Why no one can have a productive conversation about the economy any more

The White House Hedge Fund

There was a recent, interesting blog by Mark Cuban, in part on the prospects for turning the U.S. economy into a hedge fund to benefit from the private capital skills of Mitt Romney. As President, he could do leveraged buyouts in the name of the country, something that he did earlier with great success. As President, he could listen to the great plans of American entrepreneurs and pick a few. This could be a way of lifting us from economic doldrums. This could be an excellent way of leveraging Mr. Romney's obvious business skills.

This is not a new idea. I don't know that I would espouse it in any way. It has proven itself in a few cases, at least from an economic if not a social perspective. The problem is, such an approach has a name. If I were to repeat that name, you would be repulsed, because it has obvious negative connotations.

Most economic ideas are overladen with negative social and economic connotations. The last century in particular was a boon to economic thinking and to an improved understanding of relationships among the economies and societies of the world. Many unimaginable things happened during the period, of course, in the name of some of those ideas. Major lessons were learned and famously applied, to the benefit of us all. The United States led out in such efforts, speaking principally of the post WW II peace provisions and the multilateral arrangements that saw us through the Cold War to settlement of most issues, apart from a shaky ongoing connection between the Middle East and the rest of the world.

What we are left with is a panoply of words, of phrases, that convey social as well as economic meanings. Many of these descriptive phrases are associated with the American order, though not all. The problem is that virtually all of the vocabulary of economics, society, and politics has taken on connotations that are rigid and not always clear and descriptive. This rigidity has resulted in a public discourse that is often devoid of meaning, leading to misunderstanding by all parties.

My personal opinion is that the main problems leading to the warmongering of aggressor nations in the last century had to do with a loss of government legitimacy, leading to takeovers by groups of renegades and thugs, not with any particular economic or political theory. We should be particularly concerned about understanding the conditions that allowed Stalin to hold sway over Russia and the Nazis to control Germany than particularly the ideas of the left or the right which they ostensibly represented. Perhaps in either case, the relative nonexistence of political depth was at fault. We must ask why such civic societies were so fragile, as many have done. In the former case, extreme provisions of the Versailles peace agreement are understood to have stunted prospects for any German government. In the latter, civic society was vastly weakened by WW I, compromised though it had already been under the Czars. No one was able to understand and counter the subtle shift in legitimacy from Lenin to Stalin, a change of considerable consequence with regard to Russia's prospects at the time.

The problem with any current economic debate is that most of the alternative concepts have now taken on toxic connotations. Only a circumspect dialog is possible. As a result, such terms cannot be used in a civil discussion about the political economy of the world and its nations, as they serve as springboards to well-worn, but counterproductive arguments. Even the concepts we use daily take on vague, if not dangerous connotations. Here I list and discuss a few.

Fear of capitalism

Americans in particular love talking about capitalism, but there is great fear of its implications in this country. The point is, markets are harsh, or at least they can be. Though we brag to the world of our commitment to markets and competition, our policies show stark contrasts. We don't allow competition in transportation. We don't allow competition in energy, not really, and not without breathtaking favoritism granted to existing enterprises in many longstanding industries. There is very highly managed oversight over markets for food and agricultural products. We don't even allow for open competition in sports.

We like our economics to be tidy, so much that Congress sees fit to ensure that Twin Falls, Idaho or any other sports-crazed community cannot field a champion football team. Industries, once established, can count on overarching support of government to kill off any competitive challenges. Why was the US automobile vulnerable to the Japanese a couple of decades after the war? For one thing, they had become soft, not having any measurable domestic competition, apart from, ironically, Mitt Romney's dad's company, American Motors. Ford Motors has recently disclosed that they have withheld innovations from the market dating to the 1940s, an admission that didn't seem to raise anyone's eyebrows.

For some reason, business organizations in the United States avoid the "socialist" label when they appeal to government for favors. These can include tax breaks, price supports, investment credits, regulations that stifle competition, outright monopolies, infrastructure favoring their particular needs, and either emphasis on or ignoring of intellectual property rights. In the final analysis, a capitalist system would let such enterprises suffer the consequences of the market, to "let chips fall where they may" in spite of political power and influence that they might have built up.

Loathing of socialism

Socialism would be in large part the distribution of goods and services based on criteria other than the open market. Many consider this an idea that hostile to the American way. We hear a lot about people on welfare when the term is used. When government makes use of its powers to support existing businesses in ways only governments can, forms of socialism result that is not really looked at in these ways.

You may understand the basic set of alternatives. The "right" favors business at the expense of the people. At its extreme, a rightist system involves a merger of such interests, of business and government, at least in theory. Such is the "hedge fund run out of the White House" idea. The "left" favors the people, an approach that extends to complete democracy in the form of full public ownership of everything. As history has shown, this also results in a ruling class that many have criticized as appearing similar to the "rightist" bosses. Based on such thinking, the "left-right" continuum is not a flat yardstick, but a circular ring, meeting in the back, where a ruling class exists in either case.

The US as headge fund idea: Making the trains run on time

There is a name for a merger of interests between business and government, at least from the rightist perspective. I will not introduce it yet because it sounds ugly to the 21st Century ear. It might seem to be good idea for us now, given the state of our economic mess. There was a time when such a merger was considered as beneficial to a society. It was said of the leadership in question that it caused "the trains to run on time".

Governments are known, of course, to be poor at delivering goods and services. In most cases, such activities are reserved for private initiative where gains and losses can be enjoyed and suffered by willing competitors. The idea is to provide an environment in which such competition can be readily carried out.

Such an environment has shown to be effective not only in establishing strong economic performance, it has also demonstrated an ability to create vibrant, pluralistic societies. The problem we face it that such societies are also revolutionary in nature. This is to say that existing upper classes whose prospects are tied to existing organizations are at risk for economic and societal demotion if capitalism is allowed free reign. Entrepreneurs that are allowed free range of the market may in fact find something better than trains to run, making such efficiency irrelevant. They may undermine any and all markets. They may throw chaos into such markets as they provide better, more appealing options for the consumers of the world. A vibrant entrepreneurial environment has certainly shown an ability to even out incomes and stores of wealth. We created the GINI scores that bear such things out. The fact is, our GINI score of late is not that great.

Freezing out the most toxic of terms

I am going to list a few of the toxic terms here. There is some concern that by including them, the search engines will get me branded as something bad. OK, but rest assured, my beliefs in this regard are pretty well documented in the Model Economics approach. That is, most ideas have some validity if applied under appropriate circumstances. The question is in what society can bear and if leadership exists to ensure that it can be renewed and invigorated.

Fascism is, of course, the result of business/government merger of interests. This we saw in Italy and Germany in the last century. Communism was the rallying cry that let to the takeover of Russia almost a hundred years ago, though many purists insist that this was not a valid example of the Marxist ideal, certainly not after Stalin assumed power at the death of Lenin. Certainly ours is curious world in which the Chinese government and its people demonstrate such obvious commercial skill when they are supposed to be communal.

It is interesting that events of the past several decades, the last hundred years or so, saw use of these terms in ways that largely missed the mark. My observation is that the concepts they represented have valid implications, but they should be applied under specific conditions by a government that is above the fray. This may doom the attempt in the first place. The study is worthwhile, as it may underscore our survival.

When should "power to the people" hold sway? When large organizations cease to be legitimate. They should be allowed to die in the way of the market, by running out of money. When should governments support the needs of business? By policy, governments should allow for conditions favoring competition -- especially competition of financial weaklings against their corporate rivals whose products and services they call in to question. Openly, publicly, new enterprises should be able to make the case for their offerings without fear of reprisals, unfair conditions, and private, backroom collusion.

When longstanding corporations cease to be legitimate as per their competitive offerings, government may have a role in supporting the needs of their people. This is a form of personal socialism that most would agree with.

Is good governance even possible?

Is it possible to overcome abuses of the left or of the right, or of the back channel consonance between the two that makes itself known to the back of the circle where the elites of left and right meet in the middle? Now, this is what we should really be talking about, not only in this election, but in general. The fact is, what vocabulary would we use? How would we overcome the backroom power of the elites? Mao ZeDong, one man to obsessed over this issue, made reference to the power of the firearm in the revolutions of his era. What we face is more a matter of the power of the checkbook, if not the social club membership. The point is, the answer is the establishment and protection of a real form of capitalism and an associated churning of society. This would resolve our current and future problems if anyone was brave enough to allow for it.

Prosperity as a function of coersion

Reading the current issue of The Economist this morning was pretty weird. The main theme, true progressivism, makes a call for something that purportedly does not exist: A conceptual structure for a new economic paradigm, one that is capable of supporting realities faced by individuals, organizations, and states in our time. Hmm. I do that, but no one seems to care. I will just continue to consider issues based on my Model Economics approach with the idea that someone with some clout in the market for economic ideas recognizes it and gives me a tap on the shoulder.

Meanwhile here are some answers to the question that may call attention to solutions. True progressivism is an interesting phrase. I am reading Amity Shlaes' "The Forgotten Man". Nothing there but thinly-veiled contempt for progressives of all sorts. I learned of such contempt for thinking people from a recent conversation from a young "tea-partier". This is borne of a vague call for return to a more amenable state. It cannot be that of Hoover. More likely it is to the time or Reagan. Not a man of ideas, but an expert in the sure quip. He ruled the world out of a mastery of the catalog of popular cinematic dilemmas of the time. He understood the outcomes and the words that made them happen. I remember the day. But the questions of that time and this were swept under the carpet, where they continue to fester, though some have emptied out into the street, as it were. Famously Wall Street, but infamously Main Street. Our crisis has been long in coming.

The unstated argument is that we do not need more ideas. This is not a time conducive to thought, or so it would seem. The same young man that informed me of a successful local purge of an educator who was found to be a "Marxist". It was not clear in the discourse just what a Marxist was, though the man was clearly of that persuasion. As a result, he lost his employment and I guess was run out of town. I mentioned to my new young friend that in the context of the early stages of the Industrial Revolution and in the overwrought behavior on the part of commercially-supported thugs of that Age, much of what Marx said made sense. He assured me that I should never let that opinion be known or I too would be found wanting. My prospects would be dire indeed.

Just a thought, but what if in the vast array of that man's work, the scholar in question, an idea or two exists that could shed some light on our dilemma? Would be it possible that we could make use of a notion thus tainted? Perhaps we could use it, but indicate that it came from another source, perhaps the sainted Adam Smith. Better yet, someone not known for thought at all. Perhaps a neighbor. Such an idea, fully untainted, could be taken into the fold and embraced. Problematically, the idea would suffer from the ignominy of newness. Also, your neighbor is likely not from the famous philosophy school. Rats!! It probably wouldn't work on that count alone.

By the way, what ever happened to the famous philosopher profession? People in position to make a difference seem to have become politicians, listening to the radio a good deal.

One of the main problems with prevalent market structures is that they are dependent on coercive markets. This is to say that economic security if not general progress is dependent on the existence of markets that extract resources from and require participation in markets whether they want to or not. Such markets, based on their fundamental nature, sustain economic activity and support growth and concentration of wealth through force. In such cases, there is a lack of infrastructure supporting alternatives. There may be incomplete supply networks for necessary items. There may be regulations that make use of the goods or services illegal or impractical in spite of their native benefits.

Coercive markets, it can be said, provide economic security and consistency from their very nature. If people must pay, they will pay. Such compliance and the consistency that it seems to provide serves as justification for a lack of options that might otherwise exist. President Obama made a comment that infuriated members of the right-wing, particularly from the extreme right. They were infuriated because of the unfortunate way he made his case in saying "you didn't do that" with regard to infrastructure, when it almost sounded as if he meant to say that business people did not create their own enterprises. His original point is a good one. Commercial success, real commercial success, requires some government support at some level. Roads? Public networks? Airwaves? Commercial codes? Courts of law? Policing functions? Electrical sockets? Private business could not exist without some combination of these and many more.

We can classify markets in three categories with regard to coercion. The first is "necessary", non-elective, organic markets. Such markets involve the exchange of necessities, food, basic clothing, shelter, possibly transportation. This would include items that are needed to support income-producing. From a budgetary or financial planning standpoint, such necessities may not be high end solutions, but items and services at a basic level.

The second would be coercive markets, where the purchase of necessities involves limited options, excluding other options that may be more preferable. In a sense, such markets involve outdated choices, limited options where substantially better alternatives would be preferred if it were available. The point is that the market is very narrow, is in some way mandatory, and it capable of extracting adherence, even compliance from the people at large. Some of these are de facto monopolies; others are certified as such.

Elective markets are the third category. These are markets for services and things based totally on preferences. Such markets may be somewhat large as in sports and entertainment markets (though keep in mind that many sports markets are Congressionally-mandated monopolies). Elective markets may be small and, indeed many of them are, such as esoteric markets for unusual, elective items that do not appeal to most consumers. I know of a young man that jokingly aspired to distribute "a bassoon to every home". This, of course, will not happen. Many elective markets are local and limited prospects are a function of geography. Production and delivery of crafts and home-grown produce may be limited by geographic and population factors regardless of their uniqueness and desirability. Only a few customers buy as a result of such limitations.

The really interesting question is one of the elective markets. Will they hold up were coercive markets to fall prey to competition and to productivity gains? Can transactions not motivated by force serve as the basis for an economy? Can enjoyment fuel consistency as does desperation? The famous dictum of marketing is this: Will the dogs eat the dog food? In the current case, we would ask, will the dogs eat the dog food simply out of enjoyment? Will they pay to go to a show?

The point is, again, that we do not have a production problem. Rather, commercial interests often need to be reigned in as hounds at bay. Overproduction lurks at every corner. Heaven forbid that inventories should be found and not used. There is a legend that a unsold mountain comprised of Apple's Macintosh predecessor, the Lisa, lies at the base of my community's landfill. This the result of some extra-market deal with the devil to make the overage go away. What's a little junk in the back yard anyway?

The story of Nikolai Tesla's inability to bring his ideas to market in his time is that he offered a way to provide electricity universally directly from the ground. J.P. Morgan is held to have asked where the usage meter would be placed in order to submit a bill for the service. Tesla's response is to have been that no such device was required, as the answer lay at everyone's feet. Thus, Mr. Morgan directed his efforts famously to Edison, who knew how bread was to be buttered, though he wasn't a shadow of the intellect of Tesla.

This raises the "music teacher" problem. How to make a living following your love and your talent? Become an employee of the state. Teach school, where property tax is pooled in support of an activity that no one would otherwise pay for. It is not the same thing, but close. Even that system is straining at the bit; schools are shedding themselves of the artistic function in lieu of standardized test scores. In our stressed times, the argument seems to be making itself. We all must do what we must do and not what we want. We cannot make something of ourselves, we must betray our better selves to participate in coercion to one extent or another. Ronald Reagan would have an instant example or metaphor from the movies. I can think of "Joe vs. the Volcano".

Think of this. If we were not all "chained to a desk, doing something [often poorly] because that was where the money was", wouldn't we be better off doing what we were good at? For one thing, if we had more time on our hands, wouldn't we go to see more of what each other did? Wouldn't generalized freedom from the grind prove to be a self-fulfilling prophecy? Wouldn't we want to see each other's "stuff"? If we had the money, wouldn't we pay to see it?

The argument to be made is that of the "full enjoyment society". In part, that is our solution. Growth, maturity, and decline is a reality of modern economic life. We don't let organizations die, though, and we are little aware of the ways that they kill their competitors before they get a chance to start. We need to be an Age where we acknowledge and foster talent wherever it can be found. Most importantly, we need the expression of that talent in new markets and in new sectors of society. Competition will eradicate the dead spots if we let it. In the place of corrupt commerce and unproductive employment, we should encourage high productivity and foster non-coercive markets. We do not have a production problem. It is time that we stop acting as though we did.