Monday, January 25, 2016

Transitions and Transactions

Economic and political myopia are easy when they're close to home

The Trans-Pacific Partnership agreement between the United State and its Pacific Rim trading partners brings benefits of $77 billion a year to the United States but "could force 50,000 U.S. workers each year to find new jobs, a process that might require them to pursue new training". A recent Washington Post article by David Nakamura and Jim Tankersley reports out the findings of a Peterson Institute for International Economics report. And there's the rub: the pain of short-term, local economic disruption is more immediate and personal than long-term gain shared nationwide.

Whether it's coal in West Virginia or the Renewable Fuel Standard (RFS) in Iowa, each transition from an old technology, economic policy, or political system has transition costs. Consumption (that is, burning) of fossil fuels was long known to foul the air locally but its effect on the world's climate only became more evident recently. RFS was thought of a path to energy independence (a policy whose worth is questionable) only to result in higher food prices, higher land prices, and higher energy costs as world oil prices tanked. Transition from tax expenditures results in higher taxes for those favored groups if not accompanied offsetting rate cuts. A political power shift from a few oligarchs to a democratically empowered populace might cause the powerful few to think twice about such a transition.

The reduction of transactional costs in a market economy has similar beneficial economic effects in the long term but also brings short-term resistance from incumbent middlemen. Proposals to privatize government-run liquor distribution in Virginia and Montgomery County, Maryland are greeted with howls of short-term lost "tax" revenue and jobs while the long-term economic and consumer gains clearly outstrip the pain. Transition from a residential real estate market where agents wield monopoly and regulatory power reduces transactional costs to consumers and recoups $8 billion a year in "social waste".

None of this should be a surprise to consumers or politicians. Nor can we underestimate how hard it is to move from one economic or political arrangement to another. And politicians are more than happy to sate that desire with simplistic solutions that have no more foresight and insight that the next secret ballot.

But it should not be a secret that inhibitors of change and a better tomorrow are none others than ourselves. We want our money now. We claim to hold out hope for a better tomorrow for posterity but act predominantly in our own interest today. Change and progress are hard but inaction brings complacency and rot. Change is inevitable; best to steer it deliberately than accept fate.