The Wealth That is Missing

Reflecting on yesterday's presidential inauguration, I remembered a long lingering question: is there any context in which "nation first" is as important, as some leaders now believe? Perhaps the answer depends on the form of wealth, which is at stake. Are we referring to the random and mobile resource capacity that is globalization, prosperity and our world marketplace? Or, the fixed resource capacity of time value in our personal lives? After all, the potential of the latter, with its inevitable links to fixed-in-time economic location, has hardly been considered. Consequently, the lack of free markets in today's non tradable sectors, now threatens the prosperity of tradable sector free markets across the globe.

Yet much of the "nation first" rhetoric of late, has little context in which missing wealth can be readily understood. How does one explain the economic dynamism which has been disallowed, when not only is it missing, it might not even get the chance to see the light of day? The only part of economic logic that makes sense in this context re wealth creation, is that new growth doesn't result from forcing manufacture to return to one's shores. No amount of political efforts towards these ends would increase aggregate global wealth, or national wealth for that matter. So why do political constituencies - along with a growing list of others - see protectionism as the only solution to promote long term growth and prosperity at home?

Perhaps it's due to the protectionism which has already taken place. One way to think about this problem, is the fact that protectionism at home continues unabated. Yet even as it reduces both employment potential and national output, home based protectionism occurs in ways not easy to correlate with the vagaries of world trade.

Further, internal protectionism at home (wealth capture) mostly takes place in non tradable sectors. It results in limits on both production and consumption of both time based services and housing, in particular. Even though Adam Smith spoke of the dangers of protectionism centuries earlier, tradable sector activity was the primary economic given of his time. Indeed, tradable sector activity remains central to economic thought, even though U.S. manufacture is now less than 12% of GDP. Hence who has means, for instance, to determine precisely how non tradable sector dominance affects equilibrium conditions and growth capacity? Meanwhile, non tradable sector wealth capture continues to be glossed over, as world leaders reach for the understandable prosperity of tradable sector activity.

If worldwide tradable sector activity was threatened by the crowding out effect (of non tradable sector dominance) before, worldwide or external protectionism, only makes the threat worse. Home based protectionism is also likely to worsen - in spite of calls for greater inclusiveness - should local sources of (international) revenue become less certain. The domestic protectionism which is built into the regulations of knowledge use and (physical) asset formation, is today's missing wealth, in all areas of society. Small wonder that some policy makers have warned their populations of economic stagnation, with no seeming end in sight.

Given this unfortunate reality, an inaugural speech in Washington which aimed to make both Democrats and Republicans uncomfortable, makes a bit more sense - even as people around the world react to a president they are disinclined to trust. If economic prosperity is to remain a viable possibility, the wealth that is missing - that which represents the true finite reality of our time value - will have to be acknowledged and honored. Otherwise, the insidious protectionism which begins at home, will only spill out into the larger world arena for decades to come.