The Economy, Economists, and Collective Goods

#007

In an earlier post (#6), I began, “Why we leave trade up to the economists is worth exploring.” In contrast with most economists, I concluded that (1) Trade cannot be a private good; (2) Trade is a collective good, and beyond that has social and cultural dimensions , embedded in social practices, norms, culture, ritual, beliefs, social institutions (such as the family), and communities; (3) Trade can, though not necessarily, enhance the cultural and social distinctiveness of trading partners.

It was August 16 that I posted that blog entry. On September 7 the crisis erupted. Federal Housing Finance Agency put Fannie Mae and Freddie Mac into conservatorship. From then on it was chaos. -- the bankruptcy of Lehmann Brothers, a forced merger of Merrill Lynch with Bank of America, the US government’s bailout of American International Group, and now involving international banks. The crisis has been widely discussed in terms of attributed “causes,” namely, the sub-prime mortgage debacle, excessive speculation on commodities futures, and the proliferation of exotic financial instruments. 

 Yet these are not causes, but merely symptoms. As I pointed out earlier, trade – whether trade involving commodities, products, currency, collateral, debt or credit cannot be a private good. All trade should be embedded in social life so that all are stakeholders and recognize the gains that others stand to make, and recognize the risks and losses that the others incur. That is, for example, the mortgage holder should know what the mortgage lender stands to gain from the mortgage payments just as the mortgage lender should understand whether the mortgage holder can make regular payments or not. So far the mortgage holder has had to disclose everything about their economic worth and livelihood while the mortgage lender discloses nothing about the profits that it stands to make.

 Yes, this will be cumbersome for international investments. Yes, this will be cumbersome in mass markets. Yes, this will be cumbersome for the owners of money. Yet it is only asking the owners of wealth to do what borrowers have always done. My plan has the merits of restoring the social function of markets and trade, including notably markets and trade that involve money. Economists are welcome to my proposals. No charge!!