America Needs Diversity and Decentralization in Economics
Our current stock market and economic woes are the result of the market being driven by group think. Before the housing bubble burst, everybody listened to the pundits that preached “the only way for house prices to go is up!” I have a friend who is a real estate appraiser who stopped getting work from the banks and the estate agents when he didn’t appraise the properties for the prices the sellers wanted. There was not a lot of diversity of behavior, and therefore, there was not a lot of protection when that behavior proved wrong.
How did we fix the lack of diversity and the lack of decentralization? We made the economy more centralized. When the financial market crashed a year later, guilty for the same crime of group-think, the federal government intervened with a $700 billion dollar bailout plan, and acquired equity stakes in several major banks nationwide. We are trying to solve a lack of diversity of opinion by making the economy more centralized.
This is a problem.
America’s economic strategy for years has utilized decentralization as one of our key economic strengths. What we call the “U.S. economy” is really just a collection of local, highly specialized economies. Creating and implementing economic policy is highly decentralized to states and cities – each state is responsible for its own economic problems and for attempting to address them.
However, this is not where the money is being spent. Bureaucrats in Washington spend billions of dollars annually on federal programs. These programs fail because they are too high-level and do not address the individual problems facing each region. Rather than allocating money to the states to address their own problems, Washington seems content with wasting our tax dollars on ineffective top-down approaches.
For example, Michigan’s economy and unemployment rate have been struggling for years. Major manufacturing jobs have gone overseas or been consolidated due to improvements in productivity. Rather than spending money on things we actually need, like worker re-education and infrastructure for job development, the Federal Government has continued to push ineffective federally-based programs.
Now more than ever, we need to be employing our greatest economic strengths, but we’re not. Our economy is becoming more and more centralized every day.
Large scale group-think led us into an unstable economic situation, which crashed, causing mass anxiety and a sharp decrease in global stock prices. Simply put, there was no logical reason behind the decrease in stock prices for firms outside of housing and finance. U.S. productivity has continued to grow faster than any other technologically-advanced country, and an increase in exports have helped drive our economy.
The bottom line here is that until we are able to take the proper steps to restore diversity and decentralization to our economy, the stock markets will continue to gyrate, and the markets will not yield equilibrium valuations.
References:
“Why America Needs an Economic Strategy”
By Michael E. Porter
Businessweek November 2008