing new) was ongoing movements of population segments which had little money, or access to land and construction as it was (inefficiently) designated. Plenty of wars get started with this particular form of "kindling", in spite of whatever seeming enlightenment exists otherwise. Europe has had its gypsies (something we don't hear a lot about, here in the U.S.), then there was the frontiers of the New World which in some ways recreated much of the limited land and construction designations of the Old World (something the latest inhabitants of said New World weren't keen on discussing with the Old, as to acquisitions terms). The latest broad based solutions for problems of the marginalized  were innovations in property titling, which allowed much greater stability for all classes until recent decades. But already I digress. In this post I need to stick with the present and growing need of local economies to stop looking for ever more ways to dispossess their marginalized, and find new internal growth frontiers for all, both within geographic perimeters as well as the (still) untitled spaces of our knowledge capacity. One way to consider this is to look at how wealth is actually being apportioned, in the most basic sense possible.

The basic production story starts with people, some forms of capital, and the myriad of ways they interact to create product. One way the story gets told, now: there's a horrible global monster of technology which "eats" human labor". (Take that!  - says the local economy which carefully puts labor "back in" with outdated construction and swollen middle management). Another story, the one which actually assists in human progress, is that the share of product idea with capital creates more money - thus income - to be distributed among the human beings involved. For a long time, product was being created from these group endeavors which involved considerable time saving on the part of humans. In the mid 20th century, some of that time saving was added into the home itself, and later, the office environment. But then, the innovation process stopped cold, when it came time to make technologically efficient low maintenance building components, in part, because even the "makers" were a bit worried about the need for labor "going away"...

That's one element of the story, which illustrates that nothing about "maker taker" theories is as straightforward as some would have us believe. But there's more. Remember all those middle management cuts that started happening in the early eighties and continued, in many industries and tradable goods of all kinds? Hmmm, perhaps not so much because all that middle management has been replaced with - you guessed it - middle management in construction, healthcare and education. Where's the construction middle management???? Oh...finance.

Perhaps the moral of all this is some people were privy to the actual fact of wages continuing to rise with  productivity, in spite of some strange appearances otherwise in today's data and graphs. What's more, inflation targeting is the perfect way to hide...well, I don't want to sound like a broken record. No wonder some people in Washington are calling for an end to certain forms of measurements. The important part of all this is that people such as George Selgin, by bringing up the "pot of gold" in good deflation, just spoil the party for too many people who still continue to imbibe from the punch bowl in their own corner all along, even if it appeared to have been taken away from the main party quite a while back. In the best scenario, a falling price level would not be a sign of depression, but  instead that the punchbowl has in fact been removed from the premises after the party.

For Selgin I would just add: believe me, I get why you don't want to talk about that hidden punch bowl. I probably wouldn't be doing so either, if I had a "real" job! It just gets confusing to the people who don't know it's still in the back of the room. I started to link to the latest reply to Selgin (as to QE in the aforementioned interview) from Joseph Salerno at Mises Economics Blog but thought better of it, as they have come at Selgin more than once like a nest of hornets! Before I wrap this up I would add: the point is not to be rid of low technology construction, but to make it primarily an option for those who in fact have the extra money, to indulge in it if they so choose. The rest of the world deserves the option of high technology construction for every economic activity - or otherwise - that they might choose to partake in. And where there is less need for low technology construction, less need for middle management positions is sure to follow. Zero? Who knows.

This story is a very basic one in that it applies to lots of people. As economic access lessens over time, exclusivity rises. All kinds of "theories" arise (yet again) as to how this class of people don't deserve anything or that group of people don't deserve anything and so on it goes. People who care about the world, and consequently what happens to it, wake up one day to find war in their midst and wonder, how did this happen? How, indeed.

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