I put Middle Earth Journal in hiatus in May of 2008 and moved to Newshoggers.
Well Newshoggers has closed it's doors so Middle Earth Journal is active once again.

Friday, November 09, 2012

Summary of Economic Challenges

I found this list of challenges buried in a lengthy post at a blog I have followed for years. I have no idea who the writer is, but the level of insight found here is exceptional.
Some of the most serious political-economic problems of our times are:
• income inequality at the upper bound;
• high cyclical and possibly structural unemployment (and under-employment) with consequential
 • output gaps,
 • diminished consumption, and
 • ballooning counter-cyclical entitlement costs;
 • diminshed monetary velocity and consequential
 • distortionary monetary policy by central banking authorities;
 • household deleveraging;
 • decaying public infrastructure resulting from years of underinvestment; and, finally,
 • sustainable public finance represented by both primary and cumulative government deficits at or near their upper bounds.
    With the exception of the Koch Bros. and a handful of Randian-Bootstrapping others, most would not find fault in the list. What if a single initiative could positively impact all these problems AND if not be wholly mutually-agreeable then be sufficiently less divisive so as to be acceptable?
This is followed by a nearly Utopian description of a proposed remedy which could yield constructive solutions to these challenges by attracting support (real support, with investors putting their money where their principles may be) from the only sources which could afford such outlays with little or not injury to their total assets.
To break the impasse between the means and the will, I propose that we mandate that some reasonable percentage of marginal income be mandatorily "invested" in a non-political non-governmental investment company that funds/invests in infrastructure and infrastructure renewal across the entire capital structure. The resulting debt, equity, leaseholds, revenue therefrom, or claims on resulting or related revenue streams that result will accrue to the contributors. (Mandated investment might for example begin at 5% above $200,000 rising to say 20% above for example $500,000 - on a scale eventually governed by Schiller's suggestion of tying marginal rates to the GINI itself). Importantly, by design, these "investments" would have a broader mandates, longer time-horizons, lower hurdle rates of return - much lower than ludicrous PFI schemes in the UK, but which nonetheless are analysed and vetted as investments and not gifts, or transfers, resulting in an asset - be it a school, a bridge, urban subway system, housing, claims on future road or gasoline taxes, smart-grid, etc. It effectively forces recirculation without outright sequestration, while respecting accounting conventions.
I'm not an economist, but I think the GINI reference refers to the Gini Index which Investopedia defines thus:
The index is named after its developer, Corrado Gini, an Italian statistician of the early 20th century. It is typically expressed as a percentage, so a 20 coefficient would be shown as 20%.
 Don't mistake the measurement of income distribution with the measurement of wealth. A wealthy country and a poor country can have the same Gini coefficient, even if the wealthy country has a relatively equal distribution of affluent residents and the poor country has a relatively equal distribution of cash-strapped residents.
I like that clear distinction between wealth and income.  In this case the focus is on income distribution,  which is conceptually different from comparative levels of income,
"Wealth" refers to total assets or net worth.
Income refers to additional potential assets or adjustments to net worth.

There are numerous examples of individuals or families with very low, even negative net worth coupled with relatively large incomes. Those incomes, properly managed, should be used to accumulate or add to net worth. New college grads with large student loan debts, entertainers or sports figures suddenly in the spotlight and lottery winners come to mind. None of these are likely to be wealthy but their newly higher incomes should shift them into the "wealthy" category. (There is no guarantee, of course. Which gives rise to the old saying that a fool and his money are soon parted.)

I could add more, but this is enough to pique the reader's attention. Take it from here...

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