Saturday, March 23, 2019

Time and Fiscal Revenue as Scarce Commons

Our economic time is similar to the revenues which accrue to government, in that both are commons where the relevant groups need to effectively manage resource scarcity. Just the same, one often hears how government budgets aren't constrained like family budgets. This is true but only up to a point. Since governmental budgets are in reality a resource commons, competing demands often create substantial problems eventually. Especially if the actual nature of the commons capacity and its already existing claims, is not well understood.

Yet perversely, both progressives and conservatives have become less inclined in recent years to take deficits seriously. Perhaps this unfortunate circumstance explains the recent appearance of budgetary strategies such as MMT in national public debates. Even though some MMT adherents acknowledge the reality of fiscal limits, these natural constraints are mostly downplayed when MMT is explained for citizens who don't follow the dialogue closely.

Despite the financial and monetary tools made possible by the transition to fiat money in the 20th century; at the end of the day, government revenue still relies on taxation. And taxation is everyone's responsibility, however it may be structured. We do future generations a disservice if we ignore this, because taxation is closely linked with the realities of our own time scarcities for getting things done. No one can afford to forget that each of us has the same time available, whether to accomplish personal objectives or fulfill responsibilities to others. While taxes may increase, our time availability simply cannot.

Plus: When our institutions make more time demands than we actually have to give, our collectively held time commons starts to become overfished. It becomes more difficult for citizens to coordinate their activities, and represents even greater problems for individuals who lack the resources to pay someone else to carry out a portion of their responsibilities. Once too many societal demands accrue to our aggregate time potential, the process creates substantial problems across the entire spectrum.

An apt way to envision excess time demands in aggregate, are national budgetary debt levels which are not only substantial for every citizen, but often extend beyond their actual income generating capacity. While we benefit greatly from ongoing per capita productivity gains of recent centuries, national debt obligations still cancel out some of these gains. In order for total factor productivity to improve, we need to gradually decrease the amount of national debt which accrues to all citizens. It has been difficult to visualize this process occurring, yet debt loads continue to shift into the future where they pose additional burdens and obligations for future generations.

Imagine collective or aggregate time potential as a fixed commons, and another relationship becomes evident. When individuals and firms in non tradable sectors engage in price making, their reliance on fiscal revenue allows price making to overfish the resource capacity, or fiscal revenue, which these groups hold in common. Conversely, price making in tradable sector activity is more marginal in its effects. Not only does tradable sector product tend to be of a discretionary nature, it is part of a much larger commons which accounts for the vast majority of global resource capacity.

There is also a skills arbitrage factor which affects the dynamics of time as a fixed commons. When specific skills sets that are basic in nature are claimed by certain groups, thereby increasingly their value, this process can gradually result in a loss of relative time value by groups which are restricted from the use of those skills sets. This is in fact what has occurred in our own time, as twentieth century skills arbitrage claims in the practice of healthcare, have gradually diminished the aggregate time value of millions of citizens by comparison. In fact, these losses are partially reflected in the levels of government budgetary debt as represented by every citizen.

Until recently, societies have done reasonably well in smoothing many aspects of time deficiencies via debt formation and insurance pools. However, both of these strategies are coming under increasing strain. For instance, health insurance is having to shift more of its prior responsibilities onto customers in the form of out of pocket expenses. And just as families are now making difficult choices to find alternative means to a wide array of healthcare expenditures, governments are increasingly having to make hard choices about budgetary particulars as well. In all of this, the U.S. will especially need to be careful to preserve its own fortunate monetary status, by just saying no to excess debt formation wherever possible.

No one expects quick exits from excessive use of debt and fiscal policy, after all these structural circumstance have taken a long time to develop. Still, nations could begin to experiment with debt free approaches to knowledge use and wealth creation, via alternate routes which better reflect the nature of our time scarcity and the constraints of our commonly held resources. Economic reciprocity in the form of symmetric time value is especially needed, to create new wealth and counter the effects of excessive debt and budgetary burdens. It's time to get started, so that no one need mandate debt jubilees in the near future, for debt which simply could have been avoided in the first place.

Wednesday, March 20, 2019

Some Thoughts re Mankiw's Textbook Essay

Several weeks earlier, Gregory Mankiw reflected on his years spent in textbook authorship and teaching. The whole essay was quite interesting, and Scott Sumner also highlighted in an Econlog post a part I particularly liked. In this post I at least want to consider how savings decisions and market expectations matter for equilibrium outcomes. Output variance between non tradable and tradable sector activity, could also impact how investments affect aggregate output and demand. Nevertheless, here's Mankiw (page ten):
As a sign of how times have changed, imagine asking a group of introductory students the following question: If Americans decided to save a larger fraction of their income, how would this change affect the economy?  The answer I learned as a freshman in 1977, studying macroeconomics from Paul Samuelson's celebrated text, was based on the Keynesian cross and the paradox of thrift: Higher savings rates depress aggregate demand, reduce national income, and in the end fail to result in higher quantities of saving. By contrast, the first answer I teach as an instructor today is based on classical growth theory. Higher savings means more investment, a larger future capital stock, and a higher level of national income. Most economists now agree that both answers have some degree of truth, depending on the circumstance and that students need to learn both perspectives to understand and debate public policy.
Previously, savings as investment has been more likely to result in increased output during periods of manufacturing expansion. Yet it isn't difficult to imagine, how manufacturing losses during periods of extensive monetary tightening (such as the Great Depression) could seem as though depressed demand from higher savings. All the more so, when extensive depreciation further discourages spending. Fortunately, once manufacturers regain the confidence to increase output, savings are once again better able to translate into output gains, thereby returning to a long run trend or classical interpretation. Gregory Mankiw stressed that when long term economic conditions are emphasized at the outset, it's easier for the student to interpret Keynesian factors as short term fluctuations in trend.

One policy concern for macroeconomic issues, is the extent to which governments can meet existing near to medium term budgetary obligations. Clearly, there are links between equilibrium capacity and what governments might achieve, in terms of the revenue this capacity suggests. I found Mankiw's explanation for welfare economics helpful, for deliberating how societal expectations could alter what otherwise appears as producer and consumer surplus. Once specific markets become saturated, those limits tend to become part of general equilibrium constraints. It's not difficult to extrapolate how that creates limits for government revenue potential as well.

Market saturation may also vary, depending on whether what appears as natural limits is due to tradable sector or non tradable sector market capacity. Some portions of aggregate output in the latter, mostly scale according to time/place linked participation in consumption and production. When governments agree to additional restraints on non tradable sector activity, it becomes even more difficult for fiscal policy to stimulate demand. The resulting asymmetries in supply side production potential, add to other difficulties governments already experience, in gaining sufficient revenue for budgetary requirements.

Why does this matter? Government incentives to stimulate economic conditions are closely connected with what they hope to gain for their own support, via stable or increased revenue potential. A recent WSJ article, for instance, noted how the Trump budget could be relying in part on phantom revenues. But will the needed $1.2 trillion in the next decade, actually materialize?

Healthcare services - in spite of what they demand from governments - have become a source of government revenue in their own right. But what if consumer healthcare decisions change in the near future? If so, equilibrium capacity for healthcare markets as presently constructed, could be reduced. As healthcare spending continues to shift from insurance contributions toward increased out of pocket expenses, will consumers continue to perceive this approach to well being as totally necessary? Ultimately, increased consumer responsibility for all healthcare considerations, might include a reevaluation of overall healthcare spending.

If so, changes in healthcare market demand might eventually lead to changes in organizational capacity as well. Would a DIY approach for healthcare needs, become a part of reduced government expectations for revenue in the coming decade? It's certainly a possibility, and one which also speaks to the importance of welfare economics as noted by Mankiw.

Saturday, March 9, 2019

Inclusive Economies Can't Be Built on Exclusive Pricing

What goes into the creation of a more inclusive economy? For one, there's plenty of additional participation whenever economies are in processes of expansion. While employment tends to be the main focus, expanding economies also correlate with provision of goods in an affordability range for most consumers. Given its association with oft affordable product, tradable sector activity is more beneficial of late (thus far) for greater inclusiveness, than non tradable sector activity. Yet it's probably the growth factor which helps to explain why - upon looking up inclusive economies - I was redirected to a brief explanation for inclusive growth from Wikipedia:
Inclusive growth is a concept that advances equitable opportunities for economic participants during economic growth with benefits incurred by every section of society. This concept expands upon traditional growth models to include focus on the equity of health, human capital, environmental quality, social protection and food security.
Sustainable economic growth requires inclusive emphasis on inclusiveness - especially equality of opportunity in terms of access to markets, resources, and an unbiased regulatory environment - is an essential part of successful growth. The inclusive growth approach takes a longer-term perspective, as the focus is on productive employment as a means of increasing the incomes of poor and excluded groups and raising their standards of living. 
Much of this is relevant. Where the problem lies, however, is that we are frequently encouraged to conceptualize economic access as mostly feasible through higher wages. Alas, the conditions of general equilibrium tell the story: Say everyone wants and gets a higher wage than they had before. What has really changed? Or, should the cycle of higher wages stop before each group gets on board, how do we frame the moral story of deserving groups which didn't make the cut?

For instance, the local news has been carrying a story of a fire department which demanded wages equal to those of the police department, but the city mayor (a Democrat) resisted. The measure was finally voted through just the same. Now, there's an uproar, as some of the fire department employees will have to give up their jobs to smooth out the consequent revenue problem. In all this, the push for higher wages didn't cause the city's budget to miraculously expand. Likewise, when higher wages are demanded in private sector firms, sometimes the money is there, and sometimes it is not.

Even if we could wave a magic wand so every deserving person, association, or group gets a better wage, it is doubtful this approach can make it simpler for everyone to more effectively coordinate their time based mutual obligations. As it turns out, this is a relatively new economic problem. The uncertainty these circumstance have caused is already making our political environments more fragile, in part because we lack the ability to use our time priorities as a fulcrum at a formal economic level.

Think about it. What we are actually trying to accomplish via time coordination with money as the only applicable fulcrum, is actually quite new, historically. For centuries money has functioned reasonably well in this role. After all, most time based services occurred on the sidelines in ways almost incidental to the revenue flows of general equilibrium, even though some acknowledged a "circular flow" between industrial production and services. For the most part, tradable sectors not only determined divisions of labour, but also the output which defined a mostly commodity based general equilibrium. However, once service sectors began to dominate economic activity and more citizens were brought into the formal economy; despite the recent introduction of fiat money, the Baumol effect is slowly making money less effective as the sole fulcrum between tradable and non tradable sector activity.

When I suggest symmetric time as a way to coordinate time based services, it's not because everyone's time value becomes "equal". In time arbitrage, since everyone would be free to choose who they wish to work with, the challenge is to make one's own time value (and skill sets) desirable to others, so as to make up for one's own time scarcity as much as possible. Doing so, makes it much more likely that - for those willing to put in the effort - it's feasible to maintain sufficient access to a wide array of time arbitrage options.

In other words, instead of functioning as an "equal" wage, symmetric time arbitrage makes it possible for most participants in a continuum group setting, to set up and clear mutual obligations in real time. Eventually, we will need to let go of the seemingly never ending struggle over nominal wages, so as to improve the effectiveness of real wages via production reform in non tradable sector activity. Perhaps we'll know we've arrived, should economic expansions become directly correlated with more inclusive pricing in non tradable sector activity, such as completely new options in home ownership.

A recent Brookings post also brought a new institute to my attention this morning. The "Opportunity and Inclusive Growth Institute" is associated with the Minneapolis Fed. I was encouraged to note they already have scholars working on employment possibilities for the formerly incarcerated - one of the few areas where there is still political agreement for greater inclusion, on the part of both Democrats and Republicans.

While putting this post together I also came across a recent book from Michael Tanner, The Inclusive Economy: How to Bring Wealth to America's Poor. From the Cato review:
Rather than engaging in yet another debate over which government programs should be increased or decreased by billions of dollars, Tanner calls for an end to policies that have continued to push people into poverty. Combining social justice with limited government, his plan includes reforming the criminal justice system and curtailing the War on Drugs, bringing down the cost of housing, reforming education to give more controls and choice to parents, and making it easier to bank, save, borrow and invest.
How to think about these useful suggestions? Perhaps the bad news, at least from a libertarian standpoint, is that no one can realistically expect limited government, anytime soon. For that matter, both political parties are seemingly consumed with taking control over governmental budgets and maximizing political spending to the fullest extent possible. At the very least, from the standpoint of bridge building between parties, positive reforms of the criminal justice system could be on the horizon, and the War on Drugs might finally be over soon. As for parents having more control over educational decisions, what really matters is that students are given more chances to take better control over their destinies from a young age. Perhaps this could also be approached in ways which reduce the fight over public versus private schooling.

The main problem we now face, is that what's rational for non tradable sector bottom lines in terms of exclusive product definitions, has been slowly - but surely - increasing the carrying costs of our markets, workplaces and personal lives across the entire economic spectrum. The best way to bring back a full level of economic participation and marketplace access, is to create more flexible settings for our mutual time priorities and physical infrastructure.

Doing so, would allow both for profit and not for profit endeavour to contemplate their own possibilities for sustainability - because of lower operational costs. What is sustainability, if not our own logical wish to survive in the world, however we happen to define ourselves? When it costs less to tend to the fabric of our lives, we all get the chance to breathe easier, and find renewed energy to meet our responsibilities and obligations. Again, when it comes to nominal approximations, what if we've been going about this "inclusive economy" process the wrong way?

Thursday, March 7, 2019

Notes on Time as a Unit of Measure

Time as an economic unit of measure, could bring needed clarity to the now mysterious nature of what the real economy actually consists of. Healthcare is a notorious example, how difficult it has become to determine productivity and long term growth potential. In a recent post, Scott Sumner also stressed that the intangible nature of healthcare is just one factor which distorts the utility of RGDP measure:
...NGDP is at least an order of magnitude more clearly defined and more easily measured  than RGDP.
Even the term "real" has been somewhat of a misnomer in the measure of GDP. At a lecture for the Bennett Institute, Diane Coyle highlighted an explanation given by Thomas Schelling:
What we call "real" magnitudes are not completely real, only the money magnitudes are real. The "real" ones are hypothetical.
Despite their centrality to economic activity, statistics such as RGDP and NGDP are only useful up to a point. Hence Sumner also emphasized:
Most importantly, don't ask any statistic to do more than it can. 
At the very least, NGDP is simpler because it is the monetary expression. In the above linked lecture, Coyle explains how the real economy might be envisioned:
The philosophical base of GDP is utilitarianism. It measures current period flows of income, consumption, investment and trade. Assets contribute to economic welfare only when the services they provide are consumed.
It's fortunate we don't have to measure asset wealth as a component of the real economy, especially since asset wealth from previous time periods can be quite misleading in terms of revenue flow potential. Plus, at a time when tradable sector activity often requires less capital or overhead to achieve profits, much more capital than what is actually necessary is often required, before vital time based services are even implemented. Healthcare and education in particular are burdened by extensive regulations which create additional overhead costs. And because of the centrality of healthcare, its additional costs become burdens throughout the entire economy.

Importantly, overhead costs tend to overwhelm the revenue capacity these requirements actually make possible, in non tradable sector time based services. Further taxation, redistribution, and debt have carried the burdens wherever revenue potential leaves off. Perhaps this partly explains why services product remains poorly measured. Again, Diane Coyle:
The industrial and occupational classifications provide startling detail on manufacturing industry and almost none on the services that make up four fifths of the modern economy.
This level of services dominance makes it clear that services generation could benefit from a stronger, yet simpler statistical and organizational approach. In Scott Sumners's post, the debate on the growing mystery of what healthcare is supposed to even accomplish, continued in the comments section. For instance, how does one determine the value of prolonging life as long as possible, when doctors suggest treatments for incurable forms of cancer?
Let's say you "prove" that cancer treatment adds 4 months to a lifespan. Is that good? How do we determine if it's good? Do we use revealed preference? Utilitarian measures? And if it is good, how do we determine "how good". What is the value of four extra months when suffering from cancer. I'm willing to believe the benefit might be huge or tiny. I just don't know. There are lots of imponderables here.
When we try to decipher healthcare in ways which aren't specifically market related, the mystery only seems to deepen. Part of the problem is that so many aspects of healing and well being - prior to the professionalism of the twentieth century - were extremely diverse and multi-faceted. These conceptual universes and their associated activities were shared by average citizens, which meant the inclusion of diverse levels of skill, knowledge and approach. Too much of practical value was gradually stripped away, in the ongoing attempts to professionalize what were previously basic aspects of human life and mutual assistance, not to mention personal curiosity and intellectual challenges. Much of this was gradually and reluctantly surrendered to others who were better positioned in society, yet it has never been an easy matter to convey to others how such losses actually felt.

One can only imagine: For many students and practitioners of life, how must it have impacted their daily existence? To take for granted an active participation with others in intriguing aspects of applied knowledge, only to face an ever growing pressure to stop doing so, once the practices of applied knowledge were reserved for far away prosperous cities and distant buildings with seemingly impenetrable walls. A light which had long illuminated human imagination and motivation, assumed a more limited and somehow physical presence, in hallowed halls which many would be students of life would never have the chance to see.

Time as a unit of measure, could provide ways to restore what were once informal means of mutual assistance and personal challenge, but in a much needed economic framework. Time as measure, could become like a vase to once again hold the potential of applied knowledge for average citizens wherever they may happen to live, or regardless of their current level of resource capacity.

Various aspects of healing are just one part of life which could benefit from a statistic which records how people ultimately choose to coordinate their time priorities and preferences over extended periods. While some suggest new statistics which measure factors such as happiness and well being, those potential measures are mostly envisioned as alternatives to GDP. Whereas economic measure of time value could be more practical, for the new statistic would instead make room for shared experiences as an additional component of GDP. How much happiness and well being might even ultimately be derived through such a statistic, as millions of individuals finally regain freedom, personal autonomy, and meaningful challenges in their economic lives?

A primary reason for adopting time as a unit of measure, is that doing so allows us to record and build upon what we experience in shared interactions with others. GDP classification for time arbitrage could be expressed via roles such as coaching, mentoring, mutual corroboration, etc., instead of more specific aspects of applied knowledge and skill which are closely associated with professional time based product. When assistance takes place on voluntary terms, these informal - yet economic - roles could allow individuals and groups alike to benefit from assets being utilized in other capacities as well. When assets provide multiple contexts, more services output can be derived via greatly reduced overhead costs.

Ultimately, everyone needs better means to manage their own time scarcities, than what presently exist. When time isn't actually counted or measured as a valid economic component, too much time value potential is unseen, unappreciated, and consequently lost. As Diane Coyle emphasized, "we see what we count and not the other way around." Adopting time arbitrage as a means of measure, makes it possible to tap vast reservoirs of hidden wealth, in the form of human capital. Of course, these are just a few of the reasons doing so could prove worthwhile. There are doubtless many more.

Monday, March 4, 2019

Austrian/Niskanen Debates: What's Missing?

It's not easy in the U.S. to take what is now a political "road less traveled". Plus, the road of the moderate has become so ill defined as to resemble a disappearing path in the landscape. Are moderate policy efforts little more than a "sell out" to the political enemy? For some it seems that way. Of course, trying to legislate rigid rules of any kind for a diverse population of more than three hundred million, is no walk in the park. Since a political middle is mostly MIA, groups such as Niskanen face an uphill struggle, in their efforts to contribute to the national conversation.

Nevertheless, they deserve credit for trying, given the present dialogue of partisan outrage. Last year, Samuel Hammond penned an essay for Niskanen titled "The Free-Market Welfare State: Preserving Dynamism in a Volatile World". Interestingly enough, Hammond referenced Arnold Kling in the footnotes, prompting Kling to ask recently, "Am I a Welfare State Advocate?" Kling's post also highlighted a response to Samuel Hammond from Kai Weiss: "No Such Thing as a Free-Market Welfare State"
Instead, advocates of the free market should look to a strengthening of civil society, combined with a job-rich economy, to help those left behind. In the end, responding to skepticism about the role of free markets by arguing for more statism might be an oxymoron after all.
In fairness to Niskanen voices, their arguments are more nuanced than Weiss implies. And the "strengthening of civil society", a volunteerism which Weiss understandably promotes, is - alas - not so simple anymore. Yes, once the U.S. had a civil society which contributed greatly to the bottom line in terms of well being and a social safety net. However, that earlier reality also included citizens who could freely practice what were the medium and even high skill activities of their time. Yet much that contributed to well being which involved interchange with others, has since been made either illegal, or at the very least, limited to those who undertake extensive formal education.

This loss of production rights included economic factors to some degree (such as alternative healthcare practitioners), alongside the voluntary level of what citizens once freely provided for one another. How does one argue for a restoration of civil society, knowing that many earlier knowledge and skill production rights which were beneficial for social interaction, have long since been withdrawn?

Some Austrians come across a bit flippant as well, in reminding us how healthcare is not a right. This makes me want to pull my hair out, of course healthcare is not a right! However, it's a crying shame this fact of life didn't get stressed in the historical moments that really mattered for U.S. citizens. If everyone basically understood they wouldn't have healthcare rights, how would governments and private associations have gotten the chance to sway citizens to give up their own rights of healing, which contributed so to mutual assistance and a natural form of safety net? What was really gained for that extensive loss of freedom?

Worse, those now exclusive production rights went to limited sets of healthcare practitioners with extensive time scarcities and severe geographic constraints. Basically we're talking about what eventually became the loss of millions of practical, sometimes necessary aspects of healing, in everyday life. Why was a mere fraction of the population given the keys to such basic forms of knowledge production, to the detriment of everyone else? Are not Austrians major supporters of human freedom? If we all believe civil society needs strengthening, why can't we find ways to prove it?

Meanwhile, extensive supply side limits in healthcare practice, have also translated into overhead institutional costs which make it impossible for any level of taxation and redistribution to get to the heart of what matters for a public safety net. If and when governments become subject to austerity, much of our public or private non tradable sector activity is hardly positioned to take up the slack.

From time to time, people across the political spectrum (including individuals at Niskanen) have in fact attempted to deal with pressing supply side structural limitations. One reason this process has borne little fruit, is the fact a full frontal assault on general equilibrium settings for applied knowledge - especially in a large nation - is impractical. It can't work in part because high income skills arbitrage value is indirectly responsible for extensive valuations throughout the economy.

Yet high powered skills arbitrage in aggregate, also accounts for the extensive loss of time value on the part of millions, which is expressed in the trillions of debt we collectively owe in terms of national budget obligations. And why have governments still not realized that time based product, regardless of its marketplace value, can only scale up through increased supply side participation? Non tradable sector private interests know it, even if it isn't in their best interest to share this crucial understanding with their government benefactors.

Nevertheless, a structural approach for production reform, needs to occur in ways which won't undermine the overall wealth framing of general equilibrium. Most long term solutions actually lie outside of today's existing systems of structural organization. And the costs of living today, are such that citizens can't be expected to resume earlier societal safety net obligations on non economic terms.

To sum up, it's really misleading to argue that if government would only get out of the way, private markets would get along just fine. Today's private sectors include extensive non tradable sector organizational patterns which are compromised so as to inhibit dynamism and long term growth. These markets are so distorted that no amount of taxation or redistribution could provide sufficient remedy, regardless of the tax burdens that will soon fall on the shoulders of citizens. Let's face our structural problems for what they actually are. Publicly despising "wrong" political viewpoints as an institutional main course of action, is simply the wrong approach.

Thursday, February 28, 2019

Wrap Up for February 2019

How would the great economists respond to the economic problems of our time? James Pethokoukis has a Q & A with Linda Yueh.

Some forms of multitasking are actually quite beneficial. And perhaps we've gotten too worked up over fake news. (Tim Harford)

Why don't people believe in tech as a potential housing solution?

Millennial migration patterns are different from senior migration patterns.

" matters a lot that US productivity growth slowed down back around 2005 even before the start of the Great Recession, and that we don't really understand why."

Information which is already in the process of expiring, is what is most often marketed to us. "This is why it's commonly telling you what happened, not why it happened or under what conditions it might happen again."

Remembering Harold Demsetz
"...the definition of property rights will tend to create situations where individuals internalise the effects of their actions, and to minimise the extent to which individuals' actions create externalities. An implication of this is that changes in the economic environment are likely to lead to changes in the definition of property rights; however it is likely to take time for individuals to figure out exactly how the latter should change."
Plus, "Toward a Theory of Property Rights"

Which industries have had manufacturing gains? also, "Where are manufacturing jobs coming back?"

2018 was a good year for YIMBY movements.

How have incomes around the world changed over time?

Dani Rodrik is concerned about the "good jobs" challenge. But ultimately, we may need to transform excessive hopes for "good jobs" into better systems of mutual support for meaningful work, alongside local settings more responsive to a broad range of income diversity.

Homeless children were invited to take part in the design of a school created especially for them.

Once again, Dietrich Vollrath takes a closer look at institutions.

Noah Smith has concerns regarding the Green New Deal. And wage stagnation as well.

This is no time for the European elite to continue contractionary monetary policy.

"If Not Now, When? New Estimates of the Federal Budget Outlook"

"...the increasing share of prime loans has partially offset the deteriorating performance of the subprime sector."

Alas, the medieval guilds of the past still have economic relevance.

Low skill workers face the biggest challenges.

Finland tries a new approach to homelessness.

"Two hundred years of health and medical care"

It turns out that small groups of researchers do more innovative work than large groups.

"...spending cuts have much smaller costs in terms of output losses than tax increases."

Tyler Cowen blegs for ideas and examples re writing incentives for third and fourth graders.

Is Neo-Fisherism "nuts", or does it make sense?

Even though the quantity theory of money holds in the long run, "it's dangerous to engage in money supply targeting".

"...there's actually a negative correlation between changes in bank reserves and any other kind of macro number like credit or GDP."

Good news of the month: Supreme Court strikes a blow against excessive use of state forfeitures.

Not everyone in the Democratic party has shifted further to the left.

Taxing the rich more is not going to solve the debt problem.

Diane Coyle reviews Sorting Things Outand also highlights one of her recent lectures which emphasizes how we see and take seriously what we are actually able to count.

The treatment of net exports in economics texts tends to be confusing.

Some historical perspective "on the evolution of the U.S. federal debt over time".

This job mismatch chart between cities and job seekers, speaks volumes re income segregation.
Another possible reason for increasing separation among income groups, is that cities now provide fewer mid level skill jobs for individuals without college degrees.

The Fed would also benefit, if they provided better explanations for the public re what they wish to accomplish.

Why did the classics dominate formal education? And why was the teaching of writing ultimately assigned to English professors?

"Instead of producer-interest capitalism, we need a consumer-interest alternative."

" boomers are aging alone more than any other generation in US history."

How does the country of Bhutan actually measure Gross National Happiness?

Raghuram Rajan for Project Syndicate: Important aspects of market structure in the U.S. and European countries are starting to break down. Instead of populism extremes, governments could instead make it easier for people to devise their own solutions.
Also, a video of his recent Brookings public event discussing his new book, and an excerpt for ProMarket.

Wednesday, February 27, 2019

What Really Preserves the Labour Theory of Value?

Who still believes in the labour theory of value, rather than the more recent subjective version? Or, perhaps there's actually a more relevant consideration: How much personal belief in a labour theory of value manifests unconsciously, instead of at an ideological level? Chances are, unconscious attributions for labour value are a stronger contributor to economic outcomes than what is often debated. One might envision the general equilibrium result as power relationships in skills arbitrage, for that matter.

Indeed, underlying assumptions regarding labour value, greatly affect how high skill human capital has been conceptualized, especially since the workplace transitions of the twentieth century. Professional groups often rely on a non tradable sector structural framework which allows human capital inputs to take precedence over the aggregate outputs of time based product.

In this instance, it turns out that subjectivity cuts both ways. Consider how a subjective theory of value in terms of product, previously benefited from direct correlation with good deflation and recognizable gains in standards of living. It made sense to emphasize the subjective reality of product value regardless of labour contribution, when progress could be largely attributed to tradable sector productivity gains. But more recently, subjectivity has become associated with societal expectations as to what quality product represents. The consequent emphasis away from baseline utility, has muddied the waters for product subjectivity, especially for potential labour value contributions. Alas, quality time based product often includes excessive inputs at multiple institutional stages, before the product output intended for consumers actually takes place.

While my impressions re subjectivity dovetail somewhat with those of the Austrian school, many such discussions feel more relevant for historical periods of tradable sector dominace. Madson Pirie reflects on Carl Menger's many contributions to subjective value, and notes:
He founded what is now called the Austrian school. His crucial insight was to recognize that price is not based on what it costs to produce goods, as traditional economists had supposed, giving rise to the labour theory of value on which the edifice of Marxism is built, but on what the demand is for them.
He adds:
...value does not reside in the object, deriving from its input, but resides instead in the mind of the observer, representing his or her estimation of its worth. 
Even if arbitrary definitions for quality standards reduced the impact of good deflation for tradable product, at the very least many forms of tradable sector product provide standard utility which can be readily discerned. Alas this hasn't proven the case in non tradable sectors, where a reasonable baseline for product utility has long been abandoned in favor of requirements which - among other things - have muddied the waters of true productivity gains.

Given the subjectivity of economic outcomes, a better utility baseline is needed for non tradable sector product in general. A better definition of basic non tradable sector utility - especially for housing and time based product options - could clear some of the present fog as to how aggregate productivity, hence potential economic gains, might once again be measured with confidence.