Economies: Extractive vs. Inclusive

One of the difficult problems in economics (and economies) is the building of resources for investment (including R&D). Governments tend to look on this as a spending problem and direct taxpayer funds (or borrowed monies) towards investment that the politicians, bureaucrats and crony capitalists favour (GM or Soylendra, anyone?).

This takes resources from other sectors of the economy, and artificially stunts potential investments in areas of the economy that politicians, bureaucrats and crony capitalists either have no knowledge of or actively oppose.

The problem of malinvestment is one of the issues that Austrian School economics studies (looking at real cause and effect rather than "Animal Spirits"). A rather funny video explains this in the form of a rap song, but for those who pay attention, the lesson is very clear:

Fear the Boom and Bust https://www.youtube.com/watch?v=d0nERTFo-Sk

Starsaber wrote:

Imaginos1892 wrote:One more thing economists need to learn: buying and selling the same things over and over again does NOT create value! It doesn't matter if it's gold, stocks, houses or tulip bulbs.
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If you laid all the economists in the world end-to-end, they would all point in different directions.

Or more relevantly given our current economy: oil. Price speculators increase price without adding any value.

IMHO The only time speculators help is when they increase the available storage in a situation where more storage is needed. They do perform a price discovery function tho, but this is disturbed by the many people who gamble, rather than invest. Has anyone noticed how many farmers now have large grain bins on their farms? Storing from harvest season until demand season can be profitable. BTW, the drought in the USA west should have an effect on winter vegetable prices. BJ did a lot of canning this year. She has this habit in the winter of looking at grocery store flyers, and gloating out loud

[quote=Thucydides]The problem of malinvestment is one of the issues that Austrian School economics studies (looking at real cause and effect rather than "Animal Spirits"). A rather funny video explains this in the form of a rap song, but for those who pay attention, the lesson is very clear:[/quote]

The Austrian school looks at economics in a way that most economists do not. This causes me to favor checking them out. It is the non-standard people that can come up with useful novelties. The ones who stretch the standard ideas are useful also, even if sometimes by producing a reduction to foolishness result.

Not even Japan can convince economic fools of the stupidity of their programs.

But to close your eyes and hope the world stays the same is really just sticking you head in the sand.

Start with yourself, it’s the best place to begin, and yields the greatest return.

Jeff Rubin "The end of Growth." Worth reading, unpleasant conclusions.

It isn't possible to test any theory by reference to other theories: they can only be tested by solid evidence

A thoughtful look at the automation situation.

http://finance.townhall.com/columnists/ ... ampaign=nl

From it:

We should embrace technology and the increased standard of living that comes with it. Yes, those at the top-end have amazing lifestyles that most can only imagine. But, it's also true that the average US citizen today lives like a king (and much longer) than someone 200 or even 100 years ago.

But also:

The problem, and we see it with pilots and doctors, is when the computer fails, when either the technology breaks down, or the computer comes up against some situation that it hasn't been programmed to handle, then the human being has to jump back in take control, and too often we have allowed the human expert skills to get rusty and their situational awareness to fade away and so they make mistakes. At the practical level, we can be smarter and wiser about how we go about automating and make sure that we keep the human engaged.

Developing a good method of doing that will make an interesting puzzle


From another front:

http://townhall.com/columnists/johncgoo ... e-n1922274

Rule 3: No separate deals for special interests. The reason Obamacare looks like a Rube Goldberg contraption is because it is almost purely the product of special interest bargaining. There are no principles like “justice or “fairness” that guide its content. Now that the impure deed has been done, however, we find that every single interest group wants to renege on its share of the burden.

Also:

http://townhall.com/columnists/edfeulne ... sletterad=

In an extractive economy, the victors tend to fight over the spoils, and the rest of us are expected to shut up and pay for it. In an inclusive economy, nobody gets everything they want, but it is possible to appeal to justice and fairness in their basic meanings. Thus overall we pay less. Today these are often distorted to mean "Whine, I didn't get everything I want , whine."

An extractive economy tends toward real inflation due to too many unproductive hands in the purse. An inclusive one tends toward real deflation due to innovative methods of production and distribution, and the firing or retraining of the unproductive so a business can keep existing. Look at the recent innovative methods of producing food: intensive gardening, aquaponics, the seawater greenhouse, and probably others we've never even heard about.

In the Safehold universe you get Charis vs. Harchong. In the Honorverse, you get Manticore, vs. Silesia and Legislaturist Haven. In the real universe, you get those who compete on price and product vs. those who game the system. The temptation is for the successful to protect themselves from upstart competitors by pushing toward an extractive economy's control systems. This is why an informed electorate is so critical in an inclusive economy. It lets us cry "Bah", instead of "Baa."

From:

http://finance.townhall.com/columnists/ ... d-n1922423

Always assuming, no CEO will ever go to jail the bankers have learned that crime pays.

An example of how an extractive economy starts to form.


One way to improve the chances of an inclusive economy.

http://finance.townhall.com/columnists/ ... sletterad=

From above:

But that would require politicians to be responsible, so don’t hold your breath.

Throughout history, in most cases of economic collapse the societies in question believed they were financially invincible just before their disastrous fall. Rarely does anyone see the edge of the cliff or even the bottom of the abyss before it has swallowed a nation whole. This lack of foresight, however, is usually not the fault of the public. It is, rather, a consequence caused by the manipulation of the fundamental information available to the public by governments and social gatekeepers.

From:

http://personalliberty.com/economic-endgame-explained/

I try to notice who gets their predictions right in deciding who to believe.

Hey, look at this one!

http://www.businessinsider.com/what-nor ... es-2014-11

My definition of a brass hat personality is one who is more concerned with being in charge than with having things work well.

A Brass Hat special:

http://cfif.org/v/index.php/commentary/ ... e-internet

An interesting point:

http://humanevents.com/2014/11/21/using ... al-choice/

Another point:

In some cases, the game plan has to be to live a life that makes our children’s lives better. Sacrifices in a time of largess where everyone aspires to wear the latest fashion, even if it’s out of their income reach, is a key component of America that’s fading (more so than religion, marriage and forming families).

DDHv wrote:My definition of a brass hat personality is one who is more concerned with being in charge than with having things work well.

A Brass Hat special:

http://cfif.org/v/index.php/commentary/ ... e-internet

Cross Reference: Pournelle's Iron Law of Bureaucracy

fallsfromtrees wrote:

DDHv wrote:My definition of a brass hat personality is one who is more concerned with being in charge than with having things work well.

A Brass Hat special:

http://cfif.org/v/index.php/commentary/ ... e-internet

Cross Reference: Pournelle's Iron Law of Bureaucracy

That law is interesting. It is only iron when there is not enough bureaucracy trimming, which usually comes from outside that particular system. Even then, they tend to be like creeping jenny (field bindweed) which grows back from the roots.

I was reminded of JPs 2D political map also when looking.


For any investors: You might find it interesting to study the difference between Norway, Russia, and the middle eastern countries in the way they handled their national petroleum income. The Norwegian system looks like the best at present. The key factor is that unlike the middle east, they have much of the income go into a trust for future generations, and unlike Russia, they don't dip into it for current wants. I believe the take is limited to 4% a year. Now if they can keep the politicos from becoming pickpockets Can't find where this was read, or it would be posted here.

[quote = "Thucydides"]The problem of malinvestment is one of the issues that Austrian School economics studies (looking at real cause and effect rather than "Animal Spirits"). [/quote]

There may be an inclusive economy result coming along. Take a look at FROT. If they are not overrating their technology . . . On the other hand, some of those involved have been in "pump and dump" schemes before. I'll pass, but keep an eye on it.

Innovation tends to come from small groups which have enough resources to try it out. If they flunk, they will not be hurting the major part of the economy, which is reserved for the "too big to fail" groups. Malinvestment tends to go to large established groups, which sometimes fail anyway. Take a look at complexity theory if you have not done so already. From Jim Rogers:

If you have money in the financial system and the financial system collapses, even though you may have done nothing wrong—you may suffer because somebody else did something wrong.

DDHv wrote:Recently "Why Nations Fail." by Daron Acemoglu & James A. Robinson was read. Other DW fans might find it of interest.

Comparing DW's fictional economies with the historical economies in WNF is interesting: Extractive; Harchong & Imperial China; Legislaturist Haven & pre-revolution France; OFS and the British and Dutch East Indies companies or Inclusive; Charis & post 1688 Britain; Manticore & Industrial Revolution Britain; Yeltsin & the United States. Many other historical examples are covered in WNF.

An extractive economy is top down, and an inclusive economy is bottom up. As a result, an extractive one can be accomplish much - see USSR from 1923 to 1973, but will not have the destructive creation that produces major changes. WNF also discusses the political pressures that cause most extractive economies to become more so, and those which help inclusive ones to stay that way.

The most interesting parts are the discussions of how some nations change and others don't.

I read the book and it is great!!! One idea that they included is how special interests can change an inclusive society into an extractive society. The examples that they show use increased legislation and regulation to limit economic opportunity to the chosen.

In line with that, I think that DW should start adding another legislative body to the governments of his books that he favors. It would be the House of Repeals, as described in the linked article.

http://www.usatoday.com/story/opinion/2 ... /20729173/

James

JRM wrote:

I read the book and it is great!!! One idea that they included is how special interests can change an inclusive society into an extractive society. The examples that they show use increased legislation and regulation to limit economic opportunity to the chosen.

In line with that, I think that DW should start adding another legislative body to the governments of his books that he favors. It would be the House of Repeals, as described in the linked article.

http://www.usatoday.com/story/opinion/2 ... /20729173/

James

My bolding. Jerry Pournelle used to have a saying that

"the biggest enemy of capitalism is capitalists"

meaning that as soon as a capitalist company gets a large enough market share, it will act to restrict entry into the market by newer entrepreneurs. This may be done either by monopolistic tactics like under cutting prices in one area where there is competition to drive it out of business (A favorite tactic of Standard Oil), or by using government to impose such high barriers to entry that new companies can't afford the entry price (the automotive industry with the mandated crash testing, and mandated safety features, many of which are not required, and that most people don't really want.

fallsfromtrees wrote:

JRM wrote:

I read the book and it is great!!! One idea that they included is how special interests can change an inclusive society into an extractive society. The examples that they show use increased legislation and regulation to limit economic opportunity to the chosen.

In line with that, I think that DW should start adding another legislative body to the governments of his books that he favors. It would be the House of Repeals, as described in the linked article.

http://www.usatoday.com/story/opinion/2 ... /20729173/

James

My bolding. Jerry Pournelle used to have a saying that

"the biggest enemy of capitalism is capitalists"

meaning that as soon as a capitalist company gets a large enough market share, it will act to restrict entry into the market by newer entrepreneurs. This may be done either by monopolistic tactics like under cutting prices in one area where there is competition to drive it out of business (A favorite tactic of Standard Oil), or by using government to impose such high barriers to entry that new companies can't afford the entry price (the automotive industry with the mandated crash testing, and mandated safety features, many of which are not required, and that most people don't really want.

How would a company work out if it followed a policy of deliberately investing in innovative competitors, keeping the percentage low enough x<5% to not interfere with them

An early paper on extractive vs inclusive, although those names aren't used. Worth reading although verbose by today's standards:

http://www.constitution.org/jt/cccv.htm


http://finance.townhall.com/columnists/ ... f-n1955144

Yet according to the Bank of England’s Financial Stability Paper No. 13, published in December 2011, all economic outcomes under the current monetary regime — notably price stability and employment —have underperformed — dramatically —both the gold and the Bretton Woods gold-exchange standard.

The true basis of all science is that good tests trump theory. One reason economics is called the dismal science comes from how often they allow theory to trump evidence.


http://personalliberty.com/organizing-tyranny/

The collectivist model of the human machine or hive is a flawed model that oppresses individual contributions that could be revolutionary.

Making some good points.