Resource Management

There is an emerging discipline within macroeconomics revolving around the management of "resource rich economies."  The idea is to apply macroeconomic theory to address the problem of why so many developing countries fail to channel an abundance of natural resources into economic growth and development.  An especially interesting question in this research is how a country manages "resource windfalls" (a large influx of wealth due to a discovery of resources or a large shock to the value of known resources).  It seems that such windfalls often create more problems than they solve--demolishing infant industries, creating capital flight, and causing political strife.  This last bit merits emphasis, as the management of resources is an extremely politically rich focus of economics.  Shocks to a system, both positive and negative, are likely to emphasize the political framework formalizing our collective action and interaction.

While this field is generally viewed as an idiosyncratic subset of development macroeconomics,  the scope of this analysis could easily be applied well beyond the circumstantial constraints defining the current research focus.  The interaction of a political framework and the management of large resource shocks extends far beyond developing countries and countries with infantile industries and political structures to countries with complex interactions. These complex interactions basically constrain people from exploiting each other, either intentionally on not.  These constraints take the form of commitment mechanisms, reputation-based incentives, signaling devices, and a host of other tools that drive the transformation of an economy into what we see in developed countries.  In short, studying management of resources within a political framework extends into the institutions that have been created to address a multitude of collective action problems in a given society.

Right... if you've followed through my theoretical postulation, here's the meat... all countries manage resources, and the management of such resources has huge implications for economic growth and development.  Large fluctuations in these resources just accentuate the problem.  Even when a developed economy, like the United States, suffers a large change in its resource values (like the value of the gold, oil, land, and other contributions to the commodity bubble that just popped), the economic insights from this "resource rich" discipline should surely have some relevance.

Unless we are fundamentally different... as Americans like to think we are.  In which case, what is that difference?  Is it that we are just better people, or that we have set up a system of institutions, political and otherwise, to distinguish ourselves when we suffer such a blow? While some obvious institutions come to mind (e.g. the fed), other institutions' influences are likely to be much more subtle and inadvertent.  And such subtle effects could explain the magnitude of the problem within the underdeveloped countries.

So in this economic storm, we will obviously ask ourselves, "will the levy hold?"  But we should also be asking ourselves whether our buildings are prone to flooding, our highways serve as wind-breaks, and the normal supply-chain management can be used in a disaster relief effort.

If we view the economy in this way, an industry isn't just an industry, a government project isn't just a government project, and a dollar spent on taxes isn't the same as a dollar spent on building schools.