Re: Economic reform policy: Some views and proposals

[William F Hummel <wfhummel@xxxxxxxxx>]

My general reaction to Trond Andresen's proposals is that they
deal mainly with ends rather than means.  I have a hard time
visualizing how a democratic republic with an entrepreneurial
free market economy could implement his proposals.  Private
interests would have to somehow converge on policy objectives,
and legislation would be required to create the framework under
which the system would evolve toward his ends.  Perhaps in a
small country with far more homogeneity than in the US, a
political consensus could be developed favorable to those ends.

Considering the proposals individually, first the automation of
manufacturing goal is proceeding naturally as the result of free
market competition.  It is already far along in the more
industrialized countries.  The relative size of the manufacturing
sector has been steadily shrinking and will continue to do so.
The services sector is now far larger.  An even more dramatic
example of automation is seen in US agriculture where the
fraction employed has dropped over the last century from well
over 50% to only a few percent of the total population.  Even so,
the US is a major exporter of agricultural goods.

Second, more exchange of recipes rather than goods involves
primarily cross-border issues, and appears to require a rather
altruistic stance of those involved.  This might be workable in a
closely integrated trade zone with similar political structures,
such as across Scandinavia.  But on a larger scale it is probably
unrealistic, given the spotty record of the WTO and its
predecessor.

Third, damping the stock market long wave assumes that there is
in fact such a long wave and that we understand what causes it.
This is a controversial assumption.  I personally doubt that the
historical record is long enough to demonstrate the existence of
a long wave with any reasonable degree of confidence.  So I have
no further comment on this proposal.

Fourth, paring down the financial sector is in my opinion
potentially the most fruitful of Trond's proposals, although
private economic interests would make it exceedingly difficult to
achieve.  The Fed has the power to do much more than it does
toward reining in the excesses, especially in regard to bank
loans to purely speculative ventures..  However the Fed reflects
the will of the Congress who created it, and we have seen how
easy it is to buy Congressional legislation.  There is a direct
functional relation between financial wealth and political power.
This is a positive feedback loop that has no clear equilibrium
point, and therefore cannot be considered long-term stable.

The existence of huge trading floors with literally thousands of
dealers buying and selling an ever-growing number of financial
instruments suggests nothing so much as a giant casino.  CHIPS
now settles about 250,000 transactions a day that total about
$1.2 trillion dollars.  Surely most of this must be a zero sum
game, and almost totally unproductive in economic terms.  I
confess a bit of nostalgia for the days when bankers worked from
9 to 3, and most of the credit market debt consisted of bank
loans.

William F Hummel