Lance Matteson is president of the Ulster County Development Corp. and his job is to find Ulster County jobs. Recently, County Legislature Minority Leader Glen Noonan called Matteson’s job oxymoronic. But sustainable economic development is achievable. To create jobs, Ulster County needs to break bad habits. Like New York State as a whole, too much of Ulster County’s jobs strategy has depended on large-scale government funding. These include the $117 million Woodland Pond development in New Paltz, the $1 million Kings Highway project and the $8 million Solar Energy Consortium that depends on federal and state funding. These are worthy projects. But a better and more sustainable approach would be a micro-jobs strategy. The entrepreneurial spirit of the County’s hard working and creative citizens could be supported through encouraging loans and tax breaks to entrepreneurial business start ups rather than to big developers.
Capitalizing on Ulster County’s cultural and natural treasures requires creativity that builds on institutional and human capital. Museums, resorts and support for the arts are some of the directions a jobs strategy might take that amplify the County’s strengths. We can all imagine arts centers, Catskill museums and new IBMs reappearing in Kingston. But big ideas are not enough. In corporate America, for every product idea that succeeds, seven fail. Why should Ulster County be different? Many small ideas offer a better and more sustainable strategy than a few big ones rigidly controlled. Why focus on home run sluggers when Ulster County can encourage many base hitters?
Of all of Ulster County’s wonderful assets, its most important is its hardworking, entrepreneurial and imaginative citizenry. The best jobs strategy would not only amplify their skills and human capital, but would build on their imagination through a technique known as micro finance. Micro finance is a way to rebalance the economy’s bias toward big developers, large corporations and big banks back to individuals. It is the individual that made America great, not big business. What we remember as the biggest firms, Standard Oil (Exxon), McDonald’s and Dell Computer, started as ideas that were funded through personal saving. Exxon was founded by John D. Rockefeller, who in three years as an accounting clerk was able to save one year’s salary and bought his first store in Cleveland. McDonald’s was started by the McDonald brothers who closed their hot dog stand to open the first scientific-management designed restaurant. Dell Computer was started by a college student named Michael Dell. But in the past six decades New York has sacrificed its entrepreneurial spirit to big developers and state eminent domain schemes. High taxes discourage private citizens from saving the capital they need. And the capital is transferred to big firms like Bear Stearns that often squander it. Howard Schultz, born in Brooklyn, moved to Seattle to make Starbucks a great firm.
For too long New York State has relied on government solutions to economic problems. The result has been a consistent pattern of economic decline. The reliance on big government development comes from the State’s early and ambitious adoption of the Progressive ideas of Theodore Roosevelt, Al Smith and Robert Moses. More than other states, New York has relied on private use eminent domain, high taxes and subsidies to big business. The Progressive model has failed.
New York State’s population has grown by a 30 percent over the past 40 years and since the 1970s much of that growth is due to immigration. In contrast, the US population has doubled, a growth rate three times that of New York’s. In the post-World War II period, New York has lead the nation in both the numbers of people leaving the state and in the number of private use eminent domain actions taken. Upstate New York has become a ghost land of deserted factories and impoverished but hard working citizens while New York has consistently ranked among the top three states in taxation.
The State has relied on a flawed model of urban renewal and economic development that involves public subsidies to large projects. The Progressive model that Al Smith and Robert Moses pioneered assumed that the chief problem confronting society was to replace individual initiative with government intervention. New York advocated higher taxes, greater degrees of regulation and greater government involvement in the economy.
Among the most important of the policies replacing individual initiative with large institutions have been those that inhibit individual capital formation, savings, by private individuals. But private savings is how most of the nation’s important businesses, from Standard Oil to Dell Computer, have been formed. A jobs formation strategy ought to focus on re-orienting banks and public policies away from taxation and toward financing entrepreneurial start ups. This would involve encouraging banks and other lenders to finance and support start ups within Ulster County.
Economic growth comes not from attracting large businesses into Ulster County, but from creating conditions whereby Ulster County’s entrepreneurial, academic, artistic and idealistic spirit can best express itself. This can be done by re-balancing access to credit from big developers to small business and start-up entrepreneurs.
Microfinance is the idea that financial institutions can be encouraged, supported or created to provide financial services to entrepreneurs that enhance their ability to start businesses. The recent fiasco in the national credit market suggests that financial insitutions have lacked competence in assessing the best credit risks. They have tended to exclude small borrowers and taken reckless gambles that have ended up requiring public support. The scorning of entrepreneurial start ups by the nation’s financial institutions has caused the inefficient allocation of financing away from entrepreneurs toward real estate, big box retail and hedge funds.
A meaningful jobs strategy would start with Ulster County’s development of a loan guarantee program, much like student loans, whereby banks would be encouraged to lend to entrepreneurs along with arrangement for tax abatements and refunds for individuals who start businesses.
Thursday, May 8, 2008
Wednesday, May 7, 2008
The Central Economic Question of Our Time Is Monetary
Dinocrat points out that emerging market nations now export and import to and from each other as much as they do to and from the United States and Europe. Dinocrat suggests that multilateral trade will lead to increased commodity prices if the US and Europe are in recession because the third world will continue to demand commodities given that their economies are independent of the first world's.
The increase in commodity prices is due not just to real demand for commodities but, more importantly, to monetary expansion by the Federal Reserve Bank. Monetary expansion (the Federal Reserve Bank's and the banking system's printing of new dollars) escalated when Richard M. Nixon abolished the gold standard for international dollar holders in 1971. The Federal Reserve Bank has increased the number of dollars in circulation by something in the area of 8 percent per year since then.
Until recently, this generous dollar inflation has not translated into higher prices for three reasons. First, the Department of Labor began excluding increases in home prices from their price inflation statistic, the consumer price index, in the early 1980s, and a significant share of the price inflation went into home prices. Second, international investors have held the majority of dollars. Approximately ten dollars are held internationally for every dollar held in the United States. The expansion of international holdings of dollars has permitted low interest rates to be coupled with relatively low price inflation. Should the international dollar holders decide to sell, there could be hyper-inflation in the United States, resulting in much increased commodity and general price inflation.
The recent increase in commodity prices is not especially long in the tooth. We could see much greater inflation in the coming years if global dollar holders decide to sell.
Third, Howard S. Katz has argued, convincingly, that the low commodity prices of the 1990s were attributable to the Greenspan Fed's high rate of monetary inflation. The initial effect of the Greenspan Fed's monetary expansion since the Reagan era was to reduce interest rates. The low interest rates led to an expansion of commodity production because miners and other commodity producers could borrow and so expand their production. The expanded production led to price competition in the 1990s, which in turn led to low commodity prices and low inflation. However, the producers closed their doors because of the lower prices. Mines and farms became less profitable. However, the monetary expansion has led to continued increased demand. It will take time before the mines can reopen, and therefore commodity price inflation will continue for several years.
As well, the Fed lent money to real estate developers who developed farm land. When President Bush pushed through the ethanol policy that increased demand for corn, farm land that had been previously available for farming was no longer available because it had been developed into shopping malls, residential housing and related real estate investments. This has been true globally as nations like China have also inflated their money supplies, malinvesting artificial, central bank-created money into real estate and reducing the amount of farm land available. Thus, the recent food, metals, energy and other commodity shortages are interrelated, and they are the result of the Greenspan Fed's and third world central banks' policies.
In order for commodity prices to fall, new commodity production will need to reopen. However, there is a multi-year lag because it is expensive and difficult to re-open mines once closed. In the case of agriculture, it is prohibitively expensive to reclaim farm land that has been converted into homes that cost six figures apiece.
If the recent secular upward trend in commodity prices were merely due to demand for specific commodities in the third world, increases in one commodity's price would be offset by reduced demand for that commodity. This is true whether third world nations trade with themselves, with the US or with the man in the moon. When all commodities go up in tandem the reason is that central bankers have increased the money supply.
One of the key effects of monetary inflation has been increasing asset values. Thus, the increases in the stock market since 1981 have been attributable to the same Federal Reserve policies that caused the post-2000 real estate bubble, the hedge fund and private equity boom, increased starvation in the the third world, and flat real wages among US workers (due to price inflation).
These ideas are expressed in the writings of Ludwig von Mises and in Howard S. Katz's Paper Aristocracy. In order to end price inflation, the Federal Reserve's monetary expansion (reduction of interest rates below their market level) would need to be ended. Because the stock and real estate markets depend on the wealth transfer that the Federal Reserve effects, this is unlikely to happen unless the public demands a metallic standard, a gold standard. Inflation will exist as will food shortages and third world (if not first world) starvation as long as the Fed transfers wealth to wealthy borrowers from wage earners.
The increase in commodity prices is due not just to real demand for commodities but, more importantly, to monetary expansion by the Federal Reserve Bank. Monetary expansion (the Federal Reserve Bank's and the banking system's printing of new dollars) escalated when Richard M. Nixon abolished the gold standard for international dollar holders in 1971. The Federal Reserve Bank has increased the number of dollars in circulation by something in the area of 8 percent per year since then.
Until recently, this generous dollar inflation has not translated into higher prices for three reasons. First, the Department of Labor began excluding increases in home prices from their price inflation statistic, the consumer price index, in the early 1980s, and a significant share of the price inflation went into home prices. Second, international investors have held the majority of dollars. Approximately ten dollars are held internationally for every dollar held in the United States. The expansion of international holdings of dollars has permitted low interest rates to be coupled with relatively low price inflation. Should the international dollar holders decide to sell, there could be hyper-inflation in the United States, resulting in much increased commodity and general price inflation.
The recent increase in commodity prices is not especially long in the tooth. We could see much greater inflation in the coming years if global dollar holders decide to sell.
Third, Howard S. Katz has argued, convincingly, that the low commodity prices of the 1990s were attributable to the Greenspan Fed's high rate of monetary inflation. The initial effect of the Greenspan Fed's monetary expansion since the Reagan era was to reduce interest rates. The low interest rates led to an expansion of commodity production because miners and other commodity producers could borrow and so expand their production. The expanded production led to price competition in the 1990s, which in turn led to low commodity prices and low inflation. However, the producers closed their doors because of the lower prices. Mines and farms became less profitable. However, the monetary expansion has led to continued increased demand. It will take time before the mines can reopen, and therefore commodity price inflation will continue for several years.
As well, the Fed lent money to real estate developers who developed farm land. When President Bush pushed through the ethanol policy that increased demand for corn, farm land that had been previously available for farming was no longer available because it had been developed into shopping malls, residential housing and related real estate investments. This has been true globally as nations like China have also inflated their money supplies, malinvesting artificial, central bank-created money into real estate and reducing the amount of farm land available. Thus, the recent food, metals, energy and other commodity shortages are interrelated, and they are the result of the Greenspan Fed's and third world central banks' policies.
In order for commodity prices to fall, new commodity production will need to reopen. However, there is a multi-year lag because it is expensive and difficult to re-open mines once closed. In the case of agriculture, it is prohibitively expensive to reclaim farm land that has been converted into homes that cost six figures apiece.
If the recent secular upward trend in commodity prices were merely due to demand for specific commodities in the third world, increases in one commodity's price would be offset by reduced demand for that commodity. This is true whether third world nations trade with themselves, with the US or with the man in the moon. When all commodities go up in tandem the reason is that central bankers have increased the money supply.
One of the key effects of monetary inflation has been increasing asset values. Thus, the increases in the stock market since 1981 have been attributable to the same Federal Reserve policies that caused the post-2000 real estate bubble, the hedge fund and private equity boom, increased starvation in the the third world, and flat real wages among US workers (due to price inflation).
These ideas are expressed in the writings of Ludwig von Mises and in Howard S. Katz's Paper Aristocracy. In order to end price inflation, the Federal Reserve's monetary expansion (reduction of interest rates below their market level) would need to be ended. Because the stock and real estate markets depend on the wealth transfer that the Federal Reserve effects, this is unlikely to happen unless the public demands a metallic standard, a gold standard. Inflation will exist as will food shortages and third world (if not first world) starvation as long as the Fed transfers wealth to wealthy borrowers from wage earners.
Tuesday, May 6, 2008
Rationality, Progressivism and the Market
The market and progressivism pose two alternative approaches to rationality. Progressives argue that social deliberation can be purposeful and that incentives that might distort rationality in deliberative decision making, such as special interest group incentives to lobby for political benefits, do not distort deliberative processes sufficiently to outweigh the benefits from deliberation. Market theorists argue that rationality depends on information appropriate to a given time and place that cannot be communicated or discerned by a deliberative body, and less so by society at large. Economic actors have specialized knowledge such as price and technological knowledge that is difficult to communicate and far too complex to be known by outsiders. This knowledge is not the knowledge of general experts, economists or the like but rather of people who understand narrow production and market demand problems because the information required is very specific. For instance, do the people of Oshkosh like a different kind of Italian food from the people of Rochester or of Madison? Do bagel consumers in Manhattan have a different taste from those in Queens, Brooklyn or Wisconsin? This kind of information can be learned through trial and error.
The organizational life cycle and organizational learning would be critical to the second kind of information but not the first. In order to survive, organizations would need to obtain and utilize the second form of information, and the incentive to do so would be the threat of organizational death. In contrast, organizations need not learn if knowledge is deliberative. All that would be required were knowledge deliberative in nature would be the hiring of outside experts to maintain or improve institutions.
This has been the claim of Progressives and New Deal social democrats who have instituted an increasing degree of government intervention. Knowledge is general in nature and so requires the help of experts trained in general theory.
There should be empirical tests available as to which approach to rationality works better. Where there are more bankruptcies, over a 40 year period do economies do better or worse? If they do better, then there would be some support for the market-based model of rationality. If they do worse over the long term, then the social democratic-progressive model would be better supported. Likewise, the possibility of organizational birth would be associated with the market-based model of rationality. Where there are more organizational births, one would expect to see greater economic vitality according to the market-based model. Deliberative processes would tend to lead to stability, hence organizational learning, death and volatility would be associated with long run economic vitality under the market-based model. But more gradual change, which would be limited by economic and scientific theory, would be associated with success under the social democratic-progressive model. Volatility and risk associated with responsiveness to price and demand fluctuations would be associated with economic success under the market-based model but not under the social-democratic-progressive model.
Another importatn question is where do innovations occur most frequently under this continuum:
total state control--->social democracy---->limited state
Which of the three is associated with the most innovation? This can be viewed within the United States. Does innovation occur more in states with the least government intervention or the most? Did innovation occur more frequently in the nineteenth century or the twentieth century?
The organizational life cycle and organizational learning would be critical to the second kind of information but not the first. In order to survive, organizations would need to obtain and utilize the second form of information, and the incentive to do so would be the threat of organizational death. In contrast, organizations need not learn if knowledge is deliberative. All that would be required were knowledge deliberative in nature would be the hiring of outside experts to maintain or improve institutions.
This has been the claim of Progressives and New Deal social democrats who have instituted an increasing degree of government intervention. Knowledge is general in nature and so requires the help of experts trained in general theory.
There should be empirical tests available as to which approach to rationality works better. Where there are more bankruptcies, over a 40 year period do economies do better or worse? If they do better, then there would be some support for the market-based model of rationality. If they do worse over the long term, then the social democratic-progressive model would be better supported. Likewise, the possibility of organizational birth would be associated with the market-based model of rationality. Where there are more organizational births, one would expect to see greater economic vitality according to the market-based model. Deliberative processes would tend to lead to stability, hence organizational learning, death and volatility would be associated with long run economic vitality under the market-based model. But more gradual change, which would be limited by economic and scientific theory, would be associated with success under the social democratic-progressive model. Volatility and risk associated with responsiveness to price and demand fluctuations would be associated with economic success under the market-based model but not under the social-democratic-progressive model.
Another importatn question is where do innovations occur most frequently under this continuum:
total state control--->social democracy---->limited state
Which of the three is associated with the most innovation? This can be viewed within the United States. Does innovation occur more in states with the least government intervention or the most? Did innovation occur more frequently in the nineteenth century or the twentieth century?
Party Affiliation and the Media's Lying Quality
In the nineteenth century news sources openly identified their party affiliations. That practice gradually eroded in the twentieth. The New York Times claimed that objective journalism was their goal. They made a good stab at it, but by now they are a Democratic (and social democratic) newspaper. Most other newspapers followed their lead because journalists believed that the Times was the best paper, the newspaper of record. As a result, the newspapers have tended to follow a Democratic Party line.
The television networks were established during a period when the Democratic Party was dominant. Although they do not express a party affiliation, they are mostly supportive of the Democratic Party. This is inequitable because the air waves are public property and should not all be allocated to one party. There needs to be open discussion of partisan dominance of the television networks.
It is time for consumers of news to demand that news sources openly affiliate with one party or another. It is pointless to claim, as do many conservatives, that a Democratic Party newspaper like the Times is biased toward the Democrats. Of course it is. Rather, readers should demand integrity from media. Integrity means that media ought to state the party or ideology with which it is affiliated. It is the false claim to objectivity that irritates conservatives, not the fact that media is biased. Objecting to bias is like objecting to the grim reaper. You can complain all you want, but you're going to be reaped anyway. The fact that social democrats do not make bias complaints about the media is significant evidence that the conservatives' complaint is true.
Many in the media vapidly claim that they are not biased. But it does not occur to them that conservatives frequently complain that they are biased and social democrats defend them. This alone closes the case. There is no reasonable doubt if all on one side complain and all on the other defend them. That is what bias means.
I agree with conservative attacks on the Times just as I agree with reasoned attacks on Barack Obama and Hillary Clinton. But isn't it time to call a social democrat a social democrat and start confronting real issues? These would include abolition of the Department of Education; abolition of the Federal Reserve Bank; privatization of the Post Office; privatization of social security, educational vouchers........
The television networks were established during a period when the Democratic Party was dominant. Although they do not express a party affiliation, they are mostly supportive of the Democratic Party. This is inequitable because the air waves are public property and should not all be allocated to one party. There needs to be open discussion of partisan dominance of the television networks.
It is time for consumers of news to demand that news sources openly affiliate with one party or another. It is pointless to claim, as do many conservatives, that a Democratic Party newspaper like the Times is biased toward the Democrats. Of course it is. Rather, readers should demand integrity from media. Integrity means that media ought to state the party or ideology with which it is affiliated. It is the false claim to objectivity that irritates conservatives, not the fact that media is biased. Objecting to bias is like objecting to the grim reaper. You can complain all you want, but you're going to be reaped anyway. The fact that social democrats do not make bias complaints about the media is significant evidence that the conservatives' complaint is true.
Many in the media vapidly claim that they are not biased. But it does not occur to them that conservatives frequently complain that they are biased and social democrats defend them. This alone closes the case. There is no reasonable doubt if all on one side complain and all on the other defend them. That is what bias means.
I agree with conservative attacks on the Times just as I agree with reasoned attacks on Barack Obama and Hillary Clinton. But isn't it time to call a social democrat a social democrat and start confronting real issues? These would include abolition of the Department of Education; abolition of the Federal Reserve Bank; privatization of the Post Office; privatization of social security, educational vouchers........
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