Monday, November 23, 2015

Notes on Crowdfunding as Concept

Arnold Kling recently responded to a Project Syndicate post from Robert Shiller regarding crowdfunding. Here, Shiller explains some technicalities:
True crowdfunding, or equity crowdfunding, refers to the activities of online platforms that sell shares of startup companies directly to large numbers of small investors, bypassing traditional venture capital or investment banking.
Arnold wasn't particularly impressed with crowdfunding as an investment opportunity, so he made some suggestions (which I'll return to shortly). What interests me, is crowdfunding as a recent version of so many group activities which - while generally thought of in a financial or economic context, also correlate with the "group sourcing" of basic political expectations. And instead of investment opportunity, the context is one of taxation "benefits", so to speak.

Only one problem: government "crowdfunding" in the U.S. is slowly leading to diminishing returns for the population as a whole. Expectations for fiscal policy were once quite simple, compared to what they ultimately became in the twentieth century. Somehow, income taxation in particular, has morphed into a labyrinth of subsidies which are impossible to decipher. Who could have predicted - when arguments for the U.S. Constitution were still occurring - that "crowdfunding" for the new nation would end up well beyond the basic needs of military, justice and provisions for public safety? When taxation inroads did eventually take place, their implications were seldom thought through, in terms of efficiency. Consider these startling arguments Alexander Hamilton made, in "Original Meanings: Politics and Ideas in the Making of the Constitution" (page 196):
Over time, the wants of the States will naturally reduce themselves within a very narrow compass, he predicted in Federalist 34, while those of the Union will ultimately prove "altogether unlimited." Anti-Federalists need feel no alarm over the national advantage in taxation, Hamilton implied, because the revenue needs of the states would verge on insignificance!
One is reminded how Keynes also expected people to have their working hours gradually reduced, as few individuals would supposedly need to work anymore once progress reached a certain point. But who can afford to give up working...if in fact their work pays the bills? Even though working hours have been reduced, governments and special interests alike haven't wanted to give up the benefits of rigid structures for asset and consumption patterns. Those consumption requirements translate into higher profits and more taxation revenue from asset formation.

None of this is to say that crowdfunding - government style - is a mistake. Rather, it is an incomplete setting for overall economic access and employment. The fiat monetary policy which originated in the twentieth century, brought greater liquidity to monetary transmission and remains capable of generating spontaneous services formation in prosperous regions. However, the gradual growth of asymmetric compensation now contributes to inequality, decreased labor force participation, and hollowed out economic formation in less prosperous areas.

When the "crowdfunding" concept of the Constitution was set, it would have been difficult for the founders to imagine, the degree to which individual sovereignty for production capacity, would gradually be transferred to external production processes. This also matters because government primarily exists in labor creating service terms which are difficult to quantify.

In a recent post I noted how losses in labor force participation are also reflected in recent losses of input as contrast with output, per Dietz Vollrath. He also highlighted government composition as pure labor and housing services as all capital and no labor. When trying to sort out current production mysteries, it helps to remember government's large role in services labor - alongside the fact that labor aggregates and housing wealth accurately reflect one another.

There's a graph in Vollrath's above linked post which illustrates the degree to which capital's share of costs have skyrocketed since 2000. Given the tight market in housing - in spite of capital's share - this only further illustrates the degree of input which has been sacrificed. To what degree is a nation's "altogether unlimited" wants represented by the growing pattern of capital, minus labor representation? Government as crowdfunding, hasn't quite gone as planned.

All of which brings me to Arnold Kling's suggestions for crowdfunding. First, note that national governments and business interests work within a general equilibrium which exists as a basic given. General equilibrium remains open ended for international flows, in the sense of Wall Street and in terms of bond creation. I only reference this because I find Kling's suggestions more applicable for alternative equilibrium settings. Monetary transmission would reflect the local circumstance of time arbitrage, alongside local resource application and asset formation. Here's Arnold's first suggestion:
1) Suppose that people are only asked to invest in companies where they want to buy the company's offering.
Local corporations could be thought of as a combined government/business interest "crowdfunding" approach, in which participants "buy" a unique non tradable environment as it is physically and intellectually constructed. Time value and monetary investment both count for ownership capacity, rather than taxation. And service formation represents shared choices for "taxation" of time aggregates. Again, from Arnold:
Suppose that the crowdfunding platforms provide some of the legal protection that venture capitalists and other high rollers are able to give themselves against subsequent misbehavior by founders or follow-on financiers.
Local corporations would need legal protections in particular, for small and (relatively) spontaneous business formation which has become otherwise difficult to achieve. Another concern: rights to knowledge use would need basic, long term protections. Research which originates in knowledge use systems, could not be appropriated by private interests elsewhere. Others could freely use what is developed, but not in ways that would render this mutually supported work unusable in low cost settings. In all likelihood, knowledge use systems would gain knowledge protection through means similar to creative commons.

Sunday, November 22, 2015

Use Production Potential to Create a Better Foundation

Organizational patterns determine the roles that human capital can play in an economy. They can also provide much needed balance between aggregate supply and demand, which is presently out of balance.

In particular, those who have been marginalized in some capacity, need a chance to redefine production potential on more inclusive terms. But it has been oddly difficult to envision the lack of a marketplace for skills capacity, given much of its (present) fiscal definition. Instead, more schemes are continually hatched to "grant" access to existing services systems, while it is left to housing shortages to reflect a lack of overall participation. more artificial access strategies! Fortunately, the underlying lack of human capital in productive capacity, is starting to get noticed. For instance, consider this discussion about input versus output, from Dietz Vollrath.
What we've got going on in the last few years is that MFP reflects our economy using fewer inputs to produce the same output, rather than producing more output using our existing inputs.
Dietz Vollrath makes an important observation, how multi (or total) factor productivity has changed, more or less since 2005. Too many have either insisted that this won't happen, or that it somehow doesn't matter if it does happen. In a recent post link, Tyler Cowen even referred to Vollrath's findings as "a scary form of productivity growth". Just the same, this present lack of input is partly intentional, given the special interests which seek to dictate the terms of knowledge use for service product, instead of replicating knowledge use through time based input.

It helps to remember: this "lack of input" phenomenon also reflects the lower growth trajectory of aggregate spending capacity, of which the Fed has yet to come to terms with the public. Thus far, the ridiculous focus on interest rates and imaginary inflation, has allowed policy makers to get away with obscuring a dramatic shift in economic activity. Just the same, this discussion needs to take place sooner, rather than later. Honesty from central bankers is greatly needed, to assist the process of improving production potential.

How to think about a better economic foundation, for human capital? In some instances - especially where economies aren't sufficiently complex - people need to work with knowledge in relation to one another as independent economic actors within local organized groups. Knowledge use systems, through symmetric compensation, would allow service formation as new wealth on monetary terms, instead of (wealth dependent) fiscal terms.

This process would also allow local corporations to introduce knowledge based service activity in developing nations which would otherwise need entire systems of complex economic activity, in order to generate broad services formation. Even though special interests and governments alike would question the process, budgetary relief is sorely needed at all governmental levels. The time has come, to create much needed new growth.

When people worked more directly with resources (as independent actors), the organizational patterns they adopted were locally organized and spontaneous in many instances. For instance, time spent working the soil was compensated time value - both in value in use, and value in exchange terms. Even if someone was not "completely skilled" in gardening (perhaps as compared to one's neighbor), one's efforts nonetheless contributed to sustenance. The system did not have to find a way to "deal" with the less skilled because he/she was still economically responsible. Plus, the actively engaged individual didn't have to worry about being "fired" for relative skill differences, because resource use was still structured on productive terms.

Can groups organize to make multiple skills levels count, economically? This is the production potential which needs to be recaptured: time value as a direct contributor to wealth creation and sustainability. Meanwhile, economic time use mostly exists in an either/or capacity for one's own personal responsibilities and participation in life. The system - not to mention countless families - struggles to make room for the many who sought access and failed.

Too often, value in use activity has been left out of sustenance equations, when means to make these skills sets matter economically have been lost. Symmetric compensation needs to echo the organizational patterns which existed prior to employment as externally determined. The best part about symmetric compensation, is that it allows time use to exist both as measured input and product. This is exactly how - and why - service formation has the complete ability in productivity terms, to overcome Baumol's cost disease.

Friday, November 20, 2015

When Wells Run Dry...

Lost in the discussions about future growth trends, is much of the earlier confidence regarding human capital. Indeed, human capital - as a component of wealth - became taken for granted as the twentieth century progressed, only to begin losing its prominence in the 21st. Much as central bankers have become reluctant to provide clarity about monetary policy, policy makers aren't clear about the economic roles that are relevant for citizens. From "Poor Richard's Almanac" (Benjamin Franklin):
When the well is dry, we know the worth of water.
Does anyone really believe technology can - or "should" - replace human capital? Will everyone wait for the well to go dry, before realizing that broad labor force participation was a desirable component of our economic realities? Perhaps we will know the worth of human capital, once it finally becomes evident that strict knowledge use limits will not suffice! Why is it so difficult to envision human capital as vital resource capacity which needs to be extended to everyone - not just for formal workplaces, but for any work that individuals provide for one another through the course of their lives?

Prosperity is not just a matter of capital which is separate from human capabilities and aspirations. Should human capital lose its importance, other forms of wealth creation would not be far behind. Odd indeed, that the earth and its resources get so much attention on a daily basis, when few stop to consider how the wellspring of human capital is threatened to a greater degree, than the earth (from human activity).

When nations reserve the bulk of high value skills capacity for the most talented and accomplished, more is at stake than is realized. Everyone takes the chance that populations will not only lose access to important facets of knowledge use, but also the reasoning capacity which underlies all learning and human interaction. Wealth generation begins with knowledge use, but this process can also be reversed, when asymmetric monetary compensation has no counterbalance from symmetric coordination among groups. When the asymmetric compensation of knowledge based wages makes too many demands on existing resource capacity, the result is political instability.

Like an aquifer that is drawn from without replenishment, human capital in aggregate becomes diminished as governments and special interests divide the spoils of knowledge based wealth among the elite. What few have recognized, is that asset and commodity formation alone aren't enough to sustain wealth for all comers. In the meantime, continued monetary tightening only reduces the wealth of traditional production that has been necessary for asymmetric compensation.

Policy makers have become confused about the forms of knowledge use complexity that are actually important. Consider for instance the rudimentary forms of services which now comprise education and healthcare at local levels. How can these disciplines become transformed, so that they can be integrated with other economic activity in the places where many live out the course of their lives?

As people in developed nations struggle for access to cities, and people in broken nations struggle for access to prosperous nations, not all will be able to gain economic momentum from escape, alone. In a sense, economies are no different from individuals in this regard. When something is broken, there are times when the only solutions to be found, are internal - especially when there are no easy answers. It's time to look inward, for the economic solutions of the future.

Thursday, November 19, 2015

When Does Inequality Present Problems?

James Pethokoukis noted recently that Angus Deaton had some thoughtful things to say about inequality. How much of inequality is a result of private and public interests which stand in the way of free market prosperity? Neither the political left or right are blameless in this regard. From Deaton's interview in the WSJ article:
Inequality is partly a marker of success. If someone thinks of something, some new innovation that benefits us all, and the market works properly, they get richly rewarded...[But what] I worry about is that some of the enormous riches we're seeing in the U.S. today are coming from the activities that are in social doubt. 
Regular readers are familiar with my concerns in this regard. Instead of a marketplace which represents a wide range of income potential, too many basic features have been defined on the "hostage taking" wealth capture terms of non tradable sectors. For a long time, "raising the bar" nonetheless meant more wealth for all concerned, which could explain why few questioned the process. Now, a growing number of individuals and institutions alike, struggle to meet what have become rigid terms of engagement.

Growth potential in this environment, is mostly limited to further options for high income levels - on the part of governments and private interests alike. But just as government infrastructure holds no multiplier capacity through choice for those who already have access options, the same is true of private investment which competes for an already saturated consumer base. Plenty of growth potential still exists, but it needs to be generated through broader means for access and economic engagement.

Economic stagnation, is little more than policy maker reluctance to define economic conditions on more inclusive terms. Unfortunately, too much discussion regarding inequality focuses on income differences, instead of the underlying factors which place too much consumption beyond the reach of lower income levels. One social media meme put it well: "Sorry, the lifestyle you were seeking is currently out of stock."

In other words, inequality presents problems when neither public or private interests are really paying attention, to segments of the marketplace which could benefit from further investment and labor force participation. While prosperous regions could still take in newcomers to some degree, nations need to focus on the regions which have been left behind, where internal solutions can ultimately be found.

Today's inequality is not so much about income differences, as the distortions in housing, healthcare and other service formation which are in need of resolution. As a result, non tradable sectors have become largely identified with status signals and struggles for access. Just as today's high bar is problematic for individuals, it negatively impacts new business formation, and hampers the ability of local governments to find sufficient revenue in struggling regions.

Angus Deaton reflected on a political aspect of inequality in the above linked interview, as well:
[Former Supreme Court Justice Louis] Brandeis said a long time ago that you can't have an extreme distribution of income and democracy at the same time.
Fortunately, there are ways to utilize knowledge that would sustain local democracies for service formation, when national redistribution can no longer do the job. This would not only make digital educational options worthwhile, but also provide means to disperse knowledge without the expense associated with general equilibrium. Otherwise, the lack of a marketplace for knowledge use, would leave little capacity for potential digital benefits in service production.

Inequality becomes problematic when people build rigid systems, and then force others out of those systems when the least deviation in aptitude or ability makes it difficult to remain connected. Hopefully, policy makers will focus on the domestic issues that matter most in the years ahead, instead of allowing present economic and political uncertainties to grow.

Tuesday, November 17, 2015

Money and the Double Coincidence of Wants

Does money always satisfy an otherwise double coincidence of wants? In many instances, yes. Even so, a practical response is needed when results are less than satisfactory - as has been the case with services formation. All too often, both services providers and consumers end up disappointed, when institutions (externally) set the terms of coordination processes. From Nick Rowe's macro framework:
3. But (double) coincidence of wants is rare, so they use money as a medium of exchange (and medium of account).
Resource coordination issues are a primary reason why money replaced barter, centuries earlier. When product formation exists separately from time value, money remains ideal as a medium of exchange. However, when time value is closely tied to product, asymmetric pricing for services coordination becomes difficult for the marginalized and for knowledge dispersal as well. Symmetric compensation for wage structure, would allow time value to play a greater role alongside skills and organizational capacity.

Knowledge use systems could generate a much needed marketplace for time value. This would allow time value to exist in relation to itself - in both personal and group capacities. It is easier for individuals to discover a double coincidence of wants, when they can coordinate in relation to the time and skills potential others also hold for personal exchange. Time arbitrage would provide the base monetary compensation, from which additional elements of the system would be built.

There's another benefit to making time value a part of the coordination equation. Through seeking out double coincidence of wants in services formation, populations would gain the ability to quantify services production. As things now stand, uncertainties involving asymmetric compensation and redistribution, continue to impact both service formation and monetary policy. Further, government responsibility in this regard, has made it difficult to understand how services product even exists in relation to other resource capacity.

Fortunately, skills possibilities are vastly more diverse in today's marketplace, than was once the case for anyone who sought to match skills capacity. Today, the digital realm could help individuals and groups to discover mutual, services based possibilities at local levels.

Also, there are psychological advantages: everyone learns to negotiate for reciprocal tasks and voluntary responsibilities from a young age. This translates into better relationships with family and friends; and over time, a gradual return of societal trust. Granted, it's hard to imagine a world capable of trust in the present. But this is no time to give up, on the hope of a return to stability and prosperity.

Monday, November 16, 2015

Sticky Wages in Price Taker vs. Price Maker Context

Often I get excited about concepts before I really have a chance to take a closer look, at what existing literature has to say. That's partly a result of feeling pressured for time (to learn and apply), since I was almost fifty years old before I finally allowed myself the luxury of studying economics on a regular basis. A recent challenge in this regard is the interaction of price taking and price making mechanisms in the economy. About price taking, InvestorWords has this to say, "An individual or company which is not influential enough to affect the price of an item." And, from Wikipedia, regarding price taking in "Market Power":
In perfectly competitive markets, market participants have no power.
How do we square this with the fact more competition is needed in a broader range of the marketplace...not less? Price making mechanisms are overtaking (good deflationary) price taking mechanisms to such a degree, they now impact monetary policy around the world. Does potential exist for a more inclusive, hence fully competitive price taking marketplace? It's somewhat of a tricky question, and one which also affects the sticky wages which can limit labor force participation.

In a recent post about macroeconomic frameworks, Nick Rowe noted the role of sticky wages, and the fact they contribute to coordination problems. For understandable reasons - given the nature of today's asymmetric wage compensation - he classifies labor as a single existing endowment. Indeed, this is often the case for expectations in high skills investment, given service formation in non tradable sectors.

The twentieth century saw a vast increase, in the ability of knowledge based careers to command price maker functions. This temporary increase was possible until only recently, given the degree to which higher education became associated with economic access. Just the same, existing revenue available for these positions is gradually becoming less certain. More of the faculty in the universities which remain viable, will need to make greater use of price taking wage structures.

However, there's still a problem for aggregate output and labor force participation, even though wages are gradually being adjusted downward. Even though universities and other knowledge based institutions have accounted for the revenue losses of recent recessions, addressing the sticky wage factor doesn't quite have the same effect, as what occurs in tradable sectors. Indeed, some element of implied knowledge use loss - and consequently time value - is involved. To some degree, the loss accrues across public and private sectors. This is why knowledge use systems need to position knowledge use in a sustainable price taker context - for both labor force participation and output potential.

Of course, government isn't really all that different from private interests, which encourage knowledge use limits to generate price maker income. Sticky wages from a price maker perspective, is as much about preserving marketplace power, as anything. But ultimately, price maker tactics backfire, in terms of marketplace competition and labor force participation. This is a reality which local corporations would (eventually) need to acknowledge, as they develop local patterns for economic viability.

My biggest concern regarding a base wage for mutual assistance, is the fact it has to exist on price taking terms. In other words, compensated wages would be less than currently defined minimum wages. Otherwise there would be too many pressures on knowledge use systems - both internally and externally. Internally: should groups attempt to adopt a price making wage (minimum wage or above), exclusionary rationale for some locals would be the quick result. And everyone would be right back to problematic unemployment.

Hence it is imperative to generate time/money investment and social security mechanisms which negate the need for price making wages. Likewise, should local corporations set wages too high, this would be externally counterproductive as a direct competition to general equilibrium. Why would specialists (from general equilibrium) provide their expertise to knowledge based systems...if those systems eventually plan to compete with them? The most important competition for alternative equilibrium rests in time value, so that one's personal preferences and skill sets have a chance to remain in balance over the course of a lifetime. In order to effectively break sticky wages in a long term sense, some trade-offs and backup plans are necessary.

One way to back the limited "power" of (fully competitive) local corporations, is to define economic environments with clear starting or base points for access and entry. By doing so, one's compensated wage would not present a constant struggle for access and participation, as has been the case for so long. Over and over, people gave up their desires to assist one another, to a marketplace of economic access which overcame entire realms of practical knowledge use. As a result, too many individuals eventually found themselves all but unable to reach out to others.

A marketplace for time value, would ensure that knowledge maintains "value in use" characteristics in a high skill, "value in exchange" economy. While price maker dynamics will always exist for high skill levels, a price taker marketplace for knowledge use would still go a long way, to restore normalcy.

Saturday, November 14, 2015

Considering a Macroeconomic Framework

These recent posts from Tyler Cowen and Scott Sumner, encourage everyone to take a closer look at their own beliefs regarding macroeconomics. If only my own understanding was more complete! For example: even though I'd like to call a "time out" (to condense what I've written thus far into easier to read formats), I know I'm not ready. For me, this whole process is still evolving, and regular blogging keeps me connected and engaged.

What mental clarity I had yesterday, has also been thwarted by the terrorist attacks in Paris. The tragedy only deepens my resolve to do something. Surely, one way a productive world could remain strong, is for people to monetarily compensate one another for mutual and voluntary assistance. As things stand now, many still expect the strong to help the weak...even though the strong may be struggling to maintain their own economic circumstance.

One aspect of my thinking has not changed, since I began blogging. Through government policies, monetary transmission mechanisms ultimately distribute wealth towards service formation and time based product. Even though much of this occurs at national levels on the part of central banks, local factors need a chance to reemerge. Local corollaries for wealth creation and monetary transmission are possible, through closely coordinated services and investment formation.

Decentralized economic activity would allow time based product to become a stronger economic component, and it would reverse the slow motion train wreck of hollowed out work structures. I believe that local economies could generate sufficient complexity, to create simplified versions of a monetary transmission process. Even though wealth originates from tradable goods production in general equilibrium, new wealth is also possible from coordinated systems of symmetric time value. This process would generate an observable alternative equilibrium, as well.

Since many governments work with wealth creation results (in the form of income derivatives), they cannot contribute more to growth, than the fiscal flows which result from prior wealth formation. Monetary activity accounts for those initial flows. Monetarism is crucial, to provide accurate monetary representation and the acknowledgement of individuals as central to real economy conditions. Wages and income need to be dynamic - not static - to maintain ongoing activity. Market monetarism adds to this process, through representation based on what market participants are actively planning for the near future.

In order for the macroeconomic discipline to further evolve, it needs better definition and production capacity for services formation, than has been provided thus far. In particular, time aggregates are at stake, given the fact that services coordination faces growing imbalances. The dynamics of time and knowledge based service product are quite different from those of tradable goods. Most important: time based services capacity exists along a fixed spectrum or continuum. When that continuum is not followed in terms of coordination, services product is lost in ways that cannot be recaptured for the currently participating groups.

Fortunately, this single continuum is not a problem for tradable goods which exist separately from time, in that their volume can take place in multiple time periods without distorting product potential in aggregate. There's a simple way to think about the process: even though we can never regain lost time, we can often regain other lost resources.

Time based product, as a fixed component of a single continuum of time based possibility, needs knowledge use as a conduit between economic actors for better coordination. Even though individuals partake in intensive time based investments for healthcare, their time use continuum for actual participation, is a mere fraction of what insurance programs or governments may imply. Time aggregate value, instead of having broad applicability in production terms, exists mostly in consumer context.

By no means is the present the first occasion, in which time aggregate value has been inadvertently lost. This is partly why I disagree with Tyler Cowen's assertion (the first point in the above MR link), that 99% of all business cycles are real business cycles. Granted, traditional production (product separate from time value) can sometimes function for a long time, before aggregate capacity begins to shift in relation to the formation of time based product. But when that shift occurs, time based services coordination becomes increasingly difficult - both for budgets and the individuals who lose their roles in the process.

While everyone has understandably grown weary of hearing about tipping points - especially given the fact so many have already occurred - there is still one more which is important. The wealth of traditional production can no longer support all the needs of time based product through asymmetric compensation. Fortunately, this is only a problem insofar as it remains unacknowledged. Symmetric time value could provide much needed wealth creation, at the moment it is most needed.

There is more at stake, than just gaps in services coordination for consumption needs. Time based product exists in both consumption and production dimensions. The potential for broad based service structure, translates into human capital as a direct source of wealth. Through symmetric compensation, services could provide a starting point for new economic formation, as well as secure backing for more traditional production. This process would place new services into a monetary context, to buttress still existing fiscal capacity. And even though the real economy is responsible for growth potential, monetary policy is responsible for the maintenance of what the real economy creates.