Yes, We Need To Define ‘Structural’

One growing point of tension that I that has both semantic and substantive difficulties is whether or not we regard the situation in the mortgage markets as “structural.”

via Two-Track Intermediation « Modeled Behavior.


I would love it if you would solve this semantic problem. Because it’s material to the public debate. The technical definition is artificially narrow and as such leads to either dishonest (Krugmanian) or semantic rather than material debate.

To Austrians, “Structural” means that we have misallocated financial capital and thereby caused a misallocation of human and fixed capital such that the cost of reallocating that capital is so high that the fixed capital may be ‘wasted’ and the human capital (human beings) cannot be put to productive ends because the learning curve and lifetime commitments of individuals cannot be altered by the market at ANY possible cost. This circumstance results in a permanent loss of competitiveness in relation to other societies what can allocate capital against the remaining productive workers.

We see this as a permanent loss with human consequences. For example, the misallocation of human capital during both the tech boom and the housing boom mean that certain people obtained higher incomes in a short period of time but by doing so lost the opportunity to gain competitive skills (in relation to their ages) that had ongoing value to them. Furthermore, by implication, it means that those prior skills were of lower marketability than the skills that they might have possessed.

The counter-arguments are that a) people are infinitely fungible (that’s not supportable) or b) we can keep misallocating capital from boom to boom as a means of redistribution, or c) this process is cumulative and causes permanent shifts toward financialization at the top and unproductive labor at the bottom, and production of inferior goods in the middle. I think you err on the side of (b). I think Austrians err on the side of (c).

In more abstract terms I think this is a debate over the welfare of the bottom of society or the middle, with your side favoring the former and the austrians the latter. I also think your side considers this problem immaterial and Austrians (and conservatives) consider it cumulatively destructive. And of course, I disagree with your ‘belief’ that we can fix problems in the future. If that were true we would not have the polarization we do today – a polarization which is being solved, not by reason or argument but by differences in breeding rates and immigration.

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