Granted, this isn't the first historical moment that people have found good reason to question the benefits of comparative advantage, by any means. Just the same, any time nations - let alone economists - doubt the logic of nations trading with one another, that should send out a flashing warning signal that something is seriously awry and needs to be dealt with. Not long ago in a recent post I touched on protectionism concerns, and to a degree those thoughts include the same concerns as this post.
Thus, when Tyler Cowen posted a litany of complaints re comparative advantage logic, I knew my response would be even slower than usual, because this issue really needs to be thought through more carefully than the initial post I will offer up today. Plus, regular readers know that even though I defend comparative advantage, thus far I have failed to offer up a full explanation as to why, especially given present realities in which the concept appears to have "sprung some serious leaks" in terms of unemployment.
And unemployment, after all, is the primary concern in all of this. The answer as to why I believe comparative advantage greatly matters, has to do with some of my own concepts which I'm trying to learn how to explain in an understandable way. Which is why I'm still pulling my hair out...God help me if anyone else poses such a significant dilemma in the next few days, as Tyler has presented!
So when people (understandably) believe they lose work because of a combination of what happens elsewhere, technology and "who knows what else", several elements come into focus: more loss of discretionary income, more income polarization and long term unemployment. Even one of these is problematic - let alone all three. Yet the role that local economies play in these circumstance is not immediately obvious. Ultimately the local economy needs to reform itself in terms of more efficient and dynamic patterns of wealth capture (for all concerned), instead of negating the benefits of comparative advantage in a misguided attempt to preserve economic stability.
Generally, when nations back away from trade, the historical results aren't very pretty. Even though comparative advantage still exists now in important respects, earlier gains are becoming obscured by the increasing importance of basic economic activities at local levels. Much of the nature of this local activity is relatively unimportant in terms of free trade advantages, compared to the 20th century. By the same token, however, the present exogenous structure of local services activities - an inadvertent carryover from earlier corporate institutional structures - puts extreme strains on government budgets.
What's more, "free ranging" finance structure remains bound to exogenous patterns of local wealth capture methodology. Local economies - for lack of a better way to express it - still need to figure out how to create economic participation for everyone in their own midst, in order to be able to continue reaching out to the world at large. To do so, knowledge based wealth capture needs to happen in completely endogenous terms that are time based. That would also allow each individual in community to be a representative of all the world can offer in this regard.
Here's the paradox: scarce (physical) resources - as utilized in all their aggregate abundance - add up to multiple social gains on a growing scale...for a while. Every society reaches a point where the present form of exogenous growth ultimately slows. That becomes a problem in that not only was exogenous wealth used to pay for knowledge use, but knowledge use in services utilized the same exogenous structure, in spite of the limited time base each economic participant actually holds.
To tap into the infinite ability of our minds in any aggregate sense, we have to work the with equal time constraints each of us actually has in order to maximize knowledge use potential. Otherwise, the outsized time value which gets assigned to subsets of economic procedures (let alone small numbers of individuals) quickly cancels out the ability of others to participate in the knowledge use equilibrium. Anytime that happens, an ever increasing number of potential service offerings are discarded as "not affordable": a process which can eventually turn many local economies into knowledge use deserts.
Whenever the exogenous resource environment steadily grows in historical terms, no one has to worry so about full utilization according to dictates of scarcity. But when physical resource use slows, only the reclamation of time within local endogenous environments can restore wealth creation potential. When knowledge use and time use are aligned, comparative advantage in product which is separate from our time, can finally be seen for the true benefit it represents in terms of leaving our time free for the knowledge palette.
The problem for the local economy lies in the way it has envisioned wealth capture in services, which ultimately limits knowledge use severely in an aggregate sense. Local institutions in services followed the earlier example of product definition which production and manufacture had developed. However there is a vital difference for institutional formation, between time as limited product offering, and product which exists separately from time. Production creates product separate from human time, and is capable of raising aggregate wealth by its very separation, duplicity and dispersion into the larger society. The exogenous or external organizational format works because the product is external.
When people try to utilize knowledge by exogenous or external means, it prevents them from integrating knowledge as a freely used component throughout the multiple and ongoing processes a community actually needs. Through endogenous use, knowledge becomes a palette for all to use where needed and as needed, instead of being "bound" to specific bodies within specific time frames. Not only is knowledge use freed in such processes, so also is the time of those who were previously bound to the next emergency at most every moment.
One of the best aspects of moving to endogenous knowledge wealth formations, is the fact that technology is mostly ready for the transition. The multiple function formats, goal sets and short term projects which communities might wish to take on, could readily transform into dynamic infrastructure and investment possibilities which are not possible with limited purpose institutions or older production equipment. What's more, dynamic, interchangeable and multiple purpose holdings are less problematic in terms of risk, for where one project leaves off, capital can readily adapt to the next.
If it's any consolation to the reader, I am far from satisfied with my descriptions thus far, how to compensate for the loss of an earlier system which no longer promises the level of engaged employment which once was possible. Therefore, I will continue in my attempts to explain what could even be better, then the old services system which now mostly exists in a bare structural form in any aggregate sense.
No comments:
Post a Comment