Saturday, December 20, 2014

Applied Knowledge Systems: Some Contractual Considerations

Commitments are important. As Nick Rowe noted in a recent excellent post:
In a world without commitments there would be no money, no financial assets, no markets, no trade, no property rights; and the life of man would be solitary, poor, nasty, brutish and short.
Today I mostly want to jot down some thoughts, regarding the commitments which knowledge use systems would need to honor, in order to provide a recognizable or unique equilibrium. Such promises would be necessary: not just for compensated time value which doesn't compete with time value assessments in primary equilibrium, but also to provide clarity for the expectations of monetary transmission.

Even though knowledge use systems would not be closed to outside systems, their non tradable elements are managed locally, to discern how decentralization can work in conjunction with the greater centralization of state and national governments. Centralization works quite well for many tradable goods, but stumbles badly whenever it is applied to non tradable goods - particularly given some financial settings. Knowledge use systems remain open in the sense that knowledge, individuals, and commodities from elsewhere are readily integrated in local settings. Just the same, they all become a part of local time value and resource adaptation, as defined in local wealth generation.

Internal infrastructure formation would be shared through investment options beginning in youth, and holdings on the part of earlier citizens would eventually be made available for circulation. This would allow individuals to pursue personal and intellectual challenges - particularly those life challenges which can't always gain (ongoing) monetary compensation through matched time use. Also, local investment portfolios would substitute for government provided social security. This lack of international monetary flow at local levels, makes it possible to discern income/consumption ratios, alongside the local matched time use averages which are needed to maintain them.

While time value - with its associated sticky wages - is randomly assigned and limited in primary equilibrium, time use value in alternative equilibrium would be based on total aggregates in unique settings. As a result, time aggregate values would grow in a gradual continuum. This would allow human capital to become a larger and better recognized component of today's wealth structures.

Contractual commitments would be necessary, for the compensated time use base of knowledge based systems. Otherwise, the gains and sacrifices of a no compete clause between equilibrium, would not be clear. For instance, the primary gain for highly compensated skills in primary equilibrium with this arrangement, is that the sticky wages of a protected high skill labor market would be less problematic for government budgets, well into the foreseeable future.

Anyone who eventually hopes for monetary gains from a college degree, might need to stand firm in their desire to gain access to primary equilibrium, for instance. Another consideration: recent arguments for a college education tend to emphasize that one often needs additional wealth sources, to gain the economic access which college degrees can sometimes provide. Hence those who don't have additional resources and are uncertain about the advisability of heavy college debt loads, would want to consider the advantages of knowledge based systems for skills use.

Some skills capacity in knowledge use systems, might eventually appear similar to capacity in the professional settings of primary equilibrium. However, the use, intent and identification of knowledge specialties would be quite different. For instance, one would not open a professional office for clients, in knowledge use systems. Nor would anyone educated in a knowledge use system, attempt to go into a primary equilibrium setting to do so, either. In primary equilibrium, the same job or career qualifications that are currently expected for many institutions, would still apply.

Instead, applied knowledge systems recognize skills as part of a flexible package or portfolio, for local coordination patterns. Both time use and knowledge, while voluntarily provided, are nonetheless like interchangeable factory components - with the same "just in time" benefits. Hence the most important right for the individual, is being able to offer the use of one's time as one sees fit. This needs to be distinguished from any "right" to diminish time use capacity (or skills potential) on the part of others. That is not a given right in knowledge use systems, unless someone quite clearly intends to harm others.

As we age, there is often a greater need to shift towards knowledge use work and away from physical labor, depending on one's abilities. Where needed skills or knowledge sets are in short supply, local educational efforts in this regard would be ongoing. Older citizens in particular, could be tapped for these new responsibilities. More robots are needed for heavy lifting and routine tasks for elderly, whereas older citizens are needed to engage with older patients in terms of intellectual challenge.

Regarding contractual arrangements with government: national backing for this endeavor would be necessary, particularly because of the monetary compensation involved. What individuals match locally in time use, would be matched by national government as a point of new wealth origination. In order to be able to fulfill this role, governments would need access to the same information and recorded history of time use and investment which is also utilized at local levels.

Part of these agreements would also mean no other dependence on government for services or subsidies (after a certain agreed upon point of skills gains), other than ongoing maintenance of infrastructure which exists in these regions. These purposeful separations of monetary flow, are what make the unique equilibrium possible to ascertain. Likewise, the same rationale exists regarding internal investment, and an almost complete lack of taxation. This natural experiment would make it possible to determine over time, how resource use transformation can be understood, in direct relation to base or given income.

Friday, December 19, 2014

Total Factor Productivity and Community Potential

Surely, total factor productivity has not flatlined since 1980. But how would anyone really know? Dietz Vollrath in a recent post, "Why did consumption TFP stagnate?", includes these thoughts in the post conclusion:
We've got this intuition that the service sector has changed appreciably over the last thirty years, but it doesn't show up in the TFP measurements...in fact consumption TFP doesn't reflect accurately the innovations that occurred. 
One thing to consider: some innovation exists in sectors which have means to reform labor definition. This provides more flexibility (consumption potential), but only within specific institutions with limited missions, rather than the diverse missions of communities as a whole. What's more, productivity which generates more product through less time utilizaton, is a traditional productivity measure. In other words, when knowledge or labor need to be adapted to (in the moment) unique circumstance, a different mechanism is needed. Time arbitrage would be one means to capture further productivity, through marketplace gains in total aggregates.

Presently, many service formations are defined by the degrees to which they (differently) compensate time use. As a result, decision making for occupational choices in services, may not necessarily represent what would otherwise be first choices for those who participate. To be sure, it is understandable that many in these groups receive compensation which goes well beyond time input. However, this compensation method arbitrarily impacts services marketplace capacity in multiple ways. All of which especially matters at the margins, where time use in the marketplace has become more limited than ever.

Some knowledge based skill sets also remain immune to automation, because they serve as consumption signals for other high income groups. As Dean Baker recently noted, no one in the highest paid professions was ever put in direct competition with their lower paid counterparts. Indeed, these higher paid counterparts still enjoy protected labor markets.

However, Baker's post serves as a reminder of the special interests which - with government's "blessings" - are responsible for many inequalities of the present. As a result, not only is Washington unable to "make amends" through further tax redistribution for services, it can't really address this labor dynamic without doing serious damage to some of its funding sources. Even so, these consumption factors need to at least be dealt with at the margins, where a services marketplace might otherwise not exist.

Otherwise, too many consumption issues stand in the way of the total factor productivity gains which might still be realized. Skewed production dynamics and sticky upper level wages are easier to address locally, because of the myriad of factors involved. As a result, new communities could organize for greater total factor productivity - hence more consumption options in services and asset formation - where states and nations would otherwise struggle to do so.

How so? By optimizing local time aggregates, which single mission institutions can't utilize. By their nature, today's local institutions - with missions which sometimes counteract the missions of others - are forced to pick and choose from skills sets among given populations. What's more, private industry too often ends up compromised by what appears as "opposing" needs in services formation - in large part because of their ill defined nature. In other words, all too often it is just not clear, what resources are actually available to compensate them.

What is needed are local institutions with missions which integrate services as part of wealth creation, while building time use gains at the same time. These new institutions would make it possible, to understand transmission mechanisms between wealth generation and the time value of services generation. By compensating time matching directly, services "confusion" disappears, and base income becomes the direct source of further local investment options.

These new institutions would restore value to personal time use, along with personal identity for millions who still wish to contribute to the marketplace. After all, service product demands time. It is not possible to reduce time use in a marketplace which is all about time, unless one is actually willing to destroy the marketplace to some degree.

Central to this dilemma is the fact that normal pricing cannot allocate for time use as it does for other resources, because other resources are massive compared to time aggregates. Even though other resources might seem infinite, that no longer inspires confidence in resource infinity, as a stand in for time in the long run. Too much of the present day services marketplace is already in decline. The need to be able to use time choice as a true marketplace option, is growing by the day.

Not only is time use availability a fixed commodity, it is the most scarce commodity anyone has...even though everyone has it. When a few skills are rewarded, while other needed skills go largely uncompensated (by comparison), a dynamic results in which many individuals cannot utilize time value for the coordination they need, to tend to ongoing responsibilities. When few options exist for time arbitrage, communities can lose consumption capacity as a whole, along with the greater productivity that time arbitrage could make possible.

To reconsider productivity, time as product needs to be taken more seriously. Again, Dietz Vollrath, regarding the lack of change in the last thirty years:
By a lack of change, I mean the service sector has not found a way to produce more services for a given supply of inputs, and/or produced the same amount of service with a decreasing supply of inputs. We often buy time when we buy services, not things. And it isn't so much time as it is attention. And it is very hard to innovate such that you can provide the same amount of attention with fewer inputs (i.e. workers).
Sometimes, production factors are not just about digital components and technology, but also the interconnected webs which individuals could generate for greater consumption and total factor productivity. Even though this historical moment surfaced decades earlier, a leap of faith is required, before populations gain the chance to back their collective potential. Hopefully, doing so will become a possibility in the near future.

Wednesday, December 17, 2014

Midweek Market Monetarist Links and Summaries - 12/17/14

Nick Rowe explains how the fiscal theory of the price level can be problematic for the quantity theory of money: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/12/the-degeneracy-of-ftpl.html
Everything about bonds depends on what is already happening with money supply: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/12/currency-is-alpha-bonds-are-beta.html
FTPL is "a theory that cannot be universally true" http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/12/who-would-ever-lend-to-an-ftpler.html
One more "throttle", before Nick gives FTPL a break! http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/12/ftpl-a-federal-or-provincial-issue.html

Bill Woolsey takes another look at IOR, with some math: Interest on reserves again
No, money is not just like government bonds...Beckworth on the fiscal theory of the price level

George Selgin defends a steady NGDP target...or perhaps Domestic Final Demand: http://www.freebanking.org/2014/12/12/free-banking-and-the-dollar/

"The hawks ignored the wisdom of Milton Friedman" (Scott Sumner) A distant echo of the big bang
Why has it gone under reported, that industrial production has been rising faster than RGDP in recent years? America's industrial boom (what is it telling us?)
The Gabe Newell funded Hypermind NGDP Market is up and running
"in his pessimistic mood" Krugman on the limits of monetary policy

Scott at Econlog:
What is the point of Fed meetings...really? John Cochrane on modern macro
The fact that Draghi may resign, certainly isn't helping. The ECB: is it a hopeless case?

(David Glasner) More on complexity, equilibrium and coordination failures: http://uneasymoney.com/2014/12/12/traffic-jams-and-multipliers/

Hard to believe this FOMC transcript was from a decade earlier...(Marcus Nunes): http://thefaintofheart.wordpress.com/2014/12/12/the-feds-motto-mistakes-must-be-repeated/

When central bankers don't actually believe in QE...(Benjamin Cole) http://thefaintofheart.wordpress.com/2014/12/16/the-fed-will-almost-certainly-fail-the-next-qe-test/

How to think about the supply side issues of 2002-2004? (Bonnie Carr) https://dajeeps.wordpress.com/2014/12/13/canned-astonishment/

Sam Bowman highlights an Ambrose Evans-Pritchard articleA miracle cure for central bank impotence

Supply side circumstance are one of the bigger problems for an inflation targeting regime (David Beckworth) http://macromarketmusings.blogspot.com/2014/12/inflation-targetings-big-wrinkle.html

How is a tax state different from a fiscal state? (Lorenzo) http://skepticlawyer.com.au/2014/12/11/domain-states-tax-states-and-fiscal-states/

Tuesday, December 16, 2014

Collectively...How to Make our Lives "Easier"?

It's obvious that tax redistribution is no longer making life easier, in spite of government's protestations to the contrary. What's more, social security is not sufficient for the kinds of assistance that matters most, as one gets older. How then to think about collective means of support for groups and individuals, regardless of age? Aggregate time value and personal choice in this regard, are key. However, it's going to take a while to regain time use perspective, before progress can be made.

A few days ago, my cat (of all things) got me thinking about present day expectations regarding time and resources. As a general rule, cats tend to "lean libertarian", one might say. Normally, they're good at taking care of and "entertaining" themselves! But as they get older, it turns out some of that independence starts to disappear. At fifteen years of age - for instance - a delicate stomach seems to mean wanting a few bites of canned food at a time.

So recently, after the umpteenth mini snack, and way too much restlessness on her part when I needed to get some work done, I chided my little furry senior citizen, "Come on...make my life a bit easier!" And then I immediately thought, ouch. It's a good thing I said that to a cat, instead of a person. For the most part, this reaction generally remains unspoken, even though it is an underlying given for human relationships.

To be sure, much of work and life in general is about being of service to others. Independence, valuable though it is, needs to be considered in context. Is it possible for individuals to be independent and (happily) dependent at the same time? Most individuals want to make life easier for others, even though everyone needs to be able to do so on their own terms. All too often, it doesn't happen that way.

In order for relationships to remain viable, commitments and independence need to go both ways. Otherwise no one can remain strong enough, to be able to continue as a source of strength for others. Can anyone safely assume there are enough who are strong, to also be a source of strength for others? Not necessarily. A lot of individuals end up abandoning one another in diverse relationships, in part because societies are losing the means to make life easier for the whole. This matters even more, as governments have begun the process of pulling back on the earlier support they believed themselves capable of providing to their citizens.

Learned helplessness is just one result, when a growing number of individuals become incapable of providing support either for themselves or others. When purposeful time use becomes devalued across a broad spectrum of choice, love and appreciation don't always suffice, for much needed reciprocity in a demanding world. How can anyone assist others through services, when vital service definition has too little context or access to provide choice? From Greg McKeown (HT Farnam Street).
The ability to choose cannot be taken away or even given away - it can only be forgotten.
Indeed, this is what has happened. Much of what had been societal coordination in agricultural times was replaced when manufacture was primary, with other forms of coordination which sufficed until only recently. However, as much of group organization has shifted towards cities and prosperous regions, that loss of coordinated time use is keenly felt, everywhere else.

Like the cat which slowly becomes more dependent on (and appreciative of) humans: as one gets older, there comes a time when it is not as easy to remain independent. For this inevitability, there are no hard and fast solutions. However, finding means to renew time coordination while mind and body are strong, would mean more who stay strong to begin with. This could make it easier to reach out, to those who struggle to take care of their needs. Presently, it is still difficult to know, who could be strong once again. This is what needs to be found out, first.

Monday, December 15, 2014

What Defines an Economic "Oasis"?

What kinds of economic environments do individuals seek out over the course of their lives, besides the obvious ones of work and family? Does home as "oasis" have real practicality through time, defined as it is in mostly consumption terms...even though lifestyle consumption often changes? How limited is knowledge resource application, in presently existing circumstance? These questions matter, both for reasons of infrastructure and investment. All the more so, as today's challenges are quite different from how they appeared only fifteen years earlier.

For instance, who needs changes in equilibrium in order to make the best use of their time and energies? How could incremental forms of ownership assist the definitions of investment which currently exist? Do economies which also rely on energy production as a wealth component, feel "complete" in terms of work life balance? A visual in this regard might help, in terms of where wages in the U.S. have changed over the last decade. Is is fair to suggest that where dark blues exist, equilibrium needs little "help" from the time input of individuals? Hmm. From the related WSJ article:
Energy: When you see that dark blue running through the middle of the country, one of the big movers in that pay growth has been energy - oil and gas extraction and refining. In a sense, they make this map look "better" than it is, where the experience of many Americans is concerned.
In some respects, the wealth improvements in the map are almost inverse, to where wage growth was associated in the U.S. for several decades. Think about the monetary implications, in that this seems to suggest a return to a commodity based vision of growth. But commodities serve as beginning points for wealth creation, in mature and complex economies.

Commodities can only go so far in monetary flows, to contribute to assets, incomes and services formation - all of  which economies the world over, continue to rely on. What's more, increased wealth is not necessarily job formation. While I live in a primary oil production county, unemployment here among males ages 25 to 54 (according to this interactive map) is still at 22%. And of those gainfully employed, more homes in the area are increasingly being shared, by groups of individuals who otherwise would not make rent on their own.

Hence the recent decline in commodity prices such as oil is not quite the positive it might seem under different supply side circumstance. To be sure, there is nothing wrong with commodities as primary wealth formation. However, the fact that wage growth in general would decline in relation to commodity formation - particularly after the twentieth century promise of knowledge use - is somewhat disconcerting. As Scott Sumner points out in a recent post about America's recent industrial production boom: productivity - it's a great thing, and once again the U.S. has it in spades. But what is that telling us?? Scott continues:
Agriculture went through this in the late 19th century and early 20th century. And now it's manufacturing's turn.
When one thinks of changes in income gains and losses at the WSJ link, it's not hard to see how the Fed has continued to downplay the human component since the Great Recession - mistaken though they are in doing so. What potential wealth have they yet to recognize? Productive time use options remain necessary, to maintain desirable economic complexity and keep knowledge applications central to economic activity.

Perhaps the fact that commodity prices are currently falling, also serves as a reminder that no central banker can really afford to forget what counts most. What might the economic oasis of the near future look like? With a little luck - it would include a newly empowered, inclusive and dynamic services sector.

Saturday, December 13, 2014

Primary Equilibrium and its Many Alternatives

Recently I read an article which suggested that America could be more like Disneyland. I was a bit curious before getting to the central argument, in that some praise for Disneyland cites it as an example of charter city potential. However, this praise came from a left leaning source, because of well maintained infrastructure! Who doesn't admire any nation or city which is able to keep its infrastructure top notch? Then why can't the U.S. do a better job of maintenance? Oh, to count the possible reasons...

Among the laundry list: confusion over priorities, in spite of vast resource potential which remains at Washington's behest. Just pay for X now! Yes, but this is hardly the only letter of the alphabet demanding attention, in a diverse economy with aging infrastructure and growing entitlement to add to the different directions everyone prefers. Where does X even stand, as compared to other concerns?

All of this needs to be considered, before anyone can begin work on new infrastructure design which includes not just physical elements, but important social components as well. Big reform bites are not the way to go, because they would subject some populations to change that is not necessarily needed for them. Little bites are better because they are the best way to test production reform in populations which wish to do so.

Despite a seeming difference in charter cities (as compared to what already exists), they remain part of what is primary, mature and - in a sense - international equilibrium. Think recent subdivision formation around the world which looks the same, for instance. In other words, similar economic and financial formulas are followed, and citizens come along afterward without real input into the process. So long as infrastructure design doesn't adapt to differences in income and lifestyle patterns, the result is almost a carbon copy of what already exists. Even the alternative of charter city formation, suffers from the stigma of not enough citizen participation, and a mostly external vision of what the city can become.

How could citizens become a more active part of local investment processes? Direct involvement in this regard, can also positively affect the local tax structures which became so problematic in the twentieth century. New forms of equilibrium would particularly be conscious of local income and consumption ratios, which would be reflected in both asset and services formation. Entry into knowledge systems communities would also involve educational preparation, beforehand. Anyone attending domestic summits, would not only need to approach time use differently, but also plan to take part in ongoing local investment projects.

Each knowledge systems community would become a new business model, and each would create a unique equilibrium, none of which is the same as others or primary equilibrium. Even though clear patterns would be defined, they are not the same patterns which others would utilize in quite the same ways. The purpose of new patterns is to make certain individuals have productive options for both survival and the ability to thrive.

Where primary equilibrium often appears uncertain in the present, the main difficulty lies in anchoring income potential to certain givens in consumption and production. All too often at national levels, that has not been happening. Governments and central bankers - among other things - have become sidetracked with their direct involvement in asset formations. In turn, asset formations tie into global resources which do not always provide a clear picture as to domestic realities. The self contained nature of investment and services formation in new communities, would provide means for governments to once again look inward, to determine what domestic capacity is still possible.

Friday, December 12, 2014

Income and Services Aggregates, Bond Markets and More

In "Bond market fairy tales Part I", Simon Wren-Lewis returns to a subject which I have also wanted to touch on, re security of bond formation in nations which are responsible for their own monetary policy. He believes defaults for the U.S. and UK are not a possibility, whereas I say, mmm, not so fast. It would be great if everyone could depend on this most important of securities, but longer term bond markets also have their own story to tell. There's a peculiar kind of monetary imbalance, which could be a relatively new issue affecting bond formation in general.

If nothing else, this post might help to explain my skepticism regarding national deficits. At first glance, my views in this regard may appear quite conservative. However that is not the case, for I support more service formation, perhaps even to a greater extent than some progressives still hope for. My constant refrain is that when it comes to services, we're not doing it right - at least, not yet.*

Getting it right is paramount, given the inevitability of a slow motion train wreck which would otherwise occur if the U.S. does not address supply side healthcare issues. At the link, Tyler's Cowen only points to the tip of the iceberg, in mentioning the difficulty of finding Medicaid providers. Until knowledge use issues are approached in terms of time use aggregates, no one really knows whether the U.S. relies on too much healthcare...not enough...or perhaps somewhere in between. It's hard to believe that healthcare systems structure has already done so much damage just in a monetary and political sense. And that does not even count the psychological effects, on those whose life challenges have been pushed aside by distortions in services market definition.

Distortions aside, the monetary representatives of my inexplicably confident nation, still benefit from plenty of political and economic goodwill. Even a poorly forged anchor seems to suffice, if it's the main one within reach. Much of what the Fed has to say, is followed by people around the globe - nonsense ramblings, repeats and all. Some confident observers remain convinced as well that bond markets are invincible, hence nothing about the way monetary flows play out should be particularly important, I suppose.

How, then, to think about healthcare structure distortion in relation to bond markets? Healthcare services have come to rely on components of wealth which go well beyond what was expected of other services formations. Perhaps a mental model would help re the way I envision (present day) circular monetary flows, so I'll attempt to provide that in the next two paragraphs.

Initial wealth input is presently that of commodities, and the traditional manufacture of product as separately distinguished from time use. These in turn generate income flows, whether directly (initially) through private industry employment and retail, or indirectly (after the fact) through taxation and redistribution which contribute to employ through services formation. As noted at the end of this post, I refer to knowledge use services aggregates as largely separate from either services retail or other private employ.

Income aggregates from services and production composites, lead into asset formation and other capital. From these, money gradually flows back into to service production aggregates as they presently exist. I say "gradually" because the indirect nature of services funding tends to diminish total services production over time, which in turn stalls traditional production processes from what would otherwise be optimal formation. However, some aspects of indirect services funding became necessary over time, because of groups which gained special privileges in knowledge use rights.**

The problem? A thick filtering process for knowledge use services, leaves excess assets and capital in relation to aggregate income, even though much of this is tied up in passive housing capital. More taxation only leads to further filtering and ultimately, less knowledge based services formation than is actually needed. Indeed, housing further complicates the picture, in part because its finance structure is being utilized by governments of all sizes, as a primary transmission mechanism for services flows.

Okay, so why is any of this important in relation to the post title? Simon Wren-Lewis reasons that (certain) nations need not worry about bond markets, i.e. shrinking the state is not necessary. While that could be true, I've still got an important qualifier for his assertion.

Many of the state's more important functions nonetheless need to become monetary (in connection with production reform), so that the marketplace will not remain diminished in aggregate. The diminished return scenario has been playing because of default economic positions in basic healthcare for some time, as they continue to crowd out other important aspects of the services marketplace. Time use - consequently - is becoming defined in all or (practically) nothing terms.

Where I agree with Wren-Lewis in terms of austerity, is that austerity (particularly for healthcare inflation) is an arbitrary cap on growth and wealth creation. Where do I disagree? Fiscal measures cannot adequately reach a marketplace which is arbitrarily being held back because of fundamental supply side problems.

Granted, shrinking the state does not solve the problem for circular monetary flows, because the problem lies in the way the balance is evolving between income aggregates versus the indirect formation of services aggregates. For one thing, too little of the latter are attributed to the human capital they actually represent. In a nutshell, the costs of today's services aggregates, extremely inadequate though they are - are surpassing aggregate income capacity. 

Fortunately, these problems are relatively recent in nature. After all, many service structures of the past were locally or even individually funded, and not especially problematic for deficits or bond formation in general. Even though some service formation may appear ad hoc or questionable; at the very least it once existed in relation to local wealth, which once had little exposure to international monetary flows. As I have detailed in previous posts, international monetary flows have affected time use value, so as to distort the ability of primary services to operate efficiently in both national and local context.

For instance, consider the earlier simplicity of services formation, the taxation it required, and the monetary flows one could reasonably expect. Benjamin Franklin, when he observed the ineffectual quality of "roving gangs" who served as night watchmen (enlisted by constables), suggested that "full time watchmen be funded by a property tax levied according to the value of each home." This included "one of the first arguments in America for progressive taxation", in that the poor widow housekeeper should not have to pay what the wealthy merchant pays. (page 105, "Benjamin Franklin: An American Life", by Walter Isaacson)

So far, so good, right? Unfortunately, the pragmatic nature of local taxation ceased, once pensions contributed to local services inflation through their exposure to global growth patterns. What is missing? Local taxation can only account for the costs of services aggregates up to a point, and when that point is reached, time arbitrage for services needs to become a consideration. For instance, local tax redistribution reached a point of maturity in educational provisions, after which any further taxation could only be minimal. And yet, teachers salaries remained limited by home values, even though their pensions could partially make up the difference in costs of living.

The fact that income aggregates remain out of balance with the present costs of services aggregates could partially explain why governments are so unwilling to give up the very asset structures they came to rely on to address the imbalance in the first place. Why else would they attempt to return to the same essentially unchanged financial strategies for housing, albeit on a knife's edge?

Indeed, addressing the core issue of knowledge based services formation is the only way that governments can tend to imbalances between income aggregates and services aggregates. Until populations are better able to monetize knowledge use across a broad and decentralized spectrum, investment issues for bond markets are likely to continue. As Nick Rowe expressed in a recent post, currency is alpha, and bonds are beta. So long as knowledge use remains limited and fiscal, it can only have a beta outcome. Knowledge use needs an alpha outcome.


*A qualification is in order. In terms of services aggregates, I'm not referring to services in the sense of employment by private industry (such as the retail services Dietz Vollrath references here) for the services aggregates under consideration. Rather, those who work with knowledge related skills as a base for compensated time product which generates direct income as a result. Does a measure of this kind of services already exist? It would be most helpful for this layperson.

This is an important distinction in terms of the services measurement which David Beckworth also recently referenced, because the aggregates accrue differently in monetary flows. Retail services for separate product are privately compensated income, whereas knowledge based services (of which time is the product) either rely on the support of higher income levels or - what matters for this post "model", fiscally compensated services

**A brief explanation how time arbitrage might augment this informal circular flow model. Time arbitrage - because it provides a concrete economic activity with no residual debt, could also become an initial wealth input for monetary flow. Time use in this circumstance would represent both product and income flow. Direct wealth creation in healthcare provision, is possible. But so too, would be many other services which would not be crowded out by healthcare, if they can become alpha in nature.