Monday, September 28, 2015


Help me out with something. I think poverty can be solved with jobs. Am I a naive selfish right-wing bourgeoisie? Well, not entirely. Maybe I should let you decide. I spent part of my childhood in a public housing project called Rainier Vista in Seattle. We had our own school in the project. I assume so we would not contaminate the strain of people who could pay market rents.

My First Grade school yard was a 50' x 50' fenced enclosure about the same size as the chimp enclosure at the zoo, but without the elaborate play equipment or high fence. Escape was tolerated after check-in. Our teachers explained to us numerous times throughout the year that if we were not in class when attendance was taken the state would not pay the school. It worked on me. I had a job to do. I was there every morning at 8:10 to be counted. Perfect attendance. I was learning. I was surely on the path to college.

I learned other skills. I learned to tell time, so I would know how long I had to wait for recess. What I didn't learn in class I more than made up for with the learning experiences at recess. On the playground the girls played hop-scotch on the paved half, and the boys played marbles on the dirt half. All the boys played marbles in circles scratched into the dirt. My family was too poor to buy a sack of marbles, and I was to shy to ask anyway. One day my friend, Jerome, and I were digging around the drain cover at the edge of the playground when we got the cover loose. Inside half buried in the mud we found six marbles. We split the loot. Over the next couple of months I watched the other boys play on the dirt patch and practiced on the carpet at home. Carefully I started to play at school and did surprisingly well. I eventually had a lunch sack of marbles, maybe two pounds of glistening round gems. I even named a couple. My books stayed at school, but my marbles traveled everywhere with me. Then one spring day an older boy walked on to our schoolyard and challenged me. He was good. He could balance a marble on his thumb, use his fingers to rise above the dirt circle and send the marble through the air striking a pack of sleeping marbles in the center of the circle. I used the typical grade school technique with a shy marble poking out from a curled fist cave like a hot dog sticking its head out of a bun. I lost two things that day; all my marbles and my confidence. I learned a lot on the playground and nothing in the classroom where I specialized in coloring, tracing and keeping my head down, so I wasn't called on.

But did I learn about poverty? Not really, I was too young to understand what was happening around me. What I did learn about is want and disappointment. These are the scars of poverty. My stupid question to you is this: Do the poor want free medical care, food subsidies, transit subsidies, good condition used clothes, or do they want the ability to support themselves? Do they want some of your money, or do they want their own money?

Humor me. Assuming poor people want their own money, how would you go about that? Would you have the government create more jobs. Recognize if the government does that, it would be a huge expense to you. It might put you and your children in debt for the rest of you life and their lives. And then how would you pay off the debt? Government's only source of revenue is taxes. Each paycheck government will take a little of your earnings to repay the debt. There is a way to avoid dying a pauper. To keep the government out of your pockets, the business sector has to create the jobs and pay the salaries. Think about it. Do you have enough extra money to pay another person's salary? The business sector is the only sector that can afford it. They have a trick to create new money. They use new ideas to create new jobs, and profit to pay for those jobs. The two horrible P's, profit and productivity allow the business sector to provide jobs without taking our money. They do it by providing services and products we want to spend our money on. Instead of kicking and screaming when the government takes our money, the business sector can get us to give up our money willingly. Somehow by making me happy with new products and services, business is able to provide jobs to the unemployed.

Okay you say, but that is not always the case. Sometimes the economy is too weak to support new businesses. What can we do in that case? Appeal to the government for help?

That is a blind alley. The government is not a source of solutions. Government is simply a source of funding. New ideas must originate outside of government. They must have a private sector structure.

Government should be an reservoir of needs. The government can poll their constituents for a list of services or products that they want. For example they might state they want childcare for two hours after school. The next step for government would be to seek solutions from the business community, simply asking the business community how to solve this problem with a private sector solution. The government can require that a certain percentage of employees come from the ranks of the unemployed. The government can require the business firm use only private sources of funding. Maybe, the firm can get some funding from Kellogg's to test taste new cereals? Maybe, Mattell will pay to test some new games? Maybe, Randomn House will pay to have the children rate different books? Maybe, Amazon will pay to wear test some clothing? Maybe, Safeway will pay to test some vegetable dishes and teach a class on nutrition? I can imagine an entire curriculum developing from private sector involvement.

Here is another example. Citizens might ask for more drug abuse councilors. A private company could step forward to train unemployed people to work as councilors for their company in exchange for the education. The government could sweeten the burden on the training company through tax credits that the company could sell.

So what am I proposing? A system that uses a private company to provide a service or product and reduce the government's burden to provide these services and products to their community. The initial operating costs (tax rebates) might reduce tax revenues over the short term, but overall if structured properly the tax revenue and income from new workers is going to expand the economy and increase the overall wealth in the private sector. Public sector financial burdens should be reduced. It is a true win-win.

If this technique is employed properly by government, the bidding for service and product supply rights could become a source of revenue. Imagine bidding out security services at airports, or ambulance services, or taxi services, or even fire protection services. Huge national companies will develop providing thousands of jobs with world class performance levels. All this paid for by the users of the services, reducing the administrative costs and tax collection bureaucracy of government. Win-win.

Wednesday, September 2, 2015

What is Conventional Economics?

Conventional Economics is a term I use in N Theory to describe all currently promoted theories of economics. As Jonathan Schlefer in his book, The Assumption Economists Make, states there are three main schools of thought: Rational Expectations; Real Business-cycle Theory; and DSGE (Dynamic Stochastic General Equilibrium). Rational Expectations theory explains people use their judgment about the future based on what they expect to happen. The prominent factors that influence this judgment are product quantities, quality and prices. Real Business-cycle Theory assumes the market chugs along until conditions change. The main conditions are the cost to borrow money, the cost of labor and the size of the market. DSGE puts all these conditions and factors into a predictive model.

In a world with these three theories, what are we left with to evaluate? We could question whether people make rational judgment about the economic future. We could question whether change in the market will affect market performance. We could put all the factors affecting the market into a model and make predictions about how change may affect the market.  Nothing is wrong with any of these approaches, but they do not get us very far and they can be dangerous when used to tell us what to do next. In any case, this is the three groups of ideas I term Conventional Economics.

DSGE theory was a total failure in the Financial Crisis of 2007. One reason for the dismal performance is that is not a theory. It is a technique and a technique without a purpose spits out meaningless hogwash. So let's put it aside and concentrate on the other two theories. History partially supports both. Ingredient labeling on food packaging caused many consumers to rationally reevaluate what they were buying for their families. The Dot Com bubble did not put an end to electronic technological change, or alter the high premiums for companies in that market segment. Both partial theories are valid. We need both the intelligence of the consumer and the durability of the market incorporated into a robust economic theory. Something similar to the DSGE approach can provide insight, but mathematics alone does not explain what is happening in the economy. It is far too simplistic and artificial. Economics is not physics. Economics is about people. People act less uniformly than do subatomic particles.

Here is another insight about Conventional Economics. Economics is the academic study of the marketplace. Why are we studying Economics? The goal is to design a marketplace that provides products and services with employment opportunities sufficient for a satisfying life for the maximum number of people.

Often we get diverted from the goal of creating an improved marketplace. Our leaders take us in a different direction. They focus on the defects in the marketplace. They argue for having power over the shopping environment regulating the slope of sidewalks and the architecture of facades. Power in the economic equation is never good. European socialist countries, Asian communist states and African dictatorships often try to capture the cash proceeds from commerce, and use those funds to support their lifestyle. This tendency results in two approaches to market management. State regulation of the market, or market participant regulation. Participant regulation is the much better approach. It has at least a twenty thousand year history, sufficient time to work out the kinks. Participant management leaves market regulation to the experts. The other part of that equation is that state regulation is always an economic burden. It takes money out of the market to spend on offices, vehicles and salaries for the State regulators. This is the core of Conventional Economics. It is just not theory, but the artifice and bureaucracy created by a government following a specific Economic theory.