Wednesday, April 26, 2017

Economic Time Value is a Logical "Next" Step

One reason it is difficult to address the growing issue of technology driven unemployment, is the fact some of this problem remains in the future - even if that future is no longer in the far distance. Meanwhile, the present backdrop of "apparent" full employment (by traditional measure), encourages many to believe the issue can be safely dismissed for now.

Yet this "do nothing" response is hardly as safe, as it may appear. Perhaps the fact no "Plan B" exists, accounts for why basic income as concept, gets a fair amount of traction, in spite of growing long term budget issues for nations in general. Already a simple example of potential economic fallout in the U.S. is on the horizon: a wide range of drivers could be replaced in coming decades with autonomous or self driving vehicles. If options for widespread continued economic participation are not already in place should this occur, there's a risk that production capacity could be lost, on a scale at least equal to what occurred in the Great Recession, when central bankers neglected to maintain a stable nominal income level.

Whenever technology driven unemployment is debated, it helps to take a long range view, about the societal options which actually exist for product potential in the marketplace. It's not really feasible to think about future work options, if we don't also consider other important characteristics in our environment at the same time. Plus, what we collectively believe to be valuable as marketplace product, directly influences the work options we actually have. Indeed, while educational product as economic access has turned out somewhat dubious; educational product as experiential good, turned out to be a positive result of the 20th century progressive movement. This, even though formal education wasn't exactly promoted in a traditional marketplace context.

Despite the fact excessive secondary market structure now limits the participation template (and growth potential) for developed nations, some of its initial 20th century framing for marketplace expansion, proved to be a positive on a number of levels. The initial useful impact of formal education on wealth creation and employment potential, cannot be dismissed. Might the promotion of a more complete context for economic time value, provide a logical "next step" in this progression?

Ideally, the next step could restore the primary market function as a major component of long term growth, for developed nations. Why does time value - as commodity - hold potential for providing this role? Through the (monetarily) reinforced purchase of time value for time value, everything from time based maintenance activity to research and development activity, would contribute wealth generation from a primary market position.

How was formal education able to contribute to overall growth capacity, from a secondary market position in the 20th century? The advent of extensive formal education for populations as a whole, mean more customers for product which directly benefited from this increased level of knowledge dispersion. Formal education contributed to the mass production of tradable sector product which did not need a direct time based link. In other words: initially, formal education led to additional employment not just in terms of the discipline itself (further provision of education) but served as a multiplier for the kinds of tradable sector product which in turn could consequently be generated in the marketplace.

Nevertheless, secondary markets such as formal education (and healthcare), now face constraints which mean real limits in the template for economic participation which is presently possible. One important aspect of this constraint, is that it contributes to class divisions as well. Even though property zoning is problematic in terms of social and economic exclusion; presently, the "zoning" of knowledge use would continue to divide populations, even if property zoning were to be eased in the near future.

It is difficult to directly observe the dependent role (in terms of wealth creation) for non tradable sector activity as contrast with tradable sector activity, since non tradable sector activity assumes dominance in terms of monetary requirements. However, over the long term, resource capacity for non tradable sector activity also needs to be well organized at internal levels, just as what occurs for tradable sector activity. For time based services of all skill levels, maintaining these vital functions of society may sometimes require decentralized processes - especially when tradable sector activity becomes highly automated and in less need of paid employment.

Otherwise, nations may experience too much difficulty, in their efforts to continue the first mover wealth creation positions which set the possibilities for monetary velocity. By matching time value internally for a wide skill range of knowledge and maintenance functions; resource capacity for time value, would ultimately function as efficiently as has been possible in tradable sector activity.

Economic time value in the marketplace is the next logical step. Initially, in the 20th century, formal education greatly contributed to time value. However, since individuals did not have economic means to purchase the incremental time of others through their own, only a limited number of specific skill sets could be directly rewarded in the marketplace. Consequently, too much human capital investment could not be directly tapped, and went underutilized. Today, as labor force participation declines, people do not have good options outside the marketplace to assist others in ways capable of promoting economic stability.

Even though 20th century education suggested great promise for time value early on, marketplace growth momentum was lost, as the secondary market position of knowledge use drifted towards centralization. In recent decades, centralization of high level skills use, has diminished the platform of economic participation which is possible. A marketplace for time value, could once again expand the template of economic participation, through decentralized settings for productive levels of knowledge use.

Monday, April 24, 2017

Be Careful When Designating Scarcity

Economics is sometimes said to be - more than anything - studies in scarcity. When something is designated as scarce, it becomes more valuable. Yet how do we know that the scarcity in question, is actually a natural constraint?

Often, the products of tradable and non tradable sectors are subjected to artificial scarcities, so as to ensure greater profits. While artificial scarcity in tradable sector product may translate into limits for discretionary income, this scarcity result isn't necessarily problematic. Alas, artificial scarcity results are not always so benign, when they apply for time based product. In recent decades, the artificial scarcities of healthcare time based product, have become a major contributor to growing protectionist and nationalist government tendencies. Indeed: perhaps one reason why libertarianism has not proven as popular with the public as one might expect, is that too few economists have highlighted the problems which artificial scarcities can create, for participation in today's economy.

Perhaps we need more studies which illustrate how artificially derived product scarcity can affect redistributional flows over time, especially as resource capacity is gradually reallocated to different forms of sector output. There is a particularly good example (the Great Compression), how Washington benefited in terms of fiscal policy discretion in the mid 20th century, during a historical period when wealth creation was closely associated with tradable sector output. Was it the fact this additional fiscal revenue was not yet required for extensive entitlement benefits, which made it easier to address inequality via fiscal means?

Nevertheless, given the reality of non tradable sector supply side limits; governments are slowly, but surely, losing the ability to use fiscal policy to assist the coordination of time based product. Unfortunately, the wealth of time based product is not available for redistribution, in the same manner as tangible product which exists separately from time value. As it becomes more difficult for governments to shoulder the costs of time based product, the artificial scarcities of knowledge use will need to be reevaluated.

The fact that governments can have additional leverage via fiscal discretion during historical periods of tradable sector dominance, but not necessarily at other times, certainly deserves attention. Because once non tradable sector activity begins to dominate, different resource use options come into play. Some of these options include greater knowledge use permissions than are now possible. If governments take on extensive entitlements during the "good years" they will eventually need to look beyond money driven strategies for the benefit of their own citizens.

Fortunately, there are ways to make knowledge product a more tangible form of good. Even though allowing for this would not provide the same investment gains as traditional tradable sector output, the process would still provide output gains which help to rebalance aggregate output towards tangible output gains. Better management of aggregate time value, would eventually mean greater clarity in terms of actual output. This, in turn, would gradually make government budget reductions more feasible.

Ultimately, the object is to seek fewer restraints on the product of knowledge and time value, so that income variance need not be so problematic for those who lack access to knowledge product in today's marketplace. In the mid twentieth century, greater equality was possible because of the prevailing degree of tradable sector output in relation to other forms of output. Even though it is not possible to restore this circumstance to a services dominated economy, it is imminently possible to restructure portions of services economies so that those who participate, also have the option to do so in settings that provide a role for the egalitarian use of time value.

Sunday, April 23, 2017

Knowledge Wealth vs the "Protection" Option

Is the product of knowledge still capable of contributing to long term growth prosperity - given the degree to which it is now "protected"? While some protection of knowledge product is warranted, copyrights and patents can still diminish the dispersal and competitive options of knowledge in the marketplace. Only consider for instance, how knowledge as primarily rival in use, now threatens the demise of extensive undertakings such as Google's database containing 25 million books.

One might describe knowledge product as "coming into its own" in the 20th century, as a primary contributor to wealth creation. Copyrights, patents, and of course public and private high skill employment, meant quantification and clarification for intellect as monetary value. These protections became more important as economies grew more complex, and were perceived as necessary in order to secure institutional advantage.

However, the loss of non rival knowledge for marketplace purposes, has proven a higher cost than once may have been imagined. Today, important non rival marketplace knowledge is mostly limited to "special" zones, where productive agglomeration at least makes some degree of knowledge sharing a reasonable proposition. What's more, the sharing of non rival knowledge for private tradable sector activity, could be more prevalent than the closely held knowledge of non tradable sector activity, as associated with government and non profit funding.

Once, intellect and personal ability were not so protected as marketplace functions. Until the 20th century, personal ability was associated with individuals who created autonomous and personalized spaces for the work of their choice. Gradually, that autonomy gave way to the asymmetric compensation of paid employment, for the externalized challenges of public and private enterprise. Might intellect have a chance to return to its autonomous roots in the near future? In the meantime, populations grow more compelled to march in the streets, so that the world will not fail to take note of the funding losses which might only be just getting started.

Perhaps "protection" was not such a safe bet, after all. Yet the asymmetric compensation of paid employment for high levels of skill, established a precedent which - until only recently - appeared secure as an organizational economic tool. Nevertheless, institutional skills capture, given its erratic nature, has come to mean increasing risks, for the human capital investment that is required for this organizational approach.

Further: where autonomous knowledge use was often non rival in nature, the knowledge capture of both public and private endeavour, meant little choice but to use knowledge as rival to other existing knowledge. The result? An uncertain supply side mechanism for knowledge use, which can't be relied on to provide a strong framework for knowledge gains as an integrated and ongoing process.

A different form of social cohesion is needed, which would allow the seekers of knowledge related endeavour to pursue their craft alongside more mundane responsibilities of life - with or without the traditional markers of success. The mutual self employment of knowledge use systems, would exist alongside innovative non tradable sector environments. The greatly reduced costs of these environments, would make it possible to pursue intellectual challenges without the exhaustive expenses which are required in the present. Plus, mutual self employment could also provide a safety net for a full range of skill functions, which would allow more individuals to pursue the challenges of knowledge over the course of a lifetime.

Increasingly, it is becoming difficult for governments to fund a wide range of taxpayer supported projects. This would not be such a problem, were there sufficient means to continue these vital challenges on private terms. Knowledge use systems could make it possible to pursue life's higher challenges via more secure footing in the future. What's more, this organizational method could do so, in ways which return non rival knowledge use to its natural wealth creation role.

Friday, April 21, 2017

Notes on the Changing Nature of Land Use

Does land have a discernible or specific economic role? For centuries, land gained value in accordance with its contribution to traditional forms of production. However, land use for production purposes has diminished somewhat, in relation to other roles which continue to grow in importance. In particular, land use roles figure prominently in experiential settings; and a growing association as well, with what is often termed "productive agglomeration".

Among the most obvious and long lived experiential land settings, are those which benefit from tourism and travelers in general. From the spiritual and historical beginnings of centuries earlier as starting points; the twentieth century introduced more ephemeral forms of experiential land use, with examples in the U.S. such as Disney and Las Vegas. For many travelers such as myself, the preservation of land with prominent natural features, is possibly the most valued experiential land use of all.

Sometimes, experiential elements of land value come into play when land loses some of its earlier productive associations. Today, if one wants to own a vineyard for instance, it helps to already be wealthy, first! Surprisingly, today's most important land values are a result of productive agglomeration. One might also describe this phenomenon as the "pinnacle" of economic access, or success. Where land value is highest, so too is human capital as measured fully in terms of monetary value, rather than the (potential) value of one's time.

While land occasionally suffers devaluation due to structural legal issues, property value variance for developed nations is nonetheless closely linked to perceived differences in (local) human capital value. This dearth of human capital value, is also expressed as broad variation in what might otherwise be average land values for developed nations. To some degree, human capital is being shorted, since it has yet to be framed on terms which make possible a full range of economic value. Consequently, land which otherwise holds normal life supporting capacity, remains undervalued alongside its existing relation to human capital.

Today's greatest land values exist in places which especially benefit from the serendipity of productive agglomeration. Human capital is in need of stronger economic representation, as the limits of asymmetric compensation have begun to impose supply side limits which also affect the costs of land in places of productive agglomeration.

Tuesday, April 18, 2017

Innovation Potential: More Abundant Than It May Seem

The good news? Innovation is not composed solely of major economic events. Nor is it simply the latest high tech advances. Likewise, wealth creation need not be limited to what occurs along the frontiers of knowledge in major universities or corporations. Fortunately, much of the "outside the box" thinking which could lead to eventual progress, is so incremental in nature, as to scarcely be noticed at first. Still: whether or not incremental gains can translate into larger economic gains, depends on whether innovation is believed to an economic option for all of society, and not just the few.

In recent years, I've been learning to describe the incremental patterns of time arbitrage as a potential template for economic interaction. Time arbitrage is a representational tool which would allow individuals to explore more meaningful contexts for services formation, one incremental matched hour at a time.

Presently, economic progress is mostly pursued in ways which leave little room for the contributions of average citizens. Yet policy makers are hardly alone, in believing innovation is mostly a matter of cutting edge technology and efforts from the most skilled members of society. However, this approach ensures that most of the innovation which takes place, is compensated and intended for specific purposes and outcomes.

Indeed, many earlier innovators whose contributions benefited all members of society, were not necessarily compensated by either governments or firms. Instead, innovators were similar to other individuals who were pursuing personal challenges and journeys of discovery, through their own means. It's time to reclaim the average citizen, as a part of the networks which include personal challenges and journeys of discovery.

A new book from Kevin Laland, "Darwin's Unfinished Symphony", appears to provide some interesting context for the role of innovation as well. As Arnold Kling notes, "The book is focused on the co-evolution of brain capabilities and culture in humans". Laland's description of culture is apt: "The extensive accumulation of shared, learned knowledge, and iterative improvements in technology over time".

His book also highlights a social learning strategies tournament. The three moves available to players in this game, are reminiscent of the ways we choose to respond to our environments: exploitation, observation, or innovation. When a given environment is stable, exploitation is often a reasonable option, for one can simply take advantage of available opportunities. Observation, on the other hand, includes the additional effort of verifying existing economic patterns, before taking action. Whereas innovation may become necessary to some extent, if the normal adaptations of exploitation or observation have become less well suited for replication.

Nevertheless: some readers are aware, that I hesitate to attribute cultural patterns to major differences in economic outcomes. The danger lies in assuming it is impossible - or at least not worth the effort - to encourage some groups to overcome ingrained habits and patterns which lead to negative economic consequence. Likewise, Hernando de Soto was skeptical, regarding the importance of culture as essential to economic progress. In "The Mystery of Capital", he wrote:
Throughout history people have confused the efficiency of the representational tools they have inherited to create surplus value with the inherent values of their culture. They forget that often what gives an edge to a particular group of people is the innovative use they make of a representational system developed by other cultures.
Regarding the three environment options described above: consider de Soto's emphasis of the importance of observation. He implored governments to closely observe the activities of their own citizens, to discover where the clues of economic dynamism were already in abundance. If governments wanted better economic representation for all their citizens, much depended on acknowledging how citizens were already adapting, and reinforcing those ongoing efforts through legal validity.

Since developing nations also imply developing general equilibrium conditions, the observation role has added importance for equilibrium outcome. But what of developed nations which consist of more mature equilibrium formation? Exploitation or observation may not be enough, which suggests a larger role for innovation than a society is sometime inclined to allow. But when innovation remains disallowed, the fact the "low hanging fruit" has mostly been picked, comes to mind.

If only the "high hanging fruit" were being discussed more often! I have no qualms suggesting time arbitrage as a "high hanging fruit" available for the "picking", in terms of innovation potential. Time arbitrage is a representational system which could augment human capital, and allow people to participate more fully in the daily functions, habits and patterns of knowledge use.

And the groups which implement time arbitrage would not have to resort to extensive funding or compensation from outside sources. They would not have to rely on other institutions which already have extensive commitments elsewhere. Instead, research and development would be a natural outcome of the ways these environments are internally structured, so as to leave ample room for the challenges of innovation and discovery.

Sunday, April 16, 2017

Human Capital (Potential) as a Solow Residual Issue

Do firms need to rethink their organizational patterns? Last month, the Stigler Center at the University of Chicago (with Harvard Business School and Oxford University) hosted a conference in Chicago, and these were the primary questions they sought to answer:
Should the economic theory of the firm be modified? And if so, how?
Since then, the ProMarket blog has highlighted numerous elements from the ensuing discussion, and the most recent post was titled "The Sense that the System is Rigged Relates Directly to Government's Failure to Address Inequality and Concentration". Concerns about declining labour share of income are also driving discussions such as these. But how does one blame inequality and business concentration on government - insofar as a failure to address the problem?

While governments can certainly be held responsible for the extensive requirements of economic entry; the limits of employment potential in the subsequent institutions which operate in these environments are a rational institutional response, given the budgetary demands involved. In other words, if costs are not "concentrated" in the areas they are absolutely essential, bills may not get paid. Time value as an intangible contribution is also an important concentration element. Employment in such enterprise is not just limited by Solow Residual factors, but administrative requirements which separate classes of work and income out of budgetary necessity.

Again let's take a brief look at the Solow Residual description, from Wikipedia:
The Solow Residual is a number describing empirical productivity growth in an economy from year to year and decade to decade. Robert Solow defined rising productivity as rising output with constant capital and labor input.
Of course, the Solow Residual contributes to greater productivity in specific institutions through a gradual reduction of labour force participation. Whereas assumptions of constant labour input (alongside capital) exist at aggregate levels.

In earlier posts I've noted how aggregate output has been increasingly maintained with less labour. More concerning, nonetheless, is the possibility these circumstance may gradually lead to less output as well, over time. In particular: as services assumed economic dominance, their secondary formation (dependence on other revenue) could also compel these sectors to reduce ongoing participation with technology, wherever it is possible to do so.

Does any of this suggest the economic theory of the firm should be modified? I would argue instead, that the definition of the firm needs to be expanded, so as to address the growing problem of a lack of human capital representation. That said, the full management of human capital potential runs counter to the mechanism by which progress thus far has evolved. Hence an evolved example of a new firm, needs to clearly designate itself as a separate entity in multiple respects, from what currently exists. Particularly since today's institutions appear to utilize "additional" capital which in reality tends to be either "hidden" human capital, or human capital in replicated form.

Still, this latest arrangement is neither right or wrong. It is simply the latest designation of organizational patterns which - for the most part - have contributed to progress through the careful management of resource capacity.

Whereas in the equilibrium corporation, the resource capacity that is the focus of management, is the actual environment of human capital potential. In this setting, human capital is not just a matter of aggregate input, but also the most active resource component of aggregate output. The equilibrium corporate designation, would distinguish both product output and labour force participation, somewhat differently from the normal functions represented by the Solow Residual.

Hence the object is not to change what continues to work, but to build an institutional function which relies on a different mechanism for long term progress than the Solow Residual is now able to provide. For instance: when input and output are recognized as part of the same mechanism, it becomes possible to envision the benefit of reduced costs for mutual self employment, because they apply to all parties involved.

We cannot know the monetary consequence of this relationship presently, because it must first exist in a context of direct association with tradable production capacity and asset formation. What we do have, is an understanding of human capital as the capital component of input, as represented in time units. Nevertheless, quality gains in time based product could be measured as a ongoing story line, that might hold equal importance with the monetary factors involved.

The Solow Residual proved an apt explanation of progress for the Industrial Revolution and well beyond, as previous forms of labour input could be applied elsewhere as economies continued to diversify and grow. Yet as production capacity was gradually reduced at local levels, the potential of better management for local human capital, went unrecognized for too long. It's time to provide that recognition, and build a new relationship for aggregate input and output in terms of time based product.

Friday, April 14, 2017

Notes on Centralization, Decentralization and Property Reform

In "The Mystery of Capital", Hernando de Soto emphasized government roles in maintaining legal systems of private property for all income levels. Property reforms allow real estate to gain additional market value which extends well beyond the basic idea of property. However, common consensus on the part of everyone involved, is no simple matter. After all, efforts to find common ground, also require centralized factors to come into play as crucial connection points. The representational template which finally emerges, takes time and careful consideration.

Production reform could bring new wealth to all nations, by allowing the properties of knowledge, skill, and human empathy to function as a representational template for time value. Time value as private property, would unleash much of the human capital which remains untapped in the requirements of general equilibrium. Even though ongoing knowledge use management would take place at local (decentralized) levels, getting started is still very much a centralized process.

That doesn't mean governments can't still play a major centralized role, given the global reserves of resource capacity. So long as nations prosper, they can continue to promote tradable sector activity via centralized organizational patterns. The vast mobility of tradable sector activity, and the benefits of scale which still accrue to these organizational patterns, make this a reasonable option.

The Meiji Restoration in Japan included interesting stories about earlier property reforms - especially given their relation to the rapidly increasing tradable sector production of the time. Ronald P. Dore takes a closer look at this changing world, in "Shinohata: A Portrait of a Japanese Village" (1978):
The new government claimed to be re-establishing the centralized government system of the pre-feudal age. The Emperor Meiji was both to reign and rule as none of his ancestors had actually done for the eight centuries of their ritual seclusion in Tokyo. But their more important goal was to make Japan strong...
The pace of change quickened in Shinohata. Farmers were declared owners of the land they tilled - or the land that tenants tilled for them. They were declared free to sell it, free to change their occupation at will. They were given the right to have surnames and to ride horses. Bowler hats and soap and pocket watches and the habit of eating beef; beer, lemonade, steel pens, glass bottles and leather saddles; hops and tomatoes that were called 'send-you-mad-aubergines'; green peppers and grapes and Irish potatoes - the new world was full of all kinds of curious new objects to buy and new crops to try. Farmers were exhorted to grow more mulberry; the market for silk exports to America was expanding. They were exhorted to plant their rice in straight rows so that they could weed the fields with simple rotary weeding machines...to try new rice varieties; to select their seed, to try new fertilizers. And if they could make money in some trading adventure, or some new cottage industry, that was no longer in any way a reprehensible failure to observe the duties of their proper station. That was now called 'productive enterprise' and being a 'success'.
Centralization in the above instance took place by peaceful means. The Meiji Restoration brought real economic advantages: not just to areas of high population density but to rural outposts as well.

One could certainly hope that production reform might eventually take place through similarly peaceful means, as automation further defines the traditional workplace. It is possible to move beyond the restrictions of general equilibrium conditions, so that a greater degree of sufficiency and economic opportunity is restored to areas which have suffered since the Great Recession.

Despite the fact government transfers to populations and private interests can't be sustained in the long run, these subsidies were understandable initially, in the face of a quickly changing economic landscape. Now, it is time to act. Instead of the extensive tax commitments of schools as hopeful economic access, make learning part of the mutual assistance that people provide for one another through the course of a lifetime. The idea of education needs to be restored to recognizable local systems in which learning has specific economic and social context, to participate in community.

Mutual employment as locally managed, would make it possible for citizens to hold the idea of local and global as both capable of providing beneficial outcomes. Civilizations thrive, when open economies thrive. But in order for this state of affairs to continue, policy makers can never afford to forget, how important it is for all citizens to remain connected to the entire process.