Greg Harris: Facilitating a Changed Economy

Greg HarrisAs our nation emerges from the Great Recession, many economists and pundits yearn for Americans to start spending more.  But in this yearning for a return to the economy of old, we may be neglecting an incredible opportunity to move away from a consumerism-driven economy.

In fact, a more deliberate policy discussion should focus on ways to accommodate new economic habits and trends that are undermining status quo economic assumptions and governing approaches to regulating and reporting on commerce.

From Farmer Markets to technology-driven efficiencies, a new generation of entrepreneurs is re-writing rules faster than societal regulatory and reporting systems can adapt. As such, Americans are being given an increasingly false picture of economic activity and health.

In the past, I’ve written for the RP about how social media—in the hands of democracy seeking activists—is the greatest emergent threat to oppressive regimes. A similar dynamic is emerging from grassroots and netroots entrepreneurs who are pursuing ways of exchange that baffle those who seek to tax, regulate, and measure economies.

I have experienced this firsthand through farmer markets, where my wife built her original client base and became emboldened to leave her corporate accounting job to open her own (now successful) pet store. Indeed, these markets are proving an enormous incubator of small businesses.  I have witness firsthand several folks make the transition from vendors hawking their items on rickety tables and from the back of trucks to successful shops and restaurants.

What has further stood out to me about the farmer markets is the terms of exchange negotiated vendor to vendor – perhaps the one true place where a barter economy still exists. What has emerged in Greater Cincinnati is a conceptual cousin to the “network of cooperative colonies” envisioned in Upton Sinclair’s depression-era campaign for California Governor when he advocated for building a system of localized barter economies.

The critical distinction, of course, is that these networks have emerged organically rather than being central government driven. In this sub-economy, the bread vendor gives a few loaves to the pet vendor who in turn swaps food for the baker’s pet; the baker provides bread to the farmer who uses it for himself and to feed his animals, and exchanges, in return, meat for the baker who tonight will be grilling chicken for her kids.  The values of goods are determined through person-to-person dialogue.  Contrary to the economy experienced by most, those who barter are intimately familiar with the value of the goods they negotiate via personal transactions.

In a consumer society built on several degrees of disconnect from the people who grow or manufacture the products we eat and wear, and who provide the credit we often use for purchases that offer a false sense of wealth and inflate costs, the Farmer’s Market is the antidote: a personalized culture of relationships intimately connected to the goods we share and consume.

At a different level, we see these emergent ways of doing business challenging and even undermining the ways in which wealth is measured. Victor Hwang’s recent fascinating piece for Forbes discusses this dynamic as it plays out with businesses like Uber, which trades spare passenger seats in cars:

Here’s some news that might surprise you: Uber will lower America’s gross domestic product .  In fact, it has already started.  The more Uber grows, the worse our GDP will get.  And it’s not just Uber.  Many of its startup cousins—like Lyft, Airbnb, and others—are also guilty of shrinking our economic growth numbers.  The trend is about to become an epidemic.

The emergence of Uber challenges how our nation measures Gross Domestic Product because it encourages sharing in areas once reserved for consumption—indeed, “a high-profile example of the sharing economy, which revolves around the idea of people sharing underutilized resources.”

GDP may in fact present a false picture. New economies should not have to cater to the dated calculus of stale institutions; the institutions should facilitate the ideas, instincts, and innovation of entrepreneurs.   As Hwang asserts, “presidents, prime ministers, and others will have no choice but to rethink the way they measure economic vitality.”

This doesn’t just go for the business start ups or the technologically gifted. It also speaks to a national shadow economy that provides real services. We often hear of true unemployment versus the reported unemployment, as there are millions of people who aren’t counted because they’ve stopped looking.  But many of those who stopped looking for jobs are in fact working.  They afford work by hiding from their government.

So what is the appropriate policy response? Yes, “the State” could continue to seek new ways to capture national productivity and GDP, as well as devise ways to clamp down on personalized transaction paid through barter or cash.

Or perhaps a better path forward would be to look critically at tax policies that promote rather than harnesses broadened definitions of economic vitality? Bloomberg View’s Mark Buchanan examines this reassessment of “wealth” for its broader implications:

The work of creating better measures is decidedly unglamorous, and yet perhaps nothing is more important. It entails finding ways to count the value of intact ecosystems in the natural recycling of wastes and in maintaining soil integrity. It requires quantifying the depletion of capital through the extraction of exhaustible resources such as minerals or fossil fuels, or the destruction of renewable resources such as fisheries or forests. The economists and scientists doing this work might turn out to be the heroes of the future.

In America, this might include looking at ways to incentivize a more holistic notion of national wealth versus today’s consumer economy.

Does the income tax, for example, complement the American entrepreneurial spirit, or serve as its harness? Perhaps a national sales tax instead of income tax is more in line with the American experiment? Exempting the first $10,000 in worker earnings from payroll tax (FICA) could offset the regressive nature of a sales tax.

Policies that encourage savings, a real individual-level valuing of goods, and personalization versus distancing that comes from genuine control over what you earn and how you spend what you earn should be part of some new reckoning with an economy that is, and should be, ever changing.

Much human activity is economic activity: our jobs, our consumption.  How do we facilitate not the economy but a system of economies where individuals are empowered to earn and to spend in ways that facilitate authenticity, personalization, and sharing?

More exciting still, such tax reform would have a strong cleansing effect on democratic institutions hijacked by powerful interests that currently manipulate the tax code to the advantage of elites that pay for their services—you know, the very institutions that were formed to give power to the people.

Other areas of consideration might include de-emphasizing “punishing” income in favor of rewarding conservation that preserves our nation’s natural assets. In fact, one recent proposal emerging from Congress to tax carbon could see daylight if, as the New York TimesGreg Mankiw suggests, it uses “the new revenue to reduce personal and corporate income tax rates.”

For my next column, I will explore more fully how tax reforms can be part of the toolbox for simplifying our tax code, encouraging national re-investment, and renewed personalization and individual control over our current economy’s abstracting effects: making tangible costs for a debt and consumption-driven nation that should change its habits for the good of our individual, economic, and environmental well being.

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