Sunday, May 24, 2015

Long Term, Productivity Needs Full Employment

In a recent post, Diane Coyle highlights "The Social Framework", a book which John Hicks published in 1942 about national income accounting.  His book also served as a marketing tool, for what was still a new perspective. Coyle explains:
It's an introduction, for the general reader, to the then-new fangled concept of national income accounting - beautifully clearly written and very straightforward. The book is upfront about the limitations of the exercise. For example, Hicks explains that it is progress if people work on average fewer hours to produce the same quantity of goods and services, even though the national income or output will not rise. Progress can be "deliberately taken in the form of increased leisure".
If economic participation can only become "naturally" limited over time to generate further productivity, how is it possible for economic growth to remain representative of populations as a whole? Production reform for services coordination is needed, which can further clarify productivity through knowledge and time based means. Otherwise, reliance on decreasing time aggregates for all production gain, could eventually cause progress to go into reverse.

Consider Hick's focus on leisure, which plays out quite differently, depending on income levels. For instance, high income levels often purchase leisure as experiential goods. Whereas, "leisure" for those who lack economic access, might turn into the planned containment of prison at a system wide level, or abusive circumstance at the personal level. "Leisure" might be the loitering that property owners don't want, instead of someone considered trustworthy who is merely "hanging out".

A lack of economic access can slowly short circuit the most basic benefits of productivity, when individuals are not meaningfully engaged in economic participation. Productivity on present day terms has managed to provide centuries of economic growth, but it is slowly coming face to face with its own negative externalities.

When knowledge use is secondary to traditional production processes, this represents the natural growth limit which Hicks noted in his book. The problem is not so much the natural growth limit, but that it takes place in a way that employment is slowly being replaced by consumption. Knowledge use systems would also represent another natural growth limit to some degree, albeit with an important difference. The growth which represents all of a given population, would be more reliable than the growth which only a population subset can provide.

What's more, full economic participation could make monetary policy simpler, in that it would be able to faithfully follow nominal income alongside aggregate spending capacity. The services productivity of a time based marketplace, would provide real gains through both knowledge use and social value. By finding means to bring greater productivity to services structures, populations would not have to rely on leisure alone, to protect the stability of long term growth.

Saturday, May 23, 2015

Time Value and Utility in Rival and Non Rival Knowledge Context

One reason the differential marginal utility of money can appear so strong, is the fact there is presently no marketplace for time value. Tyler Cowen sparked a discussion about marginal utility in a recent post, Bob Murphy provides summaries of the discussion and highlights the ordinal and cardinal contexts for utility. David Henderson responds to Murphy's post and notes:
I oppose government taking from the wealthy and giving to the poor, unless the wealthy people first took it from the poor people.
Think about Henderson's response. It is not at all obvious whether something is "taken" from a poor person by a wealthy person, in many instances. What kinds of resources are at stake? Resources which exist separately from time, often can be readily quantified or thought of as cardinal. Sometimes, these separately existing resources appear as though infinite. Quantity is often unknown - or at least uncertain - to a degree the resource becomes a poor candidate for "equitable" distribution.

On the other hand, time value is the exact opposite in this respect. We know exactly how much time potential (i.e. hours) we have - individually and in aggregate - which could contribute to our condition and that of others. Plus: whenever time value is lost, one may not always be able to amend those deficits in the course of a lifetime - in spite of what may be tremendous effort. This is why the "riches" of off-limits knowledge use can make some groups poorer in aggregate, if and when the knowledge product is integral to everyone's survival.

Whereas if someone were to limit knowledge use which doesn't affect general consumption and production patterns (say, space exploration), rival or monopolistic restriction would only mean knowledge use "poverty" or equilibrium distortion in a very limited sense. In this instance, the "unnecessary" knowledge would more closely represent product separate from time value - nice to have, but generally not necessary. Long story short: limits in knowledge use for basic product formation (healthcare), amount to knowledge use theft which matters across general equilibrium levels.

These limits also manifest in more than a cardinal or aggregate sense. One's time value is ordinal, to the degree time value is derived from positioning within series of economic interaction. In other words, most individuals are not actually free to schedule time with others whose time is already in high demand. Rather than attempt to force high demand individuals to provide knowledge to entire populations, it is far more reasonable to disperse knowledge more widely, so that demand can more easily be met within the given time series of economic interactions which are actually possible. In other words, services productivity involves both consumption and production coordination, not just demands on the part of a limited supply of production.

Greater knowledge use dispersal and more precise services production are possible through a time based marketplace. Coordination would take place through both individual and group aggregates, instead of the externally defined skills limitations which have distorted services equilibrium. Even though present day institutions coordinate time use, these knowledge applications are only representative of population subsets.

Indeed, this has bearing on the fact that non rival knowledge is treated as though rival. In particular, the tendency is all the more pronounced, given the fact that knowledge use remains in a secondary position to other forms of production. Knowledge use as rival, seems more "efficient"! Dietz Vollrath responds to recent discussions involving Paul Romer, in this regard:
One thing we have come to a consensus on is that economic growth is driven by innovation, and not simply accumulating physical or human capital. That innovation, though, involves non rival ideas. Non-rival ideas (e.g. calculus) can be used by anyone without limiting anyone else's use of the idea. But modeling a non-rival idea is weird for standard economics, which was built around things that are rival (e.g. a hot dog). In particular, allowing for non-rival ideas in production means we have increasing returns to scale...But if we have increasing returns to scale, why don't we see growth rates accelerating over time?
Even in knowledge use systems, growth rates for non rival knowledge use would not contribute monetarily to the representation of skills capacity, other than the time use base. The most obvious gains would be increased knowledge and skills quality in group settings over time, so long as the chain of cohesive group structure is not broken. However, monetary gains would also result from the production formations used to generate local economic activity. The system creates its own form of desirable product (secured human capital), which in turn generates a new marketplace.

Non rival knowledge use is not everyone's "cup of tea", and would take some getting used to. Knowledge use systems could be thought of as a contract which honors the ordinal or positional component of knowledge use in a time based framework. In this setting, it would be rational to "take" the  knowledge one needs and leave the rest. Of course, it helps to remember that no "stored" knowledge or skill sets would be "collecting rent" in the form of asymmetric time value. One simply utilizes the knowledge which fits the current circumstance and environment.

While knowledge use would not be compensated on its own merits, the real value lies in quantifying how it is used in given context, and recording how settings change. The fact that time value is immediately quantified with no residual, provides certainty which otherwise isn't possible for services systems. Low growth for GDP in terms of compensated time arbitrage may not be all bad, if human capital can be secured and protected. There are real advantages, compared to the present low growth economic environment of services uncertainty, and rival knowledge use as far as the eye can see.

Thursday, May 21, 2015

Time Value, Marginal Utility and the Hierarchy of Needs

While the Maslow pyramid is more suggestive than representative, it still provides clues regarding individual motivations and aspirations - both at personal levels and in the marketplace as well. Why, then - given the incredible degree of innovation which propelled nations forward in recent centuries - do healthcare and housing place place such extensive (i.e. non innovated) demands on the two bottom sections of the pyramid?

A complex economy suggests real choices along the entirety of the hierarchy of needs - instead of clustering around the base of human expectation. True: with a little effort, middle to upper income levels are still able to pursue higher aspirations. However, it's fair to suggest that economic circumstance have been unnecessarily weighted towards the lower portion of the Maslow pyramid - for all income levels. Often, lower income levels struggle with time and resource management to a degree they have little energy left, to seek out life's higher aspirations.

What's more: the lack of a designated marketplace for time, means that existing time values are either at a premium, or sorely lacking in arbitrage capacity. Too much economic weight on basic needs, skews government redistribution in terms of marginal utility for lower income levels. In particular, the labyrinth of government subsidies for service needs and home mortgages - regardless of income level - distort what marginal utility might have been possible for basic assistance in the first place. When limits are placed on knowledge use, extensive time use asymmetry can develop. In these circumstance, government redistribution can no longer smooth time use management among populations as a whole.

Without adequate representation for time value, general equilibrium also tends to take on a one dimensional aspect. Time coordination adheres to institutional needs, which take precedence over family/social organization and structure. It's easy to forget that before the industrial revolution, individuals often engaged with multiple forms of resource use over the entirety of their lives. When populations were directly involved with production processes, they also remained responsible for time management at an internal level.

Those with higher income levels have some degree of internal time management, when they are able to hire others to carry out responsibilities on their behalf. However, lower income levels are often not able to access these already existing forms of time arbitrage. That means too little time to spare, if one is employed full time yet with limited income. Whereas, too little or no employment, can mean too few available resources for using one's time productively. Either time deprivation or excess time "leisure" has been the result, and neither are suitable for coordinating one's responsibilities - let alone seeking out higher aspirations.

Given this circumstance, what can be done? Severe production restrictions in both housing and healthcare have made it more difficult for lower income levels than is actually necessary, to move beyond the hierarchy of basic needs. At the very least, seeking innovation in building components and services creation would allow lower income individuals to make their income go much further. A marketplace for time, would allow lower income levels to coordinate services with one another which otherwise may not be available to them.

Even though a certain amount of wealth formation can continue as before, economic circumstance have already shifted in some respects. Some communities will need to more accurately reflect the income capacity that has become possible. Ultimately everyone is in the same boat, when it comes to determining how to thrive together. Not every municipality will be able to continue building wealth through exclusive offerings which pit income levels against once another. Even so: by budgeting for more reachable basic goals (the pyramid base) as a group, that leaves more room for local citizens to strive for broader life goals. By embracing both human capital and the value of a time based marketplace, local communities can move towards fuller representation of the hierarchy of needs.

Wednesday, May 20, 2015

Midweek Market Monetarist Links and Summaries - 5/20/15

David Glasner examines a working paper regarding inflation expectations in the Great Depression: http://uneasymoney.com/2015/05/15/a-new-paper-on-the-short-but-sweet-1933-recovery-confirms-that-hawtrey-and-cassel-got-it-right/

Lamfalussy knew that fiscal union would be problematic, early on...(Marcus Nunes) https://thefaintofheart.wordpress.com/2015/05/14/an-old-professor-of-mine-dies/
Where exactly is wage growth going to come from? https://thefaintofheart.wordpress.com/2015/05/14/where-does-the-fomc-get-these-ideas/
So far, not so good: https://thefaintofheart.wordpress.com/2015/05/15/the-wsj-bets-on-red-black/
Still a contained depression: https://thefaintofheart.wordpress.com/2015/05/15/the-depressions-great-moderation/
There's a reason this long business cycle doesn't get a lot of respect: https://thefaintofheart.wordpress.com/2015/05/16/proud-to-be-depressed/
What might the rationale be this week? https://thefaintofheart.wordpress.com/2015/05/17/reasoning-from-gdp-component-changes-a-media-macro-favorite/
A "self correcting" economy? https://thefaintofheart.wordpress.com/2015/05/17/secular-stagnation-larry-summers-is-wrong/
Not a good sign! https://thefaintofheart.wordpress.com/2015/05/18/the-ecb-will-not-change-strategy-even-if-that-means-marching-towards-and-falling-off-the-precipice/

The markets still need more confidence in the ECB (Lars Christensen) http://marketmonetarist.com/2015/05/14/mario-stay-on-track-and-avoid-the-mistakes-of-1937-and-2012/
Lars provides highlights: http://marketmonetarist.com/2015/05/17/sunday-notes-three-working-papers-and-three-prediction-markets/
As he prepares for upcoming speeches...http://marketmonetarist.com/2015/05/18/talking-about-the-polish-economy-on-an-airport-escalator/

Beijing is changing very quickly (Scott Sumner) Report from China
Recent news on the new Greek government The view from Vilnius
Scott's recent interview with Timothy Lee: https://www.vox.com/2015/5/12/8590993/currency-manipulation-tpp-explained
Some quick work took place on this paper which also has an MM feel: Jonathan Pedde on the UK election and fiscal policy
"Central bankers are grossly underpaid." The most underpaid profession on earth
How much truth lies in the Neo-Fisherian claim? Neo-Fisherism, missing markets, and the identification problem

Scott at Econlog:
What about policy changes to reduce inequality? Low hanging fruit and the inequality question
It takes time for output to adjust during reallocation: Reallocation and growth
Data doesn't tell us whether income is sufficient for consumption needs Shocking new data on wealth inequality
Many arguments against consumption taxes are arguments in favor of progressive taxes: A consumption tax is a wealth tax

What counts as capital investment for the self employed? (Britmouse) https://uneconomical.wordpress.com/2015/05/18/the-hidden-2011-2-investment-boom/
Britmouse contrasts two periods: https://uneconomical.wordpress.com/2015/05/19/what-would-irving-fisher-say/

The human capital problem: no "guarantees" in this regard (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/05/our-discomfort-with-reward-from-risk.html

Is the idea of zero unemployment just a crazy dream? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/05/17/thinking-about-the-unthinkable-on-nuking-unemployment/

Also of interest:

Jeremie Cohen-Setton provides some summaries: http://www.bruegel.org/nc/blog/detail/article/1627-is-the-economy-stationary/

Tim Worstall offers some good reasons re why not: No, let's not try to abolish cash

Tuesday, May 19, 2015

Direct Wealth Creation, Growth and Aggregate Supply Potential

How does direct wealth creation affect growth patterns in general?  Even growth from the obvious wealth of commodities, depends on the degree to which product can be realized at any given moment from raw materials. Asset formation also reflects these same aggregates. Physical wealth is what one generally thinks of, as new wealth "entering" an economic system. Hence monetary policy tends to focus on these these areas and the equilibrium they suggest. What about the role of human capital as aggregate supply, in equilibrium?

Nominal income also needs the active consideration of monetary policy, but some have been reluctant to acknowledge the roles of human capital and labor force participation, in the economy. Just the same, more substantial knowledge use and labor force participation are paramount, for continued growth. How could human capital be more closely associated with growth potential? Knowledge use, human capital and time aggregates need direct roles in wealth creation.

Knowledge use and high skill services in the marketplace are presently limited, in two distinct ways. First, human capital was initially defined as a secondary - or residual - component of product creation. In this setting of external knowledge use definition, production gains are also a result of less labor input, over time. Or: an alternate route to production gains through knowledge, has been through regimented or otherwise protected formats. Without a specific marketplace for time value, already existing knowledge sets have often been duplicated, instead of being adapted to specific circumstance. These knowledge use patterns have also been problematic, in that they attempt to place knowledge in categories with arbitrary value which does not readily transfer across disciplines.

There is also the problem of knowledge use limitation in the broader equilibrium sense of time coordination. Knowledge applications which are part and parcel of final product, either tend to be government backed, or in use primarily for higher income ranges. Both of these factors have created (what are now) natural limits for knowledge use in the marketplace. Private knowledge application settings experience limits due to a small high income population, whereas public knowledge application experiences limits from fiscal spending capacity.

In other words: because of the asymmetry uncertainty of coordinated skills residuals in the marketplace, it has been difficult to assign knowledge use a primary role in either wealth creation or growth potential. Externally defined knowledge applications had little choice but to rely on backing from preexisting sources of wealth and/or power. This is one of the main problems that endogenous knowledge use systems would seek to overcome. Presently, even though some fiscal backing remains for knowledge use, it comes with hidden government subsidies and other murky transmission features. In these circumstance, the growing attempt to control fiscal costs often ends up sacrificing the "good", along with the "bad".

Fortunately, time value for knowledge use, does have the capacity to be matched directly and internally with no debt residual. These systems would rely on a unique production process that is both social and knowledge based, recorded in a group/time continuum. Endogenous coordination would still realize production gains through full employment and idea adaptation, which otherwise might not be possible.

Time arbitrage in knowledge use systems, would also offer product value which goes well beyond what individuals actually exchange in any given hour setting. The fact that comprehensive internal support structures could be realized without time debt residual, is why knowledge use systems would make a formal bid to be recognized as targeted new growth. It has not previously been possible for economic activity which also exists as compensated income, to generate newly created wealth - for multiple reasons.

Consider that externally defined wages which rely on government redistribution, mostly have additional product value in the sense of "charitable assistance" - a category which sometimes seems applicable to fiscal measures in general. What's more, fiscal activity of all kinds has an increasingly questionable role for long term growth, as populations already struggle with present tax levels. However, 1) fiscal activity in its present form, supports knowledge use structures which are often inaccessible for lower income levels in terms of production and consumption, and 2) fiscal activity - even in the best of circumstance - does not necessarily provide the services which populations believe are still available...until they need to seek them out.

Knowledge use systems can provide more comprehensive services formation where both profit and non profit activity have failed to do so, for additional aggregate supply capacity. The social contract of coordinated local support, would provide backing for both individual and group endeavor, as well as broader representation for knowledge use. Time arbitrage would provide reliable backing for asset structure, and recorded local history for the changing circumstance of interdisciplinary knowledge use.

As a social safety net which reduces overall risks in a long range capacity for individuals and groups, knowledge use systems could provide services organization more effectively than governments. Time aggregates and individual purpose are better aligned, and the safety net factor is paramount. It means that through consideration for others and concerted effort, people of all ages would remain part of the ongoing economic activity of their community, so long as they live. Even though investments can ultimately provide leisure for some, others would continue to tap active time use value for their obligations.

Another product component of knowledge use systems is that of planned redundancy, which operates as a knowledge use backup system for the regions at the forefront of  economic activity. This would make knowledge use systems valuable to nations as a security benefit. Not only would they provide "second opinions" and alternative responses, they would become a repository of knowledge wealth which other institutions cannot always support.

Best, the growth of knowledge use would no longer be dependent on commodity wealth, traditional production or other existing financial structures. Long story short, human capital could assume its rightful place at the forefront of the wealth creation process. Knowledge use can become an originator of aggregate supply, not just a burden on aggregate demand. Ultimately, the process would provide a stronger role for monetary offset than has been the case thus far - particularly in a time of diminished fiscal contribution to monetary policy.

Human capital would thrive, given a primary role in economic activity. Until now, time based compensation in relation to other resource potential has suffered neglect - given its existence in a secondary capacity. So long as production continued to rapidly expand, the secondary role of knowledge use was understandable. But once nations became dependent on consumption and aggregate demand for further wealth creation, that was a signal to take a closer look at the obstructions of aggregate supply which can affect economic systems in their entirety. Fortunately, there are means to begin the process of normalizing aggregate supply, through additional knowledge use capacity.

Sunday, May 17, 2015

Notes on The "Hidden" Equilibrium

Was the recent recession a learning experience that we haven't fully absorbed? Tyler Cowen suggests this could be the case in a recent NYT article, "Don't be so sure the economy will return to normal". In particular he stressed ongoing changes in wage structures across sectors, and suggested that rather than fight these ocurrences, it might be better to work with them. From the article:
Institutional rigidities don't permit adjustments to occur all at once, but by studying continuing changes we may be able to peer around a corner and see where a sector is headed. Such processes are scary because we may be watching a slow unfolding of a hand that, in its fundamentals, has already been dealt. There are signs that a comparable story may apply to the American economy more broadly. 
The "slow unfolding" which Cowen spoke of, could be thought of as a broad equilibrium shift - albeit one which remains partially hidden. Some former patterns no longer hold, but it is difficult to understand why they don't. In spite of shifting wage patterns, other elements of the economy remain suspended in what Scott Sumner describes as an "era of unprecedented non-change". Sumner also notes:
Last year, the US saw a 0.73% increase in its population, the slowest since 1937.
Even if economists are not in agreement regarding a long "recovery" which doesn't feel right, the fact that family formation remains subdued, speaks volumes. Structural issues have been difficult to address, and they also involve first mover responses for which there are no "blueprints" to follow. Initiating change is generally viewed as "someone else's responsibility", particularly when governments are not well positioned to guide the process. A recent cartoon sums up the point nicely, in which a speaker addresses the crowd and asks "Who wants change?" Of course the crowd enthusiastically responds, with a show of hands. However, when he adds, "Who wants to change?" no hands are raised, and the audience suddenly appears self conscious.

One of the more immediate concerns which has yet to be addressed, is a lack of response to evolving wage potential in terms of community infrastructure and maintenance needs. It is sad to think that many municipalities may find themselves at the brink of bankruptcy, before they are able to seriously contemplate what changing wage structures among populations could mean for expectations and long term goals.

Shifts in general equilibrium will of course impact some communities more than others. Some may be able to reorganize financially, while retaining the look and feel of the present. But others will need to reconsider ongoing transportation needs and other local infrastructure, at very basic and occasionally simpler levels. The good news in this regard is that when populations approach long term infrastructure issues head on, the results have more integrity than would be the case with a partial and reluctant response.

Perhaps one of the more difficult adjustments will be the fact that wages cannot always be maintained at the levels which seem appropriate. There are too many interconnecting factors affecting wage structures which will need to be closely examined, particularly given the fact that labor force participation needs to be increased in the years ahead. At the very least, production reform in services and building components could make wages go further without decreasing economic access overall. What's more, innovation and experimentation at local levels could provide some "missing links" in the evolving equilibrium, as well.

Update: This letter is one example of the reset: http://chronicle.com/blogs/conversation/2015/05/12/an-adjuncts-farewell/?cid=cr&utm_source=cr&utm_medium=en

Saturday, May 16, 2015

How Does Diversity Matter?

"Desirable" circumstance in terms of diversity, can be confusing. For instance, consider how diversity exists in nature. In natural landscapes, one often finds groupings of flora and fauna in symbiotic relation with other groupings, rather than different kinds of plant life totally interspersed with one another. Integration efforts mostly attempt the latter. How can recognizable diversity even continue to exist, if one's goal is to completely mix "contents" so that few remaining characteristics stand out? When governments and special interests reach for homogenized sameness in the marketplace, that sameness can either lull the mind into unthinking oblivion, or create needless struggle over defined outcomes.

Wouldn't it be better to encourage symbiotic economic relationships between diverse groupings, instead of struggling over differences? If regulations were envisioned as subsets - meant to generate gateways for multiple group options and capacities - life would be more interesting, and meaningful as well. Why not allow a thousand life options to bloom? One size fits all laws and regulations are turning much of what was supposed to be representative democracy, into forced compromise which feels appropriate to no one.

Decades earlier, I took part in library programs which also sought to assist local minority groups. Fortunately for those of us who were involved, many individuals who benefited from these programs provided helpful feedback. While participants voiced their appreciation for our help, something else gradually became apparent. They wanted to maintain a unique status as individual groups, without complete assimilation into organizational patterns which were not quite their own.

Plus, these individuals wanted to be able to reach out to other groups based on positions of strength. Doing so would mean maintaining both a distinct identity, as well as personal integrity. How might such perfectly natural desires be honored on a wider scale? I've been reluctant to write about diversity, and have already tossed out several related posts in recent months. However, due to a discouraging take on diversity in a recent Atlantic article, I decided to try again with this one. In "The Weakening Definition of Diversity", Gillian White begins:
What qualifies as a "diverse" workplace? Does it mean that employees are of a variety of different races and genders? Or does it mean they've had a variety of life experiences? Millennials seem to be tilting toward that latter, more easily attainable vision.
What's wrong with that millennial "version", for Pete's sake? In terms of personal and economic potential, I would certainly hope this evolving definition of diversity could be the stronger one, in spite of the author's reservations. More economic inclusion is certainly needed. But the way to greater inclusion is to make certain that real economic growth and economic access remain possible for everyone.

How to think about diversity from a knowledge use system perspective? The use of local time aggregates would allow individuals to coordinate for basic work and study needs, while gradually progressing towards discretionary preferences. At a young age, basic education provides a "trunk" or grounding point. From there, students can choose among the "branches" which local educational entrepreneurs (from all walks of life) would be able to offer.

The entrepreneurial assisting/learning method would also mean no more struggles as to what "should" be taught in school settings, and no more needing to be in the "right" schools to gain a good education. Local citizens would be able to make new educational choices on a regular basis, and also have the option of seeking out entrepreneurs from other knowledge use system settings.

Services options in particular, have been seriously hampered by differences in cultural interpretation. Some laws now coming on the books, are of a nature that the lives of millions should no longer be subjected to the opinions of special interests. By internalizing services formation and knowledge use, it would be possible for local groups to exercise more direct forms of democracy, by providing and voting for the services which matter most to them. Again, the use of coordinated time aggregates can go a long way, to provide the kinds of services which different groups find most important.

Something to remember: when services can be arbitraged internally alongside local production, there would not be a remaining budget burden for local groupings in relation to the larger (national) whole. The services coordination of local knowledge use systems would not make additional fiscal demands on the larger system, and these local arrangements would be created through monetary means. As a result, even highly diverse outcomes in terms of services formation, would not present fiscal problems for governments at any level. A thousand different visions for diversity, could overcome limited definitions which do little justice to diversity in the present.