Thursday, March 1, 2018

Combining Keynesian and Schumpeterian Models

The two models of Keynesian and Schumpeterian models have been at the forefront of modern economic debate often split along party lines. While each of these models have some advantages they are not the whole story in and of themselves. Research by Giovannie, et. al. (2017) helps us understand that these models can work together to encourage proper government policy and economic adaptation and integration. When discussing economic growth models that can help the U.S. it is more intuitive to see innovation as fostered not only by the ability of companies to create and adapt technology but also how government can better ensure that happens.

The K+S model combines Keynesian (demand-driven) mechanisms with Schumpeterian (innovation-driven mechanisms. Using this combined model we find a) search capabilities of firms, b) the pool of technological opportunities available for innovation, c) the degree and breadth of patent protection, d) the strength of market selection and competition.

The Schumpeterian growth model is used to understand innovation and growth within the economy. It rests on growth as a result of innovation and imitation and the diffusion and new products/ideas that lead to more efficient production processes. Innovation is motivated by financial returns and new technologies often replace older ones in a chaotic manner.

Keynesian economics is more based on demand economics which basically says that if people are working then the economy will be good. In this model, government has an important role in ensuring that jobs are growing and government influences the ability of the economy to grow. Sometimes, this is going to require significant investment.

What the researchers found was that an increase in technological opportunities and entrant-carried search have a positive effect on the long-run performance of the economy. Likewise, too much patent protection can damage sharing of information and thus deters growth. There is likely a happy medium of protection and adaptation by other firms but the study doesn't say where this was. There is some positive indication that stronger market competition impacts long-run economic growth. They also found that fiscal policies have an positive impact on unemployment, output stabilization and long run growth.

Neither of these models is true or not true but only useful based on gradation. Combining the models does mean that we can foster creative destruction and innovation by the proper use of government administration. The study helps us understand that government does have a role in encourage stronger policies that raise internal competition and foster greater economic growth. Patents and innovation are important but have their widest use when other firms within a cluster can eventually immitate those advantages raising the economy in the long run. Thus, by creating stronger government policies, pin pointing investment in key areas that improve the business environment, and helping companies to invent and imitate can raise the overall advantages of local economies.

Giovanni, D., et. al. (2017). Micro and macro policies in the Keynes+Schumpeter Evolutionary Models. Journal of Evolutionary Economics, 27 (1).


Risks to the US from Russia's New "Invincible Missile"

Putin recently announced a new nuclear missile that can reach anywhere and can't be detected. He furthermore, mentioned that such a missile would would never be detected by future detection systems. Some of what he is saying might be true but since no one can know the future of defense capabilities some of this is hype. We should still be concerned as while Putin likes to make things bigger and stronger than they are he is not known to be a person who bluffs his way through issues.

Russia has national ambitions to rebuild their economy and military strength to previous Soviet levels. This has something to do with the national culture and the desire to make "come backs" but also Putins own personality which is focused on expansion, domination, and in some ways glorification.

He is definitely a nationalist for his own country and with his background of intelligence he doesn't have a problem doing what it takes to achieve his objectives. Backed and supported by most of the military and the intelligence community he wields enormous power within his country.

But there is a bigger problem here. That includes the U.S.'s ability to stay competitive from a manufacturing standpoint and our technological advantage. We are seeing bigger challenges not only from Russia but also China. Our position is starting to slip.

Some of the military developments in China can also match our own and this should be somewhat a wake-up call for U.S. leaders. Our economy and people need to be more innovative and think about how our decisions, government, and business choices impact the end result. We are a nation of people who rely on strong commerce, education, and innovation. In some ways, we must realign to meet these challenges on a global scale.

Monday, February 26, 2018

Expanding Channels with Shared Marketing Messages

The international business environment is competitive and Americans are not doing as well as we once thought. Cities push to encourage companies invest in their regions through tax and other incentives but sometimes don't maximize the benefits of raising exposure to their area through marketing strategy. Governments that focus on the infrastructure, lifestyles, and benefits of investing in their economies can help businesses understand that they have a significant stake in ensuring their economy is growing and the right type of investment and skills are available. By working in a collaborative manner businesses can further expand the reach and depth of their marketing messages in ways that help them and their environment be more competitive.

Economic Marketing by Governments and Organizations

Governments and organizations like Downtown Development Authorities, and other business organizations, often engage in general marketing campaigns to raise tourism, lifestyle, and business development. Local businesses find these methods beneficial for pooling the advantages of marketing for all businesses in the area. Focusing on infrastructure, lifestyle, and other benefits of living and working within the region can draw future business and needed skilled labor that help existing businesses thrive.

Economic Marketing by Companies

Companies engage in marketing to raise the demand for their products and encourage sales. Their advertising campaigns contain, not only messages about the product, but also its value. In a cluster, some of these messages have shared meaning among the many different suppliers and companies that them. Companies often focus on the utility, feelings and benefits of their particular products and the overall value of the company itself.

Shared Marketing Messages

The brand and its place are often integrally tied together in a value proposition. Market messages from of participating entities (government and business) can share similarities in location and values. For example, an advertisement highlighting steel gates can also include images of the location in which these gates are made and their overall value to consumer. It is the shared information of where the product is produced and the environment in which it is made that strengthens the overall message.

Expanded Reach and Benefits of Coordinated Marketing

Coordinated branding  relies on having similar messages repeated in multiple ways and channels until a lasting image is formed in the customer's minds. Each company promoting its products should contain some information about the location in which the product is built. The government, or business entity (i.e. business organizations) should furthermore drive home the messages about the value of the business environment, types of infrastructure, lifestyle and the type of skills the area seeks to attract. Together, these shared and separate messages create greater reach of marketing for both the companies as well as the economic hub as a whole.

Expanding international reach of marketing occurs when we expand the channels through shared marketing messages. While companies focus on specific brand values they can include elements that raise awareness of the entire cluster and area. The advantages of greater exposure impact their suppliers and other businesses within the cluster together. There is incentive for governments, businesses, and local stakeholders to engaged in shared marketing messages that impact the development and access to skilled labor in the area.



Thursday, February 22, 2018

A New Digitization Productivity Boom on the Horizon that May Impact Wealth and Work

Think Tank Scholars at McKinsey Global Institute believe that we may soon experience a boom in worker productivity and increased advanced digitization that will transform society. Their hypothesis is that as the labor market becomes tighter companies will be forced to adapt new technologies that will improve labor productivity and innovation. It is believed that a productivity boom will improve overall output of the country and its subsequent wealth (McKinsey & Company, 2018). You can Read the Research Here

They argue that there has been limited labor productivity growth since the 1960s. There was a brief productivity growth boom between 2000 and 2004 and it was followed by productivity slowdowns. Their argument is that another productivity boom is likely in the near future based on technological advancements.

Digitization will transform many companies because the tight labor market will force them to invest in digitization that is hitting the market. The end result is a boost in productivity that could impact the labor market as we know it. The needed skills and infrastructure may not be available.

Self-driving cars, greater connectivity, kiosks, and mobile technology are just some of the new technologies that have not yet made their way into full integration. They will likely do so within the next 10 years thereby revolutionizing the economy. Capital investments and experimentation are also likely to rise during this period.

There will be a evolution and revolution to an advanced economy paradigm where companies invest heavily in digitization that improve productivity in order to not be restricted by a tight labor market. This will displace workers without high demand skills and education. It is possible there will be more wealth but that wealth will be concentrated again in fewer hands contributing to income disparity. The positive side is that new innovation leads to greater corporate profits and also results in improved investment and job growth.

While the authors content this is from the labor market there is also the need of corporations in the U.S. to compete. The technology is available and becoming more practical as time continues. There will be a point where it will make business sense to implement it.

The change to digitization will put new stresses on our current infrastructure that was designed more for the movement of large industrial products from the Industrial Age. Now the infrastructure will need to be improved to include data high way, small production, as well as the ability to move people and large production outputs into the international market. Preparing for these changes allows the U.S. to move into a new level of output potential that can supersede other nations development capacity as well as improve on general productivity and price.

McKinsey & Company. (February, 2018). Solving the Productivity Model. Retrieved https://www.mckinsey.com/global-themes/meeting-societys-expectations/solving-the-productivity-puzzle




Tuesday, February 20, 2018

Enhancing American Manufacturing Through New Measures of Supply Chain Development

The Supply Chain Economy determines the extent companies can feasibly create new products that lead to greater innovation and output. This source of innovation is often ignored in traditional innovation measurements that are based on patent filings. According to a paper in a working paper by Mercedes Delgado and Karen G. Mills from MIT and the Harvard School of Business by changing the framework that focuses on the suppliers of goods and services that support business and government we can realize new levels of innovation by providing access to labor, buyers and capital (Mills & Delgado, 2018).

Re-categorizing the economy to supply chain from business-to-consumers a different picture of innovation emerges. Supply chain industries are unique form of development that results in economic competitiveness and high paying job growth in a sector that employees 37% of the labor market (Delgado & Mills, 2016).

Why might this be important? Government numbers are often outdated and overlook important sources of new development. When thinking of economic clusters, the supply chain becomes an essential part of how these industries share services and resources. Categorizing them appropriately leads to new ways of seeing and enhancing real value that turns into economic growth.

Appropriately measuring the supply chain leads to policy improvements that includes giving them greater access to labor, buyers and capital:

-Labor: Supply chain traded services earn more income and rely more heavily on STEM knowledge than business-to-consumer traded services. As companies work together they lead to greater development of a stronger talent pool.

-Access to Buyers: Clustering businesses together creates strong buyer-supplier networks that can lead to mutual development. Creating collaboration between industries, government and supportive institutions (i.e. higher education) can transform into regional development.

-Access to Capital: Ensuring that companies have access to financial capital to reduce shocks and speed up development can lead to growth. The same methodology may be applied to other forms of capital needed by other industries within the cluster.

The authors indicated that partnerships with government, business, and other stakeholders leads to greater innovation, growth, and higher paying jobs. The changing of the metrics opens up a new paradigm to see the benefits of developing the supply chain network for advance manufacturing and growth. Continuous adjustment and development creates a more competitive environment where cutting edge products and services penetrate global markets.

What the authors did not specifically state is that by creating a more competitive environment that improves the innovative capacity of many businesses, it will make a difference in profit margins and manufacturing capacity within the U.S. While low-cost labor input countries are limited on technology, the U.S. may be able to draw back manufacturing with better manufacturing environment that makes new manufacturing industries profitable again. Such viewpoints should be part of the government tools to regenerate a leading production economy.

Delgado, M. & Mills, K. (2018). The Supply Chain Economy: A New Framework for Understanding Innovation and Services. Harvard Business School. Retrieved http://www.hbs.edu/faculty/Publication%20Files/18-071_b7268529-3131-4053-9e4c-5b06c3e86e81.pdf

Delgado, M. & Mills, K. (2016). A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Performance. Harvard Business School. http://www.hbs.edu/faculty/Publication%20Files/Paper_SupplyChain_MD_KM_05-23-2016_ac3f26a0-6022-4bf0-a719-39a6b4b4450e.pdf

Friday, February 16, 2018

Why We Should be Concerned When Russia Gets Involved in Our Elections?

How concern should we be that Russia tried to influence the elections? The news today states that 13 Russian nationals were indicted because worked through Russia’s Internet Research Agency with a $1.2 million monthly budget to influence an American presidential election. With Cold War games Russia engages in modern spy and manipulation techniques that seek the placement of politicians that are favorable to their national aspirations.

The extent of this influence isn't yet known but it is doubtful that it completely tipped the scales in favor of one candidate over another. However, the actual engagement in such activities raises a bigger concern over the sovereignty of our election process. 

The election process is based on our belief that our votes count and that count determines a winner. If the American people do not have complete trust in the system the fault lines over other issues related to race relations, income disparity, political parties, and socio-economic issues become magnified. 

Shockingly, there didn't seem to be a concern by the Russians that such behavior would have a consequence. This would indicate that their national aspirations to rebuild their empire is stronger than their need to be cautious in these situations. 

The way to act and react to these situations will become increasingly covert. American intelligence may seek to create their own branded chaos in Russia and the Russians in kind will respond in a Cold War tit for tat that becomes disruptive in a age where almost any computer can be hacked by the right people. 

While we find this problem through deep probes into the election process there may be a much wider problem with Senators, Congressman, and even key local officials that have an influence on trade and commerce. It would not be expected that such time and resources would be expended to uncover other issues unless the 13 indicted Russian nationals indicate other campaigns. So while the total impact of this specific situation may be limited it is the potential risk to other elections and the integrity of the process that takes a bite (or better byte) out of the American dream. 

Thursday, February 15, 2018

Is Rising Inflation and Interest Rates be of Concern?

Is an increase in interest and inflation a sign of concern? The U.S. economy experienced a 1.9 percent in interest rates that relates to an increase of 2.1 percent in consumer prices.  GDP growth is expected to be somewhere around 2.5%. Economists and people are concerned that it could be early signs of stagnation if the amount of purchases decline. Is there a right answer here?

Consumer Price Index tells us how much prices are rising and what consumers are paying. Increased prices mean that we pay more.

Interest rates indicate the cost of borrowing money and impacts loans and purchased throughout the economy.

GDP is a measure of total output of the economy.

The three numbers are related. Consumers are going to find products a little more expensive, loans more difficult to pay back, and we will experience mild economic growth which can impact jobs. In essence, we are all going to get a little less purchasing power from our paychecks this year.

Is this an issue of concern?

That depends on what is going to happen over the next quarter. These numbers don't really say anything other than the economy is picking up speed and may be getting just a little hot. There are bound to be fluctuations between interest, prices, and growth.

Generally, as consumer purchases decline the market moves back into balance and prices changes slow and the economy comes back into equilibrium. When this doesn't happen it could mean that we are exporting more, importing less, or have completely changed our buying habits. I could also mean that we cannot afford the products at the higher prices and people will prefer to keep their money in the bank to receive the higher interest rate.

The biggest concern is if these things become long term and inflation rises quickly faster than paychecks and puts a dampening on consumption and overall GDP growth. If people have less purchasing power they will buy less. Rising interest rates means companies can't borrow as much but may experience some outside investment. It may also mean we don't export as much as we did before; at least in the short run.