Saturday, December 12, 2015

Alternative Equilibrium as Long Term Growth

Why is long term growth so difficult to think about, in the present? Many have become resigned to a now slower growth trajectory, which has prevailed since the Great Recession. However, this slower rate of growth means that fewer individuals will gain economic access, if supply side constraints do not substantially change. I came across a quote this morning which aptly sums up the situation, "Sometimes we run from ourselves by staying put." Is this what has happened to economic progress in general?

Central bankers thus far are making things worse, by trying to maintain general equilibrium conditions on what are basically no growth terms. Like other policy makers who refuse to take chances on needed structural reforms, they seek "normalcy" through doubling down on earlier bets, instead of utilizing a level nominal target. But attempts to maintain earlier economic gains, will not be enough for long term growth. It's a passive approach that contributes to a negative (unexpected?) side effect, as political parties scramble for remaining resource options which don't appear "pinned down".

Hence in spite of endless communication about economic normalcy, these don't especially feel like prosperous times. For too many, the earlier conditions of general equilibrium can no longer be taken for granted. In some instances, slipping away from general equilibrium is such a gradual process, that it can be difficult to even explain to others what happened. Once "out of equilibrium", individuals no longer have the same economic options to remedy their circumstance. Just the same, they may be judged as though they can still use the same tools as everyone, for their decision making processes. Different forms of alternative equilibrium are needed when they cannot, so that personal efforts to succeed will not simply go to waste.

Recent slowdowns in growth, present problems for nations at basic levels. Too many non tradable sectors have refused to innovate, in the very areas where those with small (or nonexistent) wages need better solutions for living and working. As a result, growth on general equilibrium terms is now more difficult, than should be the case. And monetarily - in too many instances - central bankers continue to tighten the screws further. As Marcus Nunes recently noted, regarding the FOMC:
On the 16th, they are likely to throw salt in the wound. Any pain will likely be temporary because the economy has been "duly prepared"!
Indeed, one can only hope that the worst of monetary tightening is behind the U.S. and other nations as well. Granted, some governments are striving for greater inclusion, despite rigidities in general equilibrium conditions. But look at the hurdles they face, as indicated in this recent Adam Smith Institute post re an upcoming basic income experiment:
The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost. At the moment, taking a low paying job may result in lower welfare payments and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with the temporary employment that reflects the changing nature of work.
Note the issues at stake, including the resources which actually represent welfare benefits. Might this Finnish experiment be successful? Also at issue, is "the changing nature of work". Again, here's Mikko Arevuo of ASI:
The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy. Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  
The desire for simplification is to be commended, and while I believe the basic income premise doesn't adequately address the task, at least efforts for greater economic inclusion are being made. Perhaps these examples will make it possible to begin the experimental processes which local corporations could provide, in terms of a marketplace for time use options. A marketplace for time value, would help to redress imbalances between scarcities in time use, versus the random nature of other resource potential.

Plus, local corporations would approach this process through what are basically libertarian means. One might think of knowledge use being applied on "live and let live" terms. Granted, knowledge use systems would start small, as contrast to the more broadly applied efforts of general equilibrium. As Arnold Kling recently noted, historically this is not a good moment for libertarians - alas I've misplaced the post with his remarks.

However, even small openings for economic freedom would be cause for hope. It is so important for central bankers and policy makers to resist the urge to cling to recent policy mistakes, in spite of their extensive investments in those belief patterns. Applying the same mistakes time and again, is not going to improve economic circumstance so as to preserve economic stability. If and when those mistakes are openly acknowledged, nations will finally be able to begin the process of moving forward. And good riddance, to the convoluted reasoning which is raising interest rates, before the underlying issue of growth is actually addressed.

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