Monday, November 03, 2008

The Way Out, pt IV

There's an obscure English cliche, "Where there's muck, there's brass." It means that wherever there's difficult or dirty jobs to be done, there's money to be made. The problem with the economic pessimists is that they always tend to underestimate the muck to be shoveled away if people are fairly compensated for doing it. It's a forgivable error. The statistics so beloved of economics measure this poorly, if at all. Free market types are often ridiculed for using phrases like, "unleashing the power of the markets" but sometimes that's just the plain truth of the matter.

What does this have to do with the price of tea in China? According to Glenn Reynolds, Obama leads in 18 out of 19 states with the largest decline in housing prices (and presumably will win most of them). Thirteen out of the fourteen states where housing values have declined the least, McCain leads.

Now, do we suppose that when The One takes office, and is confronted with the hordes angry at what they see (with some justification) as $700 Bn of free government money for Wall Street, he is somehow not going to try to dole out some largesse to his supporters? I doubt it. The piggy bank ought to be empty for such maneuvers, but somehow I doubt that it really is. The point is, such things cost more than money. They accumulate cottage industries built around the preservation of inefficiencies. But the way out is for people who see opportunities and materialize them.


Prior Peter, OSB said...

I would disagree with two parts of this post. First of all, the aphorism you quote is an example of the 'broken window fallacy'. The money to get rid of the muck is money that could have gone into something productive instead.

Second of all, the government is going to have plenty in the piggy bank as long as they feel OK about printing money to 'pump liquidity' into the economy. I mean, our government has essentially been broke for a long time, and TAH-DAH, $850,000,000,000.00!


Koz said...

I don't mean to be contentious but I disagree on both counts. The first is mostly a semantic misunderstanding. The point is, the money spent getting rid of the muck _is_ productive. Whatever is dirty or difficult is worth paying for. For easy work, people will do it themselves for free.

Second, the gov't's piggy bank is different from yours & mine (though that much different as we've found out in the credit crisis). As a practical matter, the government is limited in the amount of debt in can take on, by the perception that it will either be repudiated or inflated away Weimar-style. For all the prolifigate Washington spending over three decades, this really hasn't come into play yet. But if Pres Obama goes George W Bush-plus on spending, it will.

Prior Peter, OSB said...

I will still respectfully disagree on the first point, or at least clarify: it's better not to muck things up in the first place. Undoubtedly, cleaning up muck or fixing a broken window is more productive than doing nothing, but the net result of the breakage plus the repair is loss of time and resources that could have gone for something else.

I also don't quite understand how there is money to be made in finding a way to stabilize the housing market and find genuine market values for the securitized mortgages, etc. I'd be eager for your explanation in a future post.

On the second point, I accept your explanation--I think I misread your post. We probably disagree about the level to which the government actually feels pressure from 'perceptions' about the debt.

Koz said...

"Muck" doesn't mean what you're taking it to mean. It just means anything dirty. I think in it's original context it meant either coal (or manure).

Prior Peter, OSB said...

OK, point granted. So what is the muck to which you are referring metaphorically, and who is going to get filthy hauling it away, and who is paying them to do it?

thanks for your patience. I think I understand, but I'm not seeing how there's money to be made cleaning up the economic mess, since there's no money. Other than the energy expertise you mentioned elsewhere. I'm not sure that our economy produces the wealth it did on the way up.

Koz said...

Truth be told, that cliche was a bit misleading, because it's easy to conclude that we can resuscitate the economy by getting paid to clean up the debt mess, which is how you took it.

If anything that's closer to the opposite of what I was trying to get at. Obviously consumers are going to have to be more conservative in the future. But, we are not going to rebuild the economy by hoarding the little net worth we have remaining. Instead, it will be by providing real services that are valuable enough that people are willing to pay for them even in a slow economy.

Obviously energy is one like I mentioned in a prior post. But the larger point is that the we don't know how much "muck" there is in society at large and economists tend to underestimate it because the tools they use are backward-looking.

In a canonical example, Firm X sells a widget for $100 and a consumer buys it. Then the economist can take $100 subtract our the materials cost and add that to the GDP. But the economist can't do this until that transaction occurs.

But there's many hypothetical widgets and services that could be made or done. Some of them might be things nobody has heard of yet. The supply of them is potentially endless. Just because the industries that people have worked in historically have dried up doesn't mean the economy will necessarily fail.