Tuesday, November 28, 2017

We Have Met the Enemy...

...but why is it us?

Regular readers won't be surprised that I define the "enemy" in this post, as non tradable or localized sectors of the economy. These sectors often have incentives to obfuscate additional growth, since current organizational patterns mean additional growth tends to dilute their own power base. What's more, the line between public and private can be thin in these sectors, since they are closely intertwined with governmental and financial activity.

Indeed, lack of transparency in terms of product output, appears as though a feature - not a bug - when it comes to time based knowledge product. The lack of services output quantification in particular, restricts the capacity of monetary and fiscal policy to meet their desired objectives. The consequent income gains, limits, and divisions for applied knowledge use, are closely reflected in the conditions of our housing markets.

Lack of transparency in turn negatively affects productivity, and worries about productivity wear on the patience of those whose endeavour doesn't personally depend on productivity gains. One consequently hears arguments from progressives and conservatives alike that "No matter, growth in output isn't all that important anymore". I disagree. Closely related to this reasoning, is the notion that transparency isn't a necessary goal. Meanwhile, some on the right seek to reduce transparency by whatever means, if only for budgetary reasons.

Our localized non tradable sectors are setting up long term problems for today's macroeconomic theories, for the revenue requirements of governments and special interests are increasingly out of balance, with the ways in which society organizes for equilibrium defining or originating wealth. Equally problematic: The knowledge based component of our non tradable sector activities is too closely connected to government marketplace activity (via private enterprise connections), to fully understand how this imbalance ultimately affects macroeconomic outcomes. Only consider how Treasury secretary Steve Mnuchin recently told CBS News "Face the Nation" that reducing government spending is "not an issue we're focused on right now." If not now, when - especially since reductions of government spending were deemed important for decades??

If anyone needs further indications that structural concerns re monetary and macroeconomic policy are being relegated to the back burner, Tyler Cowen writes about job market papers in a recent post:
The number of money and macro papers is way down. Development economics is still flourishing and expanding, even relative to a few years ago, though I worry I am not seeing many generalizable results...I'm seeing Turkish, Korean and Chinese graduate students working on the big picture institutional and political economy questions.
Small wonder that both Wall Street and enterprising graduate students reach for the economic dynamism of developing nations, as the local spending of developed nations becomes mired in the limits to growth (via production definition) agendas of today's non tradable sectors. At the very least, other countries are still fortunate enough to be able to focus on the big picture. But where might this lead, for developed nations where internal resistance to progress is quickly translating into populist confusion?

In all of this, we face increasing political uncertainty, by refusing to back away from the processes which continue to raise the bar on the local requirements of human necessity. Our politicians on either side of the aisle are increasingly unable to find any path back to common sense in this regard. If this weren't enough, the current political "solution" is reduced to finding ways for the poor to foot the bill. If the poor aren't citizens, the authorities rush to deport them. If the poor are native born but cause any sort of problem (for themselves or others), people find ways to put them in prison where their taxpayer related costs are presumably easier to contain. The War on Drugs, irrational though it has been, has become means to isolate or else deport the poor, so as to reduce budget burdens. Alas, we have met the enemy, yet we are no closer to a productive or rational response.

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