More On the Sectoral Non-Imbalance

Another insufficient argument.

RE: “The basic story is one of misallocation of resources, but you can slice the resource picture dozens of ways and not get anything that could plausible be called mal-investment.”

A problem with a lack of clarity in your terms. Systemic investment of time (opportunity) or intentional investment in assets (money)l?

The boom consisted of a relationship between finance and construction which permeated home decorating (furniture, appliances), consumer electronics, landscaping services, lawn care, carpet care, pest control, mail order magazines, caused by a balloon in the appreciation of housing prices. Consequently, expansion of restaurants, of travel, automobile ‘feature inflation’, expansion of risk-taking and signaling in fashion. Companies expanded such that they were inefficient and reliant upon debt in order to defend themselves from competitors who took advantage of the expansion, as much as to take advantage of the opportunity. Unemployment was artificially decreased as this inefficient, consumer debt driven, speculative housing price bubble consumed human resources.

The boom in construction was matched by three other equilibrating forces. First, the decrease in cost of consumer electronics. Second, the consumption of a century of accumulated recorded media – the end of which is seen in the troubles facing Best Buy for example. Third, the end of the productivity enhancement gains of the personal computing era as we have both decreased computer prices to unprofitable commodities, fully operationalized businesses and business applications, and approached a practical limit of physical performance in relation to the demands of the kind of software that we are able to design and write given the current technology.

And the data shows that this is the correct interpretation: Productivity remains high while employment remains low. The sectors that were dependent upon the financing of housing and all sectors dependent in turn upon them have remained depressed.

The world consists of a network of patterns of sustainable specialization and trade. Entrepreneurs search for patterns to exploit. The entire society, over a period of four to eight years, aligns to exploit those patterns – in everything from their signaling and consumption preferences to their idle banter, to their life ambitions. (the human forgetting curve is about four years – that’s how long it takes to habituate a trend.) Organizations use their access to credit (based upon the faulty assumptions in linear projections) to expand until the pattern is fully exploited, driving driving out less credit-able organizations. Then people ‘notice’ the change in signal, increase their skepticism, decrease their risk, and then the bubble bursts and organization seek efficiency until a new opportunity can be exploited. Credit increases consumption between bubbles and bubbles are larger when there is credit that is unregulated by human market-knowledge.

It is merely a value choice we make: we can have more consumption and larger more traumatic bubbles, or less consumption and smaller more frequent bubbles. The jury is out on whether we help innovation productivity, and competition or hurt it. I suspect that the causal property will be a found to be a concentration of scarce IQ in industries – or the lack of it – which produces the rate of innovation, in response to how competing states allocate capital to increase productivity from existing knowledge created by others, where we account for literacy and IQ distribution as well.

Most economists are clerks. With effort it is possible to get almost all of them to acknowledge that they artificially limit their domain of inquiry to the questions answerable by their methodology. By doing so they invalidate all their prescriptions. YOu don’t. You implicitly suggest that economics is a moral endeavor and you reach beyond it’s limits. You’re the best public intellectual out there with respect to the data. Krugman is a political hack. But you’re the real thing: you honestly believe you’re “doing the right thing”. Your record of predicting trends in the data is as laudable as are your original insights into the correct interpretation of ISMP curves. But your aggregates serve only to support your metaphysical value judgements. They are not truths they are preferences. And as preferences they are harmful over the long term.

And this is because you believe that the problems of the future are unavoidable. So we might as well focus on the now rather than the future. And that assumption is demonstrably false. There are a fixed number of systemic and fragile norms that any civilization must adhere to, but which most all abandon – and do so for the same rasons. There is only one civilization that has held the majority of these principles for most of its history and it has discovered the industrial revolution twice – both times in short order.. Within that civilization there is only one political order that has been relatively immune from revolution. There is only one civilization that has abandoned the tribal and familial in favor of the universalist and corporeal – which is necessary for a high-trust society. There is only one civilization that has chosen systemic disruptive technology (science) over stagnation. ( Ferguson is getting there. He’s just as enamored of egalitarianism as you are. No amount of monetary manipulation for the purpose of increasing consumption can alter the unassailable objective necessity of incentivizing individuals to constantly increase production, while at the same time, decreasing birth rates at the bottom,and increasing them at the top.

That is the answer to the great question of history. We just may not like what it tells us.