Friday, September 4, 2015

Market Monetarists and the Great Divide

In a recent post, Scott Sumner reflects on the market monetarist effort to make headway in public dialogue, after Noah Smith highlights a "powerful" Neo-Fisherian argument, so to speak.
Unfortunately, market monetarism is still a fringe movement, even less popular than other heterodox theories like ABCT.
Neo-Fisherian thought provides a too convenient rationale, that "normalization" can occur by means of the interest rate peg. Steve Williamson and John Cochrane in particular, have found an audience that is willing to see whether economic logic can be turned inside out. Scott Sumner was clearly frustrated in the above linked post. How could an economist from the University of Chicago, so easily dismiss the veracity of QE at the zero bound?

Like many, Cochrane is focused on an increasingly limited equilibrium which is credit driven, instead of the broader equilibrium which markets seek to maintain. In recent decades, some have become convinced that monetary policy is just another name for credit policy. Apparently, central bankers at the Fed feel the same way - given the fact one hardly finds mentions of monetary factors in FOMC minutes. Instead, there are constant mentions of the interest rate.

Indeed the idea of credit as primary for wealth origination is important for Austrians in terms of private industry, just as Keynesians consider credit integral for government's role in the economy. Further, the average citizen is exposed on a regular basis to watered down versions of these opposing poles of economic thought. Since central bankers have proven to be more concerned about credit circumstance than monetary circumstance, Neo-Fisherism appears as though a "useful" concept whose time has come.

There has been insufficient time for market monetarism to influence public opinion to any real extent, at least in the U.S. Some years earlier, it didn't appear that a broader public understanding would be necessary. But who could have known, the degree to which public opinion would also contribute to an ongoing path of monetary tightening? With a little luck, market monetarism could influence monetary policy in the next presidential election. But in this one, as Bonnie Carr recently noted, only Marco Rubio has a market monetarist adviser on his team.

Market monetarist thought has yet to benefit, from the kinds of personal associations that populations hold in regard to Keynesian and Austrian thought - even if those associations are a crude reflection of the theoretical realities. For instance it is far too easy to align internet Austrians with anti-government rhetoric, much as crude versions of Keynesian thought are associated with government interests - especially those of major cities and U.S. coastal areas. Neither of these represents a cohesive interpretation, for the vast panorama that is today's economic activity.

Perhaps market monetarism needs an identification with something tangible, i.e. a concrete image or symbol in the public's mind. At the very least, balance could play a role. Thus far, without some degree of public support and understanding regarding monetary policy, it is not clear that central bankers will be willing to act in the public's best interests, any time soon.

Even though I believe market monetarism could help bridge the divide between pro and anti government factions, plenty of obstacles remain in the way. How to find identity in the middle of opposing forces, which seek to gain strength through opposition and divisiveness? Everyone needs to take part in healing the rift between pro and anti government forces. Perhaps the next political election will have more market monetarist representation, than the coming election holds thus far.

Thursday, September 3, 2015

An Open Letter To The Governments of the World

I will try to keep this post as simple as possible. It is in regard to the Faustian bargain which many of you have made, and the wealth you share with holders of vital knowledge, by keeping much of that knowledge artificially scarce.

Did you not understand how that would eventually distort the world economy? How could you not have known what was happening, as traditional production became less important than service formation in recent decades? Worse, did you not fully understand how your complicity in the act of restraining knowledge use, would eventually make it impossible to help either your own citizens or those of other nations? Would be refugees are struggling for their very survival, yet nations have not nurtured their own human capital, so as to be able to make room for them.

For more than two years I have tried to explain, how the services marketplace suffers from artificially limited knowledge use. Should these limits on knowledge use remain intact, nations will only become less inclined to leave their doors open to other nations. While this is also true in terms of free trade, it is particularly true in terms of social mobility and immigration. Here in the U.S., people appear as though more adamantly opposed to immigration by the day.

Anyone who is dependent on artificially restricted knowledge is perceived as a "burden", if they are not also being compensated for high skill levels. Think of the "burdens" all over the world, the needless devaluation of human spirit and initiative! Just because millions of people are not fortunate enough to hold advanced degrees, they are perceived as incapable of helping anyone, let along themselves!

Why did nations and their peoples needlessly inflict this psychological damage on themselves? Who is willing to accept more immigrants now...immigrants like so many marginalized who are perceived as further demands on already stretched to the limit healthcare systems? No one! How many more will have to wash up in the surf, such as the young Syrian boy, before governments finally figure this out?

What purpose for governments to "immigrant shame" one another now, when each nation would just as soon not have to deal with the hardships of other nations? For a long time I've kept my emotions out of the immigrant debate. But then the news showed those horrific images over and over again, even though few seemed to want to talk about it afterward. And then the frantic family at the train tracks, who panicked at being held in a containment camp for who knows how long...

This is no time for governments to hold up scorecards or make one another feel guilty for the immigrants they don't want. Too many governments have been complicit in knowledge use restrictions which have made a travesty of vast human capital potential. This, even as millions have invested everything they have, just to gain economic access. Instead of making a place for many of these individuals, governments and special interests alike have profited off the process of economic access, and the constant struggle of humankind just to participate in the human act of assisting one another.

Everyone deserves a better reality than this. When governments enrich themselves by restricting access and the rights to services production, populations are left helpless. Not only are too many citizens left without meaningful work, budgets are also becoming stretched to the point that governments will no longer be able to provide services to the public. Even though it is extremely difficult for me to watch fellow citizens insist on building walls to keep others out, I understand why they think it has become necessary to do so.

In the U.S., limits on knowledge use and the services marketplace has divided the political parties beyond reconciliation. This is hardly the circumstance that anyone could have imagined, even a decade earlier. There is still time to turn this slow motion train wreck around. Find means by which to broaden knowledge use, and the services marketplace it makes possible. Find a way to give human capital the respect it deserves in a 21st century economy. Just do it, while there is still time.

Wednesday, September 2, 2015

Some Musings on Municipal Planning

In response to a recent post from Alex Tabarrok regarding urban planning, Arnold Kling wonders whether the process is still being explained in terms that are too simplistic:
Planning is something that never stops...How do you adapt a city to new circumstances?
New circumstance exist in several dimensions as well - some of which remain confusing because they are in need of internal generation, even if a charter is involved. Tabarrok's post touched on a recent interview with Paul Romer, regarding his own work in urban planning assistance. What are some differences between urban planning in general, and charter cities? Paul Romer provides an explanation from the relevant blog post.
A charter city is like urban expansion but some aspects of how the city will be run can be specified before anyone arrives. This gives the organizer of a charter city the opportunity to implement reforms that are difficult to implement after people are already in place. The name charter refers to the charter that William Penn wrote for Pennsylvania. This charter said that this new place would implement a separation between church and state and would always respect freedom of religion. With this charter in place, he could recruit people who wanted to live in such a place.
Recall that knowledge use systems - and their associated local corporations - would include characteristics of charter formation. Uncertainty regarding new circumstance is doubtless a factor why charter cities haven't gotten enough traction. Even so, those with the means to invest are not necessarily the ones who want - or need - to start over. Many who would benefit from new circumstance for working and living, may not necessarily have the financial means to make a new start. This has bearing why time value is needed as a valid component for investment - not just for personal service needs but those of community as well. Indeed, it would be difficult to participate in planning processes for new community formation, if one cannot generate resource capacity which would be useful for others.

Present day city formation in developing nations, tends to follow standard formulas, which mostly reflect twentieth century development. Many ideas for charter city development are presently in a theoretical stage. As Arnold Kling noted, changing circumstance will be an ongoing part of the process in the years ahead. The fact that the marginalized are the ones who would benefit most from new circumstance, yet are not actively involved in ongoing dialogue, has bearing on why many ideas in this blog are simply exploratory functions right now.

Paul Romer noted in the above linked interview that a "quality city needs a substantial amount of public space if it is eventually to support high density." This would also be true for any knowledge use community with inherent geographic qualities which make it a desirable location for the long term. Further, time based investment would likely augment the pleasant features that already exist. Communities such as these would come with recognizable time use "pricing" imprints to choose from as well, instead of standard taxation or fees. The fact that population densities would be closely aligned for walkable communities in particular, means more public space would be spaced alongside private use areas as well.

Often, in the past, communities were built around locally available resources which were treated as a centerpiece of group organization. For the most part this form of organization has been relatively informal, but there have also been examples of top down dictates which failed on more personal terms. Even so, much about knowledge use systems also involves organizational patterns which initially appear complex. How would they not come across as top down dictates?

Knowledge use systems would utilize services as a centerpiece of time organization, but in ways that allow individuals to set their own schedules with one another. The systems might evolve along two different templates, depending on whether they originate in already existing municipal surroundings or begin anew in areas with low population density. As to new community locations, Emily Washington recently penned an apt reminder, that today's infrastructure does not have enough options in terms of what people actually want from their environments.

Today, many individuals who would like to live among other individuals with similar lifestyle preferences, are geographically separated from one another, with little more than the forms of social media they have in common. Further, many who attempt to carry out alternative infrastructure on their own are often discouraged by local municipalities which adhere to strict codes. Eventually, domestic summits could help more like minded individuals find one another, in a process that would mean the beginning of new communities for those who need them most. Future posts will get into more detail, as to some of the charter conditions which would inform these communities at the outset.

Tuesday, September 1, 2015

Don't Use "Materialism" As An Excuse to Cut Growth!!

Justin Fox, in "Maybe This Global Slowdown is Different", debates whether the world will see a return to the earlier economic conditions which existed all too recently. And then he added something which made me cringe, because it was an argument I did not expect to hear from someone so well respected:
Still, I can't help but thinking (perhaps wishfully thinking) that what we're seeing might also be the beginnings of a plateauing in the world's demand for things -- and, even more, the resources needed to make those things.
Maybe I need to find a blackboard - do they still have those in schoolrooms anymore? - and write on it one hundred times...we're not ready, we're not ready, we're not ready! Anti materialist attitudes are one of my primary concerns. Even though much of the services marketplace continues to rely on the wealth of traditional production, this incredible dilemma has yet to be addressed. Check the growth in services as compared to the decline in goods between 1950 and 2014, in the above link. Does anyone think that more services will continue to be funded by high income consumer spending on goods, so that lower income levels can still access services?

It's one thing for someone who is financially secure to disavow materialism, sell everything they own in one giant yard sale and travel the world. I know I would if I could. It's altogether another for those who have not even gained economic entry - who have yet to even benefit from the economic stability which materialism provided for so many in the twentieth century. People in Washington knew this moment was coming, for decades. Grrr...

Why did Washington not address the need to generate a services marketplace which is not completely dependent on the wealth creation, i.e. materialism of "things"? The fact they did not, has reduced public confidence in politics, macroeconomics, and also the Fed, as (practically) everyone mistakenly encourages them to pull back the throttle till doomsday.

The fact that a continuing strategy for long term growth was never addressed, has certainly made my "autumn years" a lot more complicated. Life would be far more zen if I were tending a beautiful cottage garden, instead of questioning my (remaining) mental capacity at a computer keyboard. Plus, the Fed has turned its back on hard won monetary knowledge from the years of the Great Depression, because no one cared enough to nurture long term growth potential before economic output was lost.

Time value has the potential to become a useful and inspiring economic good - one which could greatly assist these times of historical transition. A marketplace for time value, would make the transition away from materialism - if indeed that is what the elite now deem "appropriate" - less of a bumpy ride than it now appears. I'm still not happy about this rationale at all, because it seems too self serving. But what do I know?

At the very least, policy makers could recognize that people need to be economically connected, in order to remain fully functional. Without a marketplace for time value, less materialism still means fewer jobs, overall. Even those who may not choose to go shopping for "stuff", still seek the experiential and pragmatic products of time based knowledge if they have the means to do so. Will anyone in the decades ahead make it possible to generate these for all income levels? All I can do is hope for the best.

Monday, August 31, 2015

Wrap Up for August '15

While watching the excess volatility in the stock market this month, it wasn't difficult to imagine that some people wanted the carnage to continue! Who remembers the "toughlove" concept? Do people have toughlove for the economy...much as they might for other individuals? Only consider what people believe "should" happen economically, depending on how they interpret events - such as a commenter who inspired Bonnie Carr to start her market monetarist blog, several years earlier.

At first glance, one would get the impression that economic toughlove is little more than letting the chips fall where they may. Hence tight money advocates tend to welcome losses on Wall Street as "needed corrections", in spite of the cause. These are also the individuals who are happy to witness widespread economic deflation, and somehow manage to convince the poor that they benefit as well. Others of us who think toughlove is about creating a stronger and more durable economy, are not quite as easy for the general public to understand. Something needs to be done about that...

Fortunately, some observers with a broad audience, represent toughlove in a more reasoned context. James Pethokoukis, for instance, notes that Republicans are missing their chance, as "the GOP plays with Trumpism", to shape a new economy.

John Cochrane takes a closer look at Rule of Law in the Regulatory State

The biggest driver of increased costs is public employees and retirees. "Growth in health spending is crowding out state and local spending for other services."(Austin Frakt, The Incidental Economist)

Lorenzo reviews the history of long distance trade:

Just what is a recession, anyway? (Nick Rowe)

Instead of lower income levels living in areas they cannot maintain, or expectations for them to live among wealthier groups, why not gain their input to generate settings they have the capacity to maintain.

The healthcare system is not working:

Cities as "disruptors"?

"But why is Labour trapped by a dysfunctional faith in leaders?"

Local innovation for local problems: "Back to Fundamentals in Emerging Markets"

Always good to post this link again - David Hume, "Of Money"

For once an article from Larry Summers which market monetarists could appreciate:

The day the "dollar bloc" fell apart...Lars Christensen provides a much needed reminder

"Before thinking about why the labor share has fallen, it's worth thinking about the remarkable fact that it didn't change for such a long time."

Evan Soltas in "What Ails the American Startup?" writes, "The startups aren't that much worse, essentially, but the economy is much harsher towards them...The decline in new firms seems to be driven by changes that are making new firm survival more difficult in general, not just a decline in the cohort size itself."

Emily Washington (Market Urbanism), in "Engineering in the Dark", writes, "Infrastructure is often built based on shockingly little information about the demands of its users. And while poorly reasoned infrastructure policy in one city is bad enough, the United States' broad adherence to poorly reasoned policies has resulted in a nation in which swathes of neighborhoods are built on poor design foundations."

An article from the NYT that the Fed should "show some spine" and raise rates? Unfortunately, William Cohan interprets that the interest rate is determined by the supply and demand for credit. Paul Krugman sets Cohan straight.

Sunday, August 30, 2015

Economically, How Do We "Make Room"?

Though I write about the possibilities all the time, it is with an awareness of the difficult questions which remain, regarding economic access. Like so many, I can point to something and say "that is not working...this could work", but how do I know? Some things in life are easier to pin down as "obvious". For instance, it is mind boggling to me - as a market monetarist - that central bankers do not wish to adhere to a level nominal target, to generate monetary stability. Doing so would at least leave room for the economic commitments which individuals already seek to honor among one another.

It also seems obvious that populations need to make room for knowledge use at a broader scale, to maintain long term growth and economic stability. Unfortunately, the response to a slowing world economy has been quite passive, and there are far too many excuses that future growth is no longer possible. In spite of problems which stemmed in part from the progressive era, many then were pursuing visions which also became important elements in the economy. Today, the desire to generate economic participation has gone into reverse, particularly as conservatives and progressives alike question "materialism" as a driver of wealth.

Materialism is not the problem in all this. Cutting back on various forms of consumption is a personal choice, which is already being affected to some degree by a lack of housing. Besides, too many around the world have yet to experience materialism enough to maintain the necessities of life. Further, the uncertainties about future employment in developed nations, also matter for developing nations which need new strategies beyond traditional production as well. In all of this, time value needs a place alongside skills value, so that economic access remains possible. Why has it been so difficult to envision the nature of time value, as economically viable?

Even straightforward efforts to "make room" through traditional means, are meeting resistance from those who have substantial property values at stake. Some recent arguments to make more room in the cities are reminiscent of arguments from Henry George. I've read more than 400 plus pages thus far of "Progress and Poverty" in recent months, but remain dissatisfied with his arguments for land taxation as a broad based solution. When Henry George observed that not everyone would be allowed into the city, he reasoned that the wealth of land could somehow be redistributed to those who were denied economic access.

One problem for me in this regard, is that land use does not quite appear to be the wealth generator it once was. In recent years there has been plenty of discussion to build higher population densities in sought after cities. But even if this were possible, would cities be able to accommodate newcomers with work, given economic conditions as they exist now? The U.S. is not the only nation with these problems. Paul Romer writes:
The people who work in the global-developing-consulting-complex seem to develop a hard wired commitment to the containment paradigm: governments should contain the size of cities. This means that governments are supposed to create an artificial scarcity of urban land.
Those who have kept up with my writing know that I liken this artificial scarcity of land, to the artificial scarcity of knowledge use, in that they are relatively accurate monetary reflections of one another. As it stands, governments probably do respond to the requests of city populations, to make sure that already generated wealth can remain as intact as possible. It will be interesting in the years ahead to see if cities can make room for the ones who still seek access. Paul Romer hasn't had much luck with charter cities thus far. And even though I dream of mini charter city versions for knowledge use systems, the question as to how populations will make room for their own, may take decades to answer.

Saturday, August 29, 2015

Knowledge Use Systems: Symmetrical Underpinnings

This post is mostly a consideration of some theoretical constructs that are important to me. Hopefully these thoughts will assist any new readers who may have experienced difficulties, in trying to determine what underlies my work. In two years of blogging, the symmetry theme has come up frequently. Still, I have yet to come across other areas of economic thought with a similar approach - particularly in terms of labor force participation aggregates.

First, I need to explain how my contextual idea of symmetry is different from symmetric equilibrium as expressed in monetary terms here. Robert E. Lucas, Jr. in "Collected Papers on Monetary Theory" stressed a symmetric equilibrium as one in which "all producers choose the same strategy, and all consumers get the same fraction" of the goods available at a given price.

The symmetric equilibrium as stated by Lucas also reminds me of the one price "law" and something interesting about government in this regard. Non tradable economies exist in tension with tradable and global goods production, in part because local conditions play havoc with one price (hence democratic) concepts. If that were not enough, governments try to enforce one price circumstance, despite differences in local monetary flows which leave unique imprints on local service structure (availability) and asset formation.

Hence the oddity of minimum wage floors tailored for city conditions, planted in the outbacks of wherever - at least in the U.S. But that is only where "one price" problems begin, given government's propensity for subsidized services first subjected to special interest requirements. The above referenced symmetric equilibrium exists, but it is mostly a NIMBY equilibrium which is perfectly happy to function with little further growth or inclusion. This "let's don't change a thing" approach has also done some serious damage to central banker monetary logic. Without a marketplace for time value, symmetric equilibrium does not have adequate means to encourage full labor force participation. As many readers are aware, this is the symmetry I am most concerned about.

From here I'll construct my initial thoughts for this post. Symmetry - as expressed above - does represent spontaneous economic coordination - up to a point. After that, equilibrium becomes murky, and economic access becomes limited or otherwise informal. This is to be expected, for a tremendous amount of resource coordination has already occurred which follows the patterns of external (global and tradable) wealth generation. In other words, each addition or component of GDP is incorporated into previous patterns through asymmetrical flows. Where it is not possible to maintain economic diversity through these externally driven flows, wealth generation could also utilize the internal coordination of time aggregates, as a starting point.

Internal coordination would provide an immediate and recognizable symmetry, through matched services time. This organizational method holds promise not just in terms of new wealth for human capital, but also for purposes of accurate representation of services and knowledge use activity.  Skills capacity is asymmetric and normally compensated as such. However - through the symmetric means of local organization - a greater degree of knowledge capacity can be preserved, alongside full economic representation at the same time.

So I will suggest a symmetric theoretical interpretation, which relies on human capital additions to wealth creation. This contribution can be measured in time based (hourly) units and accounted for directly as a monetary component. The asymmetric approach to skills compensation would normally not be problematic, but too much of it has hidden government subsidies which have led citizens to question democratic processes in the U.S. For instance: even though many citizens do not question the authority of physicians, they do question the right of governments to apportion taxpayer funded physician time to those who do not have the means to pay, which only exacerbates supply side limits in this regard.

Even though physicians can hardly be expected to make dramatic changes for supply structure in primary equilibrium, some would have the time and ability  to assist in efforts to generate alternative equilibrium for knowledge use. Doing so would relieve the work and government deficit pressure of all concerned. Even though additional wealth formation would not compare to normal high skills compensation, doing so is not the point. Rather, individuals would be compensated for their time and efforts in assisting one another - a valuable societal contribution indeed, as voters and central bankers alike clamp down on efforts to extend present day economic conditions to those who still seek access.

Local knowledge use systems would also provide a more precise monetary option than is possible through credit formation, even though the process would take decades to develop. This monetary stabilizer could also begin the process of restoring the output level which existed prior to the Great Recession. A primary benefit for monetary policy, is that a time based symmetrical approach would be accountable at the outset, for its contributions to economic conditions.

Also, knowledge use systems would legitimize informal capacity which extends beyond one's immediate family and friends at local levels. These systems would allow small groups to envision the processes which exist between monetary representation and the efforts which individuals extend to one another for services and other forms of production. Because the wealth creation is contained in a complete cycle of local asset formation and services production (non tradable goods), local processes can be set into motion which over time would relieve the pressure between non tradable and tradable sectors of the economy.

Doing so would erase some of the confusion which now surrounds government economic participation. Even though asymmetric compensation for valued skills sets is highly logical, so many knowledge based services are government compensated and subsidized, that system wide imbalances have resulted which now affect the outcomes of bond formation. Further, what appears as problems in productivity, can also be attributed to the fact that too much redistribution occurs which cannot be directly attributed to knowledge based product.

Knowledge use systems would seek to redress these problems. Not only would the confusing asymmetries of time aggregate utilization gradually decline, but also the need for debt accumulation of asymmetric services compensation (and its associated asset structures). Symmetric compensation would allow individuals to purchase time value through their own quantitative time, rather than the unknowable depths of specific skills values. The result would be a product which is worthy of direct monetary representation, albeit of a limited nature. Most important is the fact that millions would once again have a foothold in the economy by which to expand their horizons.

One way to sum up my perspective on future growth potential, is this: many important forms of knowledge based services have natural growth limits when they are constrained by secondary and asymmetric forms of compensation. Once any society reaches a certain point of maturity in terms of traditional production, asymmetric skills compensation - and the asset formations this approach relies on - can contribute to tight monetary conditions around the globe.

Several aspects of recent economic circumstance should give anyone pause. For one, services growth has been more important in developed nations for GDP than other forms of production for decades. Not only do developing nations expect services to eventually outpace traditional production, but many nations utilize a high expectations consumer framework by which to expand services further. Alas, these government directed consumption strategies are reaching natural limits. Consumers now need greater roles in their own destinies. Many groups need the options of both direct services formation, and the ability to define consumption (and infrastructure) needs in multiple environments.

Will nations be willing to accept these realities? Future growth depends on it, and symmetric services formation would make more accessible forms of growth possible. In the past, services depended on the secondary support which traditional production made possible. Many institutions were once able to reward high skill levels through concentrated resource means. But now, representatives of the supply side must recognize the fact they need to expand the definition of growth potential, in order to maintain economic stability across all sectors of the economy.