Musings on Disequilibrium and Democratic Dictatorship

What to make, of more nations seemingly guided by a single dominant political "will"? Simon Wren-Lewis recently noted that China is okay with democratic dictatorship, and he asks, "Could the U.S. become a democratic dictatorship?" What about Trump's admiration for dictators, for instance? Is it naive, to hold out hope that more flexible forms of democracy can endure?

Nevertheless, many present day political struggles are largely due to limits on fiscal options, in a time of growing budgetary burdens. Few political parties are willing to concede defeat on earlier expectations, and meaningful fiscal reform appears less likely than ever. During the centuries when governments benefited from tradable sector dominance, opposing parties tended to have more fiscal room for their revenue preferences. However, once non tradable sectors begin to dominate, fiscal options gradually became more difficult, and disequilibrium became more pronounced as well.

Once budgets get out of control, fewer high skill activities can be reliably maintained as revenue dependent secondary markets, especially when firms and organizations are subsidized via price making terms. Since much of the budgetary fallout takes place as local examples of discarded government programs or "insufficiently subsidized" private firms, one doesn't always notice the effects of cumulative losses which in many instances are just reported locally.

It can be easy to rationalize that many government programs or businesses "deserve to die" if they can't support themselves. However, included in these losses, are more basic knowledge use frameworks which are slowly being displaced, even as they otherwise often lack suitable economic representation. Indeed we lack a coherent national story line, for the reality of what is being systematically discarded on a regular basis. Hidden in a myriad of examples, are some areas where government imposed austerity can be a particularly poor default mechanism. Importantly, budgetary losses at the margins, also translate into cumulative losses in trade volume for the use of knowledge and skill.

In other words, cutbacks in skill and applied knowledge are among the hidden effects of monetary disequilibrium. Even though output and employment may appear consistent, losses in the trade volume of potential human capital still deserve to be taken seriously. These losses can't be directly observed, however, and they lack suitable statistical framing, other than reductions in labour force participation which tend to be chalked up to demographics and other random factors. Many such losses in trade volume are instead experienced at a personal level, whereby individuals (all along the income spectrum) increasingly resort to doing things for themselves, instead of relying on market options.

Oddly, this unfortunate result is akin to a preindustrial state, for many time and place oriented services never fully shared in the opportunities of tradable sector prosperity. How might one think about the monetary aspect of this problem? Nick Rowe writes:

I think it's all about the role of money as Medium of Exchange. Which makes general equilibrium, and general equilibrium when some prices are "sticky", very different from a barter economy or one with a central Walrasian market where any combination of goods can be swapped with any other combination of goods by all agents meeting simultaneously in one big market.

Indeed, we especially observe disequilibrium in markets where space and time scarcities are closely correlated with product volume. Price making in these sectors, has much to do with the sticky wages which play havoc with general equilibrium conditions and trade velocity. At least to some degree, skills centered price making is responsible for a reduction in total economic value, among those who lose the ability to fully participate in economic life. Small wonder many politicians are now tempted to "dictate" the knowledge use settings they prefer, in misguided attempts to amend budgetary realities.

Are there reasonable microeconomic approaches, for today's macroeconomic problems? So long as nation states hold sway, a deeper macroeconomic understanding on the part of all concerned will be necessary, if budget realities are to be meaningfully addressed. Yet in all of this, fiscal policy can only be rectified, with supply side structural change that links our microeconomic circumstance with our macroeconomic realities.

At the above linked WCI post, one commenter observed: "Your explanation is strange. Money is brought in to help trade then you immediately start talking about it hindering trade." Rowe responds:

I wasn't clear enough. Money helps trade But when money is not working well, it doesn't help trade as much as it should, even though it still helps, because barter is (usually) even worse. Some trades don't happen.

And Rowe understood the frustration of another commenter who suggested micro was what mattered, while macro "should" simply be tossed! Nevertheless - macroeconomic confusion notwithstanding - without macro it would be impossible, for instance, to decipher how Say's Law could apply to the fullest extent in a monetary economy.

The monetary relationships of macroeconomics are important. Without sufficient understanding of those relationships, nations stand to lose many of the discretionary choices which are so closely tied with the output potential of tradable sector activity. Since product which is time and place bound cannot multiply, many of these forms of activity are mostly discretionary in the sense of coordinated choice sets among individuals and groups.

Representative democracy was largely made viable by the prosperity of tradable sector activity, and this process continues for emerging nations as well. However, democracies unduly burden their citizens, when too many local preferences for non tradable sector frameworks are imposed at national levels.  Ultimately, local settings are the best options, for the forms of democracy which seek to determine the nature of product with connections to time and place.