Political Market Economy

Rules of the Game

Rules Examples Result Skin in the Game Application
Increasing demand
raises price
and profits
President G. W. Bush (R) signed the Medicare Prescription Drug, Improvement, and Modernization Act creating Medicare Part D. This increased demand for drugs and their price. The law also banned prescription drugs supply from Canada and the use of government purchasing power when awarding drug contracts. These limited supply also pushed up price. Higher prices increased insurance premiums and exacerbating the recent increases in deductibles and copayments. Uninsured did without prescription drugs. Drug companies had lots of skin in the game and used politics to made sure some went to their profits though some went to higher wages. Government aid increased the demand for college, colleges made demand more inelastic and price went up.  Added supply of GRADUATES MEANT LOWER WAGES. Fewer and fewer graduates receive an economic return for their investment of time, efforts, and savings.
Decreasing demand lowers price and puts pressure on profit

 

Decreased demand for U.S. produced goods followed NAFTA. It allowing less expensive Mexican and Canadian manufacturing and agricultural goods to replace similar US produced goods. Foreign demand for US  goods increased a little. Most of the increased demand went to intellectually property products.  These products generated large profits but little employment. Balance of payments increased and demand for U.S. workers decreased for all but a few high-tech workers so average wages went down. Workers have skin in the game but Guns, God and Government contempt combine to limit political power. People benefiting from IP use politics to enhance their profits creating economic rent. The Bush Tax Cut does much more for the wealthy and to date Trickle Down Economics has not worked in the U.S. without anarchy caused political constitution
Decreasing supply increase price and puts pressure on factor costs

 

Oil embargos of the 1970's pushed up price and oil's inelastic demand led to only small decrease in quaintly sold. Prices and profits skyrocketed.

 

The world's supply of  loanable funds increased and were quickly loaned to Latin America and Third Word nations. Most eventually defaulted. Oil producer's had no skin as their deposits were  guarantied by commercial banks who had limited skin because they were too big to fail. Privatizing ST would have the same affect as the large increase in investment would outstrip the supply of worthy investments.
Increasing supply lowers price and eliminates pressure from factor resources Federal support for agriculture beginning with Land Grant Universities increased production which lowered price. An unintended consequence of government  was Alabama, and other LGU became football powerhouses. Inexpensive food is almost an obesity causing free good. Big Agriculture has skin (no pun intended) in the game making it a political foece. Increasing the supply of college educated workers using a non merit college system has lowered the Economic Return College Degrees.

 

In Crisis  

Political Economy Commandments/Axioms Postulate
Motivations change very slowly. 1) What affects economic activity today hasn't changed since hunter-gathers took over.
1) Gold is the #1 economic motivator and it usually consists of not only money but also power, fame, social intercourse, self-worth. 1) Competition controls excessive economic motivation and the resulting efficiency causes pain.
2) Political motivators of Gold, God, Guns and Government are normally distributed. 2) Political motivators create rent9excess profit) to lower pain caused by competition.
3) Political motivators while cyclical generally revert to the meant. 3) Sometimes we rally around the flag in relation to rent, sometimes we do not.
4) Most motivation comes from those on the extreme ends of the normal curve. 4) Motivation fosters the creation and elimination of economic rent.
5) Effects of extreme motivation can vary quickly and dramatically. 5) Positive rents are remembered but their disappearance (negative rent) is too quickly forgotten.
6) Motivation controls all bureaucracies. 6. capitalism and democracy get credit for wealth correctly described as American exceptionalism
7) Distributing economic proceeds has always be confrontational. 7)Those with the gold will always limit the need and size of a safety net.
8) Rent earners will always feel justified in keeping their thought-to-be well-deserved rent.    8) Politics has resulted in the use of Walls Street to rectified financially based economic losses caused by the banking system
9) Prejudice and politics make meaningful understanding and using of data unreliable. 9) Wage growth calculation vary substantially allowing for the  misrepresentation of data..
 
10) Data leads to economic theories and models which usually conflict. 10)Random Walk Hypothesis dismissed 1970s hedge fund lasted in economic models for 20 years.
11) practically application of mathematically based economic models usually fail. 11) The degree to which people are motivated by gold can not be predicted.

Random Thoughts

Data inserted in algorithms to assist monetary and fiscal policy decisions is useless. The Russians tried to replace the market with econometrics and failed. US economist tried to use similar models to conquer the stock market and failed. Now economist try to predict black swans and fail. Recent Bernanke decisions  were not based on complex models. The FED failed to provide liquidity in the early 1930's so a housing/stock market bubbles turned a recession into a depression. Ben learned. No Models required. When asked about slow economy he said over supply of savings. End of story. No math required to see and measure the effect of Petro Dollars. US Banks loaned it to the third world that didn't need it, got big commissions and then moved to a new job after the third world defaulted. At said job they used World Bank and US government ts to restructure third world debt earning another commission. 

World events follow a normal curve and generally have a reasonable effect on economic activity. Positive and negative effects are minimal.. Once in a while a 9/11 , Great Recession and a major political liberalization reinforce each other and  with them comes an end of negative effects.

 

Golden Parachute
A. Increased competition began after WW2 and while it took 20 years to show an effect, eventual the struggle began between wages and profit.
B. Business leaders began acting like entrepreneurs demanding a share of profits even though they took no risk. see Intrapreneurship,

Lliberal Economist Paul Krugman had mad reference to the lose of the Tech bubble in 2003. When called on his remarks he said " Guys, read it again. It wasn't a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that's just what happened." "So with a deft little two-step, Krugman painted himself as a doctor who gave an excellent diagnostic, and not a disastrous prescription" stated the author. mises.org/library/Krugman-call-housing-bubble Editor's Note: Many economist feel the FED causes less harm saving the financial system with printed money than the harm caused by slow growth unemployment.

 

 

 

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instrumentalism = don't allow the firs step.