Monday, October 29, 2012

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.

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