Common Cents

Fool's Gold

Ralph Murphy 

(12/2018) Competition in society is so common that it is often taken for granted, ignored and then can lead to major misunderstandings. In most economic theory it is spelled out as the driving force for wage and price levels determined in the markets. Optimal output presumes fidelity in producing a good or service better than others to meet demand. The problem in current markets is to include politics in rigged processes that serve a few at the expense of the many who make up the system.

There may be agreement as to a strategic objective, but no consensus as to how to reach it. This usually results in failure. Unfortunately, pooled interests have a security function that serves as a governing link. This seems especially true in the case if the expected output is vague. Current issues that are in the news have owners, unions or modern guilds that are linked to the production of conventional goods and services. However, they are subsidized and coercively maintained long past their likely value.

Guilds were common in Europe through the early 18th century and they determined "hiring and firing, licensing requirements and determined import or export policies." They were routinely tied to civil structures to include religious organizations or academic institutions for their perceived legitimacy or other bonding and often had their own defense structures. A 14th to 17th century, German-administered Hanseatic League was the strongest such guild as it controlled most all North Sea and Baltic port access from modern Belgium to western Russia. It was at its peak in 1450 AD and then gradually ebbed. The League was composed of guilds but by the late 18th century merchants and artisans throughout Europe were losing strength to emergent higher technological interests closer to industry.

This phenomenon skipped across the Atlantic and was incorporated into colonial, New York City of 1768 as a Chamber of Commerce that, as with the guilds, was " tied to secret societies linking trade unions, businesses, and security services" of vetted members. The stated objective of the Chamber was to protect clients’ business interests, but the government link continued with American statehood.

Plagued by the advancement of arbitrary personal interests, the Chamber created costly caps and productivity losses similar to the guilds. These Chamber of Commerce specifications are very common world wide even today. They could easily be replaced by a simple legal structure and apparatus that allows optimal production based on talent and resource availability. The Chambers restrict it and if government security or intelligence can be lead to believe it is in the common interest to keep them operational- then poor ideas and systems can be extended almost indefinitely.

With adequate social discipline, varied systems and players can sort out and get their various wants and needs within a conventional legal framework that insures privacy, or protection against property theft and personal injury. There can be other caps or redirects to action depending on cultural bonding. Religions can play a real "make or break" role, depending on their dogma or a theologian’s intent. If it is deeply interpersonal or clearly costly- then their actions may need to be reviewed. Other types of bonding, to include cultural directives that limit thought or actions. Such cultural directives may come from literature or oral tradition that may channel them in ways that limit productivity. They can be useful from a more benign, binding standard.

Over the past decade a phenomenon has occurred in the growth of financial advisory and investment markets known as Hedge Funds that "pool capital from accredited or independent institutional investors" with the objective of hedging or diversifying risk. Unlike mutual funds, hedge funds can be leveraged directly by bank loans. Hedge funds must include two or more clients with approved high-level assets. The funds are kept in private accounts although there was an effort to establish a trade market or index. They are also self-policing as to other investment standards within wide legal limits.

Hedge Funds were lightly used before 2008, but with easy bank access they appeared able to present Central Bank loans as earnings. This strategy continued until arbitrary loan access was recently exposed and largely redressed here and abroad. It followed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that had given fund managers unexpectedly easy loan terms. But key provisions were repealed last spring by Congress making them more competitive. Demand or savings interest rates should now rise as well. Regulators also have tightened loan guarantees which are specific as to traditional return on the money since easy access led to serious losses. This was especially true in overseas project money in hostile or misunderstood markets.

The Hedge Funds were valued last year at over $3.1 trillion in assets under management. But that trend is probably over and done with amid theft penetration concerns of their clients. They probably can invest them better themselves. The hedge funds’ high yields were often suspiciously generous for the actual investment returns made by the managers.

If resources or training are available to produce a good or service and it isn’t otherwise considered a social or other type of threat- the production should be allowed in the interest of conventional growth. A government role that maintains an internal policy commitment to a private sector interest can advance a very limited group’s interests at the expense of the broader community. The government’s role actually should be to prevent that type of hostile intervention- not coordinate it.

Federal authority seldom provides a useful, hands-on role in the actual production of massed resources- despite its expressed intentions. Regulatory and linked-legal, enforcement officials tend to be different personality types from those of the goods’ suppliers. This differentiation should be enough to exclude them from any direct tie to actual market output. They should be excluded in the interest of optimal productivity.