Re: Economic reform policy: Some views and proposals

[William F Hummel <wfhummel@xxxxxxxxx>]

On Wed, 30 Apr 2003 14:34:53 +0200, Trond Andresen wrote:

>At 10:32 26.04.03 -0700, William F Hummel wrote:
>>My general reaction to Trond Andresen's proposals is that they
>>deal mainly with ends rather than means.
>
>I partly disagree with that interpretation of what I wrote.
>For instance: An automated industry is a means to an end:
>A society where people can use their time for more meaningful
>activity -- work or free time.

Automated industry is a means to an end, but it is also a goal
still to be achieved according to Trond's own set of proposals.
Of the four goals mentioned, this is the only one that I believe
will evolve naturally and continually as long as there exists a
free market economy.
>
>>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.
>
>The bigger the country, the more difficult it is. And the more hostile
>to macroeconomic reform, regulation and legislation, the more difficult it is.
>So, yes, the U.S. is not what I had foremost in mind.
>
>>Considering the proposals individually, first the automation of
>>manufacturing goal is proceeding naturally as the result of free
>>market competition.
>
>It is of course proceeding, but could proceed more smoothly with political
>consensus about the means and goals I described in my "program
>proposal".
>
>> 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.
>
>But as long as these "services" to a large degree means low-utility
>low-quality jobs, society as a whole is worse off.

That would be true if "services" were mainly patting hamburgers
for McDonalds.  But those are largely entry jobs, not careers.
Entry jobs are important to the young in terms of acquiring
experience and income.  They should not be viewed as a negative
for society.

I see the growth of the services sector as a significant benefit
for society.  The fact that our material needs can now be
produced by a fraction of the population means the average person
has more time for rewarding pursuits, including the intellectual,
the arts, and leisure activities.  Remember that a significant
part of the growth of services has occurred in medical,
transportation, and communications (the Internet for example).
And not to forget that academia itself is a part of the services
sector.
>
>>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.
>
>I deliberately avoided talking about agriculture in my first message not to
>introduce to many threads ar once. I believe that agriculture should be
>treated differently form manufacturing because of its ecological and
>environmental aspects. In the future society I sketched, agriculture is
>*more* labour-intensive than today. Food is therefore relatively more
>expensive, but it is to a larger degree ecologically sound and more locally
>produced.

So the devolution of agriculture to a labor-intensive industry
and local industry is viewed as a positive for society?  This
seems to go in the opposite direction from the goal of automated
manufacturing.  It certainly means less leisure time and fewer
services for the average person.  Granted ecological issues are
involved, but why can't they be adequately addressed under
automated agriculture?
>
>>Second, more exchange of recipes rather than goods involves
>>primarily cross-border issues, and appears to require a rather
>>altruistic stance of those involved.
>
>Altruism is no prerequiste here. If a corporation receive a license fee
>for a unit locally produced and sold in another country, this may in fact be
>preferable to trying to export the same unit to the country and hoping to
>profit by this.

Licensing is already a big business among corporations.  But my
understanding was that the proposal was to impose this
cross-border by the acts of governments.  It was in that context
that I referred to altruism between politically diverse nations.
>
>>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.
>
>I think that f.inst. Robert Shiller has good evidence of this.
>See figure 1.2 in "Irrational Exuberance", accessible on
><http://www.amazon.com/exec/obidos/tg/detail/-/0767907183/ref=lib_dp_TFCV/002-5827033-7237605?v=glance&s=books&vi=reader#reader-link>.
>
>For a probable mechanism behind it, I modestly point to
>http://csf.colorado.edu/authors/Andresen.Trond/stockmodel.pdf

I assumed the "long wave" referred to the Kondratieff postulate.
If one believes as I do that the data on which it is based is
non-stationary, then the long wave may be merely an illusion.

As Basil Moore noted in quoting Nelson and Plosser (1982) "the
traditional decomposition of economic time series, into trend,
cycle, seasonal, and stochastic forces, is in fact imposed by the
analyst himself, and not inherent in the data."

In any case, the factors that cause the observed changes in
prices and output are varied and complex over the few cycles of
data that are shown.  It seems highly unlikely that the forces
involved during the days of central banks and endogenous money
are the same as those involved in private banks and a gold money
regime.
>
>>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.
>
>Seconded!!

So the question remains, how do we rein in the financial services
industry so that it is no longer the tail wagging the dog?

William F Hummel