Sunday, November 19, 2017

The (Platform) Future is What We Make It

According to Tim O'Reilly's new book, "WTF: What's the Future, and Why It's Up To Us", that future could either bring amazement or dismay, depending on how we respond. In his interview with James Pethokoukis of AEI, O'Reilly notes that - to some extent - platforms are "designed economies", then adds:
And we have been coming out of a period in which we kind of act as if the market is a natural phenomenon.
Platforms "optimize" for different purposes. For instance, O'Reilly explains:
We understand Google says optimize for relevance, Facebook says optimize for engagement, our financial markets - what do we tell them to optimize for? - optimize for corporate profits, that treat people as a cost, to be eliminated. So, are we surprised at what's happened in the economy? What if we made different rules for that algorithm? 
For one, I'd suggest that eliminating for unnecessary labour costs isn't necessarily as personal as his quote might be interpreted. After all: Labour costs are connected to organizational patterns in ways which go well beyond specific algorithms. What's more, these patterns are essential components for centuries of progress, in the tradable sectors where labour is recognizably secondary, to the ultimate or final product.

However, the dictates of our non tradable sectors need to be reexamined - particularly where time based (or centered) product is at stake. Is it possible to use knowledge in a context where we optimize for time value? Should we seek economic environments which need not subtract human capital due to budgetary constraints, we can do so by giving an economic dimension to the time value that matches our personal priorities and preferences. Since this time value would be defined via its own (mutually determined) resource capacity, it could generate a decentralized equilibrium that responds to the "different rules" O'Reilly suggests.

Time value that coordinates for time based product in relation to existing capacity, would also provide a new organizational algorithm - one that doesn't need to subtract labour costs for economic outcomes. Meanwhile, where skills capacity is deemed most important, those most likely to preserve their workplace participation in spite of costs, will be the ones with sufficient societal prominence so as to do so. And even these groups would only be able to preserve their skills capacity for a limited marketplace in terms of time based product.

How might one think about the creation of platforms that could generate new wealth via different means? Shane Parrish of Farnam Street, brought to my attention a Rolling Stone article including Elon Musk, and Parrish highlighted this quote:
In other words, if you want to create or innovate, start from a clean slate. Don't accept any ideas, practices, or standards just because everyone else is doing them. For instance, if you want to make a truck, then it must be able to reliably move cargo from one location to another, and you must follow existing laws of physics. Everything else is negotiable, including government regulations. As long as you remember that the goal isn't to reinvent the truck, but to create the best one, whether or not it's similar to other trucks.
Similar suggestions might apply for knowledge use system platforms, from their physical constructs to their digital dimensions. Again, it's not necessary to reinvent the practical or experiential use of knowledge, but to encourage new patterns that are more accessible, for those who are currently caught in the "do or die" circumstance of limited knowledge use access. Knowledge use organizational patterns which mostly select for the "best of the best", are scarcely enough for the wealth potential of human capital. The platform future is what we make it.

Friday, November 17, 2017

Democracy's Recipe: Consumption as a Privilege, Production as a Right

I decided to state the main point of this post upfront, to make certain it wouldn't be missed. Among the many concerns of this nation's founders, was the possibility that citizens' rights to produce basic necessities and services - which they were still free to provide - might eventually be undermined through legislation. Indeed, the ability of those early citizens to work directly with a wide range of resource capacity, was a major consideration, re why a (fledgling) democracy proved viable in the first place.

Many production rights have been lost so slowly and imperceptibly, that it's no simple matter to trace the histories of what has taken place in this regard. For that matter, many believe that regulations matter insofar as they affect the options of private industry, rather than the economic and social choices of private individuals. Nevertheless: The regulatory requirements of today's building codes - not to mention the extensive requirements for knowledge use - stand in the way of much that individuals could otherwise provide for themselves and others, since special interests now encourage local marketplaces which mostly cater to higher income levels.

Equally problematic: Many individual production rights were undermined in ways which can lead to an unfortunate rationale of lost consumption rights (think "rights" to healthcare). What's more, should anyone insist on rights to healthcare, others will view this as an unfair imposition on taxpayers as a whole. From here it's a quick slippery slope to arguments that democracy isn't a suitable form of government, as Will Wilkinson highlighted in "How Libertarian Democracy Skepticism Infected the American Right".

Before the current emphasis on cost containment in healthcare, many groups made efforts to increase marketplace capacity for all concerned, but these efforts mostly turned out to be additional resources for supply side capacity as it was already structured. These efforts also led to more firmly entrenched fiscal roles to subsidize healthcare - a burden which can only be (presently) relieved through gradual reductions in marketplace capacity.

It has been tempting for governments to make production rights a privilege for special interests, particularly since this also allows them to tap into the wealth capacity of these groups at local levels. However, government indebtedness for healthcare - in part because of retirement obligations - now means little room is left for discretionary responses in other circumstance.

While it could be tempting for some to do away with democracy, disallowing the poor to vote would hardly reduce the government debt loads which still lack long term budgetary solutions. Regular readers are already familiar with my suggestion for long term debt reduction: restore production rights to citizens. Not only could a supply side response remove the confusion about consumption rights, it would reduce the chances of debt becoming democracy's downfall.

Tuesday, November 14, 2017

Skills are Merely Subsets of Aggregate Time Value

Why should it matter? When we focus solely on specific skills, we miss the potential of aggregate time value as an adaptive response to the shifting economic circumstance of the present. And while specific skills tend to reflect specialization as well, non specific skill sets are more applicable to generalization, yet both can "exist on the same continuum". Indeed, the "generalized specialist" may be one practical approach.

Aggregate (or complete) time value - given the diverse options it suggests - contains the potential of adaptive responses for individuals and groups alike. The more flexibility we allow ourselves for personal time management, the less economic risk we ultimately face. Nevertheless, it's one thing to take on diverse monetary investments to reduce risk, and another to make diverse commitments for our time priorities. For more than a century, the majority of us have learned to dismiss skills and time use diversity as a reasonable option. But is it still rational to do so?

When we accept compensation for specific skills sets over a long duration, other valuable parts of our lives can slip away from us. Employment on these terms has never been as flexible - for instance - as the schedules of the farmer, the small business owner or CEO of a corporation, or even the varied routines of those who work from home. And when highly valued skills take precedence over a wide range of practical skills, the result is societal imbalance, between our most useful versus our most highly valued functions. As individuals and groups lose the ability to coordinate time based priorities, they eventually lose the ability to adapt and thrive, as well.

In the twentieth century, the opportunity costs were often minimal, when we gave up our personal time preferences for the skills priorities sought by our institutions. Nevertheless, this scenario is already changing, as automation and technology begin to substitute for what have often been extensive skill commitments on our part. Fortunately, defining the value of our time preferences in economic terms, is a good way to frame our personal priorities in a context not unlike employer priorities, as firms continue to replace labour with automation and technology.

Personally defined time value could also serve as a valuable economic unit. After all, it is much easier to quantify what we want to provide for others, and what we seek in terms of time commitments from others, than it is to quantify the actual interchange of skill capacity in a wide range of current service contexts. Even though it's difficult to define the level or value of skill we need from others in specific instances, we can readily quantify the time we exchange with others. Given the fact today's services have become so difficult to quantify in terms of output, a simple quantification of time commitments would be a considerable step forward. A better understanding of the true potential for services output, is no small matter.

Sunday, November 12, 2017

When Signalling Becomes the Main Economic Option

Is education "overrated" as a social and economic signal? Even though college comes with a high cost, there's few other valid platforms for knowledge use, across a wide spectrum of economic activity. The fact so many choose the signal of a college degree, is also a reminder that not everyone can successfully opt for self employment, as well. One of the more unsettling aspects of economic stagnation, is that so many need to compete for what has become limited versions of a knowledge use platform in developed nations, especially given the monetary tightening that took hold with the onset of the Great Recession.

If more substantial economic options were already in place - options which could also make signalling less important - I wouldn't need to question the premise of Bryan Caplan's latest book, "The Case Against Education: Why the Education System is a Waste of Time and Money". The Amazon book review details "why we need to stop wasting public funds on education", and concludes:
Romantic notions about education being "good for the soul" must yield to careful research and common sense - The Case Against Education points the way.
Apparently his book is timely, if in fact some states are already contemplating dismantling their public universities. Given the fact Caplan supports free markets, however, his reasoning appears incomplete in a larger context. Has he considered the extent to which valuable human capital could be lost, without concerted efforts on the part of private industry to bring more knowledge and participants to 21st century workplaces?

And this is just a consideration of knowledge use in its most pragmatic forms. What about learning for the love of learning? Is not education which is "good for the soul", also good for our economic health - not to mention the real wealth of experiential product? By dismissing public education out of hand, Caplan must believe that economic progress would continue as before, only with less government support. Nevertheless, the best way to ensure continued economic dynamism, would be to generate better private means for economic access and participation. In other words, instead of taking something away, create something better. If private industry creates viable options which integrate informal education as part of their structure, populations would then have less reason to expect public education as a mandated requirement.

By itself, an argument to cease governmental support for education is a closed argument, which would quickly result in a more stratified society than we are already experiencing. I believe that thinkers on the right would gain more positive traction with citizens, by arguing for new and better platforms of economic and social engagement, which could ultimately reduce the incentive to maintain expensive forms of economic access. After all: Just as it is better to have a job in place before leaving an old job, it is better for a society to have new economic plans in place, before assuming the old plans deserve a stick of dynamite.

Friday, November 10, 2017

Are Non Tradable Sectors Capable of Exponential Growth?

In a sense the answer is yes, if one takes into account the potential long term gains for knowledge use and asset ownership which are linked to time and place. Nevertheless, these growth possibilities aren't exponential in the direct (measurable output) sense of tradable sector activity, since some of these technological and organizational gains would not need to be expressed as monetary expansion. In any instance, non tradable sector growth potential, as contrast with more obvious output from tradable sector growth, is relative by comparison. It is also this relative nature that has allowed knowledge providers to obscure the amount of input that has been necessary thus far, to achieve final product or output.

Also important are the "unseen" technological gains that are currently discussed, although with insufficient emphasis on the sectors involved. These gains particularly matter insofar as their non monetary nature should not be rationalized to reduce monetary representation, given the actual responsibilities that economic participants hold. And the same rationale of economic growth from "unseen" technological gains in today's consumption, would hold for future production gains, once they are finally able to accrue to individual production choices. One could also emphasize that technological production gains for all potential producers, are more important (economically) than the current "quality of life" consumption gains for consumers.

Consider why this matters. Today's economy remains stagnant in part because technological support for production capacity is being held back, in relation to technological support for discretionary consumer gain. Yet it is discretionary production gains, which allow individuals to bear responsibility for their own economic participation and access.

The monetary aspect of these supply side circumstance is important as well. Just as we don't need to subtract monetary representation from GDP for the non monetary consumption which results from today's technological advances, neither would we want to add or subtract from GDP, the non monetary technological production gains which could potentially accrue to citizens. Why? Again, the primary stabilizing purpose of GDP is to express the full nature of our monetary commitments to one another. Those economic commitments are for the time and product we either produce or consume, which comes with a financial cost.

Now I need to get more specific, as I wanted to highlight some incremental growth possibilities for the near future. Housing potential is the best and also most accessible example. Even though mass production of housing components is an example of exponential growth possibility over the long term, component production would nonetheless be limited (relatively speaking) in the short term by the actual physical locations in which people can live and work. However, there are a number of ways in which flexible housing components could contribute to economic growth at a higher rate than ownership of traditional buildings.

Replacement capacity is a major source of potential marketplace expansion, because inexpensive flexible housing components would allow individuals with limited income potential to replace older components which no longer function properly. They could be constructed so as to easily snap together, and they would include basic central units which already contain mass produced electrical and plumbing. Building component innovation such as this, would make it much easier for individuals with limited income to replace poorly functioning component units during times in their life when their resource capacity is particularly limited.

Indeed, one of the main problems for traditional housing, is that the fixed and solid nature of houses makes it difficult - for many on fixed incomes - to replace plumbing and electrical elements which have outlived their usefulness. Only recall this occurs too often for many who have long owned their homes, but now rely on social security as a sole source of income.

Component flexibility is important to maintain dynamic and responsive retail or workplace settings as well. Much of today's capital risk involves decision making processes regarding consumer wants and needs, which have become more difficult to "pin down" in recent decades. All too often, business ownership involves unnecessarily high risks, due to the fixed nature of building requirements. Flexible building components would reduce ownership risks so that more aggregate income can remain in play for shifts in business and educational endeavour at local levels.

What about the growth potential of knowledge use? Technology's best long run potential for non tradable sectors, would be in the form of decentralized organizational patterns, where economic time value can overcome the normal constraints of supply side knowledge use capacity. By way of example, knowledge as value in use with time value as the primary economic unit, would allow young students to participate in educational platforms which are wealth building, instead of wealth demanding. Time arbitrage would allow students to turn learning experiences into sources of (gradual) economic stability and human capital investment.

As economies grow, non tradable sectors generally follow the equilibrium creating dynamics of tradable sector activity, which are the primary movers of exponential growth. Recently, however, tradable sector activity has not had the chance to build additional wealth capacity in developed nations. Non tradable sector activity - by using resource capacity to generate wealth directly - could provide the additional impetus to tradable sector capacity which would allow it to resume a stronger growth trajectory. By reducing dependence on tradable sector wealth as a source of revenue, non tradable sectors could eventually reverse the trend of economic stagnation which has been with us since the Great Recession.

Wednesday, November 8, 2017

What Do We Want Taxes to Accomplish?

Perhaps this question hasn't been asked often enough. Yet it seems pertinent now, given the fact Republicans struggle to implement tax changes, given differences in preferences which make it difficult to reach consensus. What happened to all those discussions about the dynamism of a limited government?

From an outsider's perspective, Republicans often appear to be united in their desire for free markets, especially as they acknowledge anti-market forces among Democrats. Yet the internal divisions among Republicans in this regard, have actually existed for some time. In "The Social Transformation of American Medicine", Paul Starr wrote (page 419):
But conservatives, like liberals, have trouble carrying out an ideologically faithful policy; they too have interest groups to worry about. The insurance companies and medical profession have shown relatively little enthusiasm for the conservative program of intensified competition. And while the doctors and hospitals welcomed relief from regulation, they could not be entirely happy about plans to reduce the federal aid they were now accustomed to receiving. Cutbacks bring constraint, and competition does too; strong organizations take over the weak. And, as one president of a county medical society said at an AMA meeting soon after Reagan took office, "Our mentor has always been Hippocrates, not Adam Smith."
A similar subsidy "logic" seems to be in place for mortgage interest deductions as well. One almost has to wonder, given the continued relevance of the above quote: Could institutional ambivalence be part of a slippery slope which leads to authoritanism?

Another passage in the same chapter of Starr's book is still relevant today, given renewed hopes of encouraging economic dynamism by reducing licensing requirements. While many of us admire Milton Friedman's courage to encourage broader use of knowledge in the marketplace, Starr nonetheless wrote, "Although a few devotees of the free market, notably Milton Friedman, criticized the medical profession as a cartel and called for the abolition of licensing, this was primarily an intellectual amusement. No one seriously tried to carry it out."  Alas, this quote serves as a reminder, how many aspects of non free markets will likely remain firmly entrenched, in the economic realities of middle to upper income levels in the years to come.

Hence more than government size appears to be involved, when it comes to economic dynamism. What we want taxes to accomplish, and what they often end up accomplishing instead, tend to be two different things. If this weren't enough, gaining the revenue from taxation is pretty much an open ended game, depending on which party is in power. Why would anyone want to define optimal taxation, given those circumstances? And since few but the most diehard of libertarians has really explored what taxation might best accomplish, most anything is up for grabs in terms of the revenue sources that governments might seek. Why lose sleep over the craziness of the latest government grabs, when we've basically tuned out the craziness which came before? One is reminded of the old saying:
Don't tax you. Don't tax me. Tax the fellow behind the tree.
Among the quoted newspapers in the above linked article, one noted the issue was "solved" by Congress, when they taxed the tree as well. I had to laugh when I read it, since such an approach sounds suspiciously like present day proposals to tax robots! Oddly, these unusually honest quotes - which readily bring to mind a child's game - also speak to the fact many groups wouldn't be happy with tax simplicity, since "deserving" special exemptions would no longer be possible.

Even though it is mostly an intellectual exercise to consider what we want taxation to accomplish at state and national levels (given the various vested interests at stake) it's a perfectly valid question for economic dynamism at the margin, via defined local equilibrium for non tradable sectors. Yet time value as a new point of wealth origination, could build what is normally generated via tax support, into local ownership structures. This would be a more rational approach for individuals whose limited resource capacity means representative taxation is an expensive luxury, in the open ended nature of general equilibrium.

Consider why general equilibrium representative taxation (for lower income levels) has become such a luxury, in recent decades. Unlike the earlier forms of government subsidies which reinforced marketplace growth and greater economic inclusion, today's government subsidies of time based product - by their very nature - reinforce growth limits and the dominance of economic exclusion, instead.

These twentieth century arrangements stemmed in large part from a public desire to subsidize markets for the greater use of knowledge. However, knowledge can't be subsidized as a dependent marketplace, without turning a considerable percentage of high level skill into an exclusive commodity. Indeed, the incentives of knowledge providers to limit knowledge use in these circumstance, aren't "evil". These individuals are simply working with the constraints - or the limited revenue sources - of their secondary marketplace dynamics.

It's also important to understand this rationale, given regulations which have also originated as sources of cost containment. For instance: In a recent Econtalk on "permissionless innovation", Russ Roberts and Michael Munger wondered why something as illogical as a certificate of need should be "necessary" to get things done. Decades earlier, however, establishing certificates of need was often the only "solution" that everyone in Washington (and consequently the states) could agree upon, for cost containment. Again, Paul Starr wrote about certificates of need in "The Social Transformation of American Medicine" (pages 398-99):
The interest of state legislatures was plainly cost control. However, the main inspiration for certificate-of-need came from the American Hospital Association and its state affiliates. The hospitals, anxious to avoid other forms of control, stood to benefit from the limits on competition that this sort of regulation would create. Opposed were profit-making hospitals and nursing homes and some state medical societies, which objected to anyone but doctors regulating medical services. However, state officials, labor, and business accepted the argument that capital regulation would be an effective means of cost control.
Before the decades when healthcare became such a substantial proportion of our nation's GDP, there had been considerable hope that the marketplace could be expanded to serve not just upper and middle class citizens, but lower income citizens as well. However, had physicians and hospitals taken the approach of an expanded marketplace which relied on oft limited revenue sources, these groups would have inadvertently watered down their sources of general equilibrium revenue.

Ultimately, taxation can subsidize knowledge use up to a point, such as what the twentieth century made possible. Unfortunately however, these knowledge use subsidies are mostly available for the (possibly 25%) level of core employment groups which can effectively reciprocate for the mutual societal commitments involved. My concern is with the growing numbers who will not be a part of this core level of employment in the foreseeable future, which might come to represent as much as three quarters of the population in the U.S. For these groups, a different approach will be needed, to redefine how the redistribution of resource capacity that taxation was supposed to achieve, might actually be possible.

Monday, November 6, 2017

What Capitalism is Most Worthy of Defense?

The capitalism most worthy of defense, broadly speaking, generates useful product which otherwise would not have materialized on its own - especially when output has the potential to scale exponentially. For instance, I find it difficult to be critical of a wide range of tradable sector product, which clearly requires more coordination and detail than could readily be provided by individuals or small groups.

Whereas, one reason I question much of today's organizational capacity - especially for education and healthcare - is that reasonably equal value could be generated via small groups and in many instances, between two individuals. Organizational capacity matters, and too many knowledge based activities occur in ways which end up selling access, instead of quantifiable attention on the part of a provider for a customer.

For me, Google is a clear example of capitalism that is worthwhile. Consequently, I was concerned about Barry Lynn's disappointment with Google, although he's hardly alone. For anyone such as myself who is tech challenged, Google has supported simple platforms for online activities which I otherwise might not have been able to master, on my own. And while Amazon provides a platform for shopping, and Facebook a platform for those who are socially inclined, it's Google's intellectual emphasis which means I no longer have to rely soley on the news or my own personal library - extensive though it may be - to connect with the world.

Perhaps Barry Lynn hasn't realized, how Google has improved the lives of so many individuals such as myself who have limited resources at their disposal. Just the same, I'm glad for the times he's singled out corporations whose territorial ambitions often resulted in diminished marketplace choice. As a former grocery store employee, I personally encountered one of Barry Lynn's examples, re small businesses who lost much (already scarce) shelf space for their product, when larger corporations convinced retailers to give it to them for further product expansion. And often, when I've sampled what large corporations have to offer on grocery shelves, it turns out they're more ambivalent and less committed to new product, than the small providers whose shelf space had been lost.

However, a post from Chris Dillow, "How to Defend Capitalism" is what actually prompted my own, today. He writes:
Capitalism hasn't come into doubt because people woke up stupid one morning. It's in question because it has stopped delivering the goods. Productivity has flatlined for ten years - something that hasn't happened since the early days of the industrial revolution. That's why real wages have fallen...
Is capitalism "indefensible"? Or is too much of what has not worked well (in terms of productivity and otherwise) actually something quite different from the organizational capacity which has brought us centuries of progress?

Again, real wages have fallen not because capitalism has somehow "lost its way", but because of a rising dominance of non tradable sector activity, much of which lacks both the incentive and scaling capacity to generate growing levels of output. How can we continue broadly rising wages, given such a shift in overall output trajectories?

Nevertheless, we could still have more output than is presently occurring in our non tradable sectors, even though it would not take place at the same earlier exponential levels. But there's a more important issue at stake: We don't necessarily have to have constantly rising wages to generate further progress. The problem, however, is too much energy expended either blaming capitalism, or confidently defending it while not considering how the present state of economic affairs is coming up short.

This post wouldn't be complete if I didn't also touch on a point made by Miles Kimball, who again cites John Locke in "John Locke on Diminishing Marginal Utility as a Limit to Legitimately Claiming Works of Nature as Property". I was particularly struck that Kimball made a connection between land ownership, and the ownership of ideas. Only consider that the "ownership" of all healthcare related medical ideas, is supposed to rest with physicians. Unfortunately, what this means, is that their ownership is so extensive, they have diminishing marginal utility for the healthcare resources and ideas they don't primarily favour, which results in less marketplace choice for consumers. Indeed, the same might be said for the diminishing marginal utility of grocery shelf space for big business, as well.