Platt Perspective on Business and Technology

Open markets, captive markets and the assumptions of supply and demand dynamics 14

Posted in macroeconomics by Timothy Platt on August 1, 2016

This is the fourteenth installment to a brief series on underlying assumptions as they arise and play out in economic systems, and in production and marketplace systems (see Macroeconomics and Business 2, postings 230 and loosely following for Parts 1-13.)

I began discussing a phenomenon in Part 8 of this series that I have come to refer to as politically grounded economic friction, to cite its full and somewhat self-explanatory name. And I have been discussing it since then, as it has arisen and played out in a series of historical-example contexts.

I brought this narrative up to the present with a discussion of how this in-effect politically mandated friction has both shaped and limited meaningful regulatory law as has been enacted to prevent further occurrence of events such as the Great Depression and the Great Recession. And I focused in that, on the rise and fall of Glass-Steagall Legislation, as was enacted in response to the Great Depression in 1933 and finally effectively killed off by the highly politically motivated Gramm-Leach-Bliley Act in 1999. And with that already full lifecycle comparative example in place, I then turned to consider the more recent Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as enacted to prevent another Great Recession. And I at least briefly sketched out how this was drafted and how concerted effort is already being made to water it down and kill it off too – and once again for short-sighted partisan political reasons.

And this led me to an aspect of this overall discussion that is pivotally important for understanding politically grounded economic friction per se, and in fact much if not most of economic friction as a whole:

• I would argue that the problem here is not so much with politics per se as a system for developing and championing new ideas and approaches,
• But in who politicians are beholden to and aligned with, who they see themselves as actually representing as shown by their actions and their priorities, and who they simply take for granted – or come to see as their opponents.

Why do current Republican members of Congress in the United States, so actively fight against regulatory oversight of business, and of the financial industries as a special case, and particularly in light of how the still-recent Great Recession took place? They know who donates the lion’s share of the funds that they use when running for office and they do pay their debts – to the people who set up and fund the super PACs and related major political funding conduits that keep them elected and in office. The general public has been giving the United States Congress – both houses, all time low approval ratings in independently run polls for years now, but the average citizen does not pay to get these politicians elected and reelected (see this March, 2016 Gallup polling report: No Improvement in Congress Approval, at 13%.) So an effective majority of elected members of Congress have not and will not change their ways and they have not and will not challenge what their paying sponsors see as being in their own best interests, and in spite of the polling numbers.

But my intent here is not to restrict myself to US and Western nation examples, but rather to consider this form of economic friction as a more global phenomenon. So at the end of Part 13, I stated that I would turn next:

• “To consider China in my next series installment, and its economics, and for its version of politically grounded economic friction.”

I have been writing in detail in this blog about China, their government and their one political Party system and economics, and I have been doing so for what is now approaching six years. And you can find this ongoing progression of postings and series at Macroeconomics and Business and its Page 2 directory continuation, and with earlier related material on this topic offered at Ubiquitous Computing and Communications – everywhere all the time too. And to simplify any background reading that I might offer from all of that, as particularly relevant to this discussion, I specifically note here the more recent postings to my currently running China series: China and its Transition Imperatives, as can be found in the second page to my Macroeconomics and Business directory, and its Parts 24-34 in particular. Yes, this still might seem to represent a significant amount of reading. But I fully expect that the underlying events that I write of concerning China, will come to be seen as representing a major historical turning point for the 21st century, and globally. I only touch upon small pieces of that larger story in my collective China writings. And I offer those more recent postings in particular from the larger set that I provide here, as a source of background perspective as to how I arrive at the conclusions that I reach in this posting.

China’s leadership in their government and Communist Party have made a long series of decisions, and they have taken a long series of resultant actions that have had the cumulative effect of bringing them to the edge of economic collapse and the edge of a true sociopolitical precipice. I have been discussing the How of this in the above cited reference postings and series. I in effect turn here to consider something of the Why of this too. And this brings me directly to the conflict of interests issues, and the potential for creating them that I encompassed in my above, alignment and support bullet point, towards the start of this posting.

I stated there that the politically grounded economic friction problems that we see, and both historically and in today’s news, stem not from politics per se but rather from how and where politicians align themselves and support particular interests, downplaying or even denying the interests and concerns of others.

• Politically grounded economic friction arises when there is a mismatch: a failure in alignment between who politicians and elected leaders lead and in principle serve, and who looks to them for leadership and support as their elected officials.

Right now, as of this writing, the United States Republican Party is enduring what by all rights can be considered a near death experience because their elected officials and in state and national office have so thoroughly disowned their own electorate: their own rank and file Party members, that a large percentage of their electorate have gone into overt revolt, nominating Donald Trump as their upcoming presidential candidate for the November 2016 elections. And one of his draws for them as a candidate has been his open disdain for and hostility towards the Republican Party’s more entrenched leadership!

Let’s consider China in light of this process, and in light of how alignment mismatches can and do create both friction and discord. Who are China’s leaders and who do they actively and supportively align with? I answer that in summary by noting a brief set of points that I have been discussing in detail for years now in other, China-related series here:

• Essentially all power in China rests in the hands of their Communist Party, and this holds true across the entire span of their society. The Party fundamentally owns their government and uses it and its resources as a set of tools of power. The Party owns and in a fundamental sense dictates the law in place. The Party decides who can be elected or appointed to what and for any and every position of authority in China and from small-local on up to include the highest positions of power and authority in their national government. The Party owns and fundamentally controls their entire economy and both for the wide range of state-owned businesses and industries that their government directly owns, and for their fledgling privately held but still captive private sector enterprises. And in a fundamental sense, the Party owns or at least significantly controls what should be the private lives of all of their citizens too, effectively dictating where they can live, where and even if they can work, where their children can go to school and how many children they can have, what they can see and hear and read in the news and in general where that is broadcast or shared online or in print – the Party and their government at least tries to completely control the message and who can see what there. And this is still only a partial, if already somewhat stunning list as to how the Chinese Communist Party rules and controls. The Party is final arbiter as to what their citizens can believe as a matter of religious faith, or at least what they can in any way publically profess or observe there. The Party seeks to control and in a fundamental sense own everything, and from the most personal and mundane up to the national and societal as a whole. As a recent example of how comprehensively the Party seeks to own and control, I would cite a news piece that just came out as I write this posting as to how closely the Party seeks to control all aspects of its historical narrative, allowing no dissenting voices in that, with Chinese Court Orders Apology Over Challenge to Tale of Wartime Heroes. Any challenge, no matter how minor or indirect to the Party’s idealized image that it would project about itself cannot be allowed and must be strongly suppressed.
• This means China’s leadership and for both government and Party positions, hold authority over everyone and everything in their country – and hold responsibility to all and to everything that is done there too. What they control and what they insist on dictating the terms of, they of necessity hold responsibility for, for what consequences result.
• But what, and whose interests do China’s leaders promote and at all levels in all of this? Ultimately there are two answers to that, that are both valid and even as they often hold in spite of inherent conflicts of interest that arise between them. China’s leaders, from their lowest level local functionaries and bureaucrats on up, all hold allegiance to their one Party as the one undeniable voice of power and authority in their country, and as their own personal source of power and authority, and of rights too. So one answer to this question has to be the Party itself. And the other answer is implicit in how I just expressed that. All of these same people hold allegiance to their own needs and prerogatives and in support of their own immediate peers in Party-based, and government-based power who specifically support them in return.
• From a larger scale legal and Party policy perspective, this is how and where the ongoing sea of local and provincial, and national government and Party corruption comes from as local and immediately present interests – and at all levels, seek advantage and gain for themselves with their own goals and priorities. That is where and how China’s black markets and grey markets thrive too, alongside and all too often in direct conflict with their open, white markets and economy.
• And all of this represents sources of economic friction and of all types possible and at all levels, and pervasively throughout their entire system. Given this, how could anyone expect China to function smoothly or efficiently enough to be robustly secure as is, long-term? And the events that I have been writing of in this blog concerning China, simply represent a briefly sketched chronicle of how that nation with its inefficiencies and contradictions, is headed into what could easily be seen as largely self-imposed existential threat.

China and its current events represent a current stage of an ongoing collision between political ideology and how that is playing out, and reality. I add that I write this as the United States is facing the prospect of a Donald Trump candidacy for President, running for one of the two major political parties in that country. And I write this as the British public has just voted “yes” to Brexit from the European Union, just to wake up the next morning to realize that yes, they did just throw themselves over the edge of a cliff too. So China, unfortunately, is not alone in the politically motivated and politically driven economic friction business, or in the politically motivated and politically driven crazy business either.

I am, at least as of this writing, planning on concluding this series in a next installment where I will step back from this historical-to-the-present narrative to reconsider macroeconomic models and their use and misuse in general. Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation. (And to put a time stamp on this, as events will unfold before it goes live, I finish writing and editing this posting on June 29, 2016.)

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