Friday, April 17, 2015

Capitalism: What Holds Us Back?

Two recent posts from Alex Tabarrok "suggested" the title of this one. In the first post, Tabarrok noted that he will be speaking at a "Voice and Exit" festival in Austin this week. While the festival marketing seemed a bit "over the top" - which prompted more than a little bemusement on the part of MR commenters - why not take advantage of the spirit it suggests? From the festival info:
We assemble those who ask: What are the systems and ways of life that are holding us back? What can we create to make those old ways obsolete? What innovations enable us to find wellbeing, life meaning and stronger connection to others?
There was a knee jerk reaction on the part of some, who also reasoned the festival is "bound" to be another attempt to belittle capitalism. But why such a quick assumption? That didn't appear as though the intent of the promotional literature. Indeed I remember similar language of hope - going on two decades old already - which was mostly smacked down in the U.S. after the events of 9/11. As to the referenced innovation in the above quote, there's been too little talk of innovation on the Main Streets of the U.S. for some time now...

At Marginal Revolution, other commenters assumed that "systems" inevitably implies meant more government planning. But how has everyone missed that governmental systems are sorely in need of redefinition from elsewhere? Some seek to minimize government, and processes involving scaled back fiscal activity have already begun, often out of sheer necessity. Just the same, does minimized government mean that better services will magically materialize in other capacities?

Not if a fair amount of planning and purposeful reorganization doesn't occur first. Without a radical rethink, a lot of private offerings would not really look all that different from today's government supported services. Not only is it difficult to generate sufficient growth from these existing services structures, but present day organization in this regard does little to address personal needs, incentives and challenges.

Let's at least keep an open mind, regarding events where advocacy for change is not just worn out political slogans. For all the complaints about government spending - let alone the dilapidated local budgets of recent decades - where are real efforts to generate a better services marketplace? And as James Pethokoukis notes, there needs to be a lot more flexibility and choice than what was advocated for services in the 1990s. Before governments are forced to cut social programs even further, there needs to be free market alternatives that are 1) capable of serving many and 2) capable of making continued economic growth possible.

In the more recent post, "Is Capitalism Making Us Stupid?", Alex highlights a review he provided for Joseph Heath's most recent work, Enlightenment 2.0: Restoring Sanity to Our Politics, Our Economy, and Our Lives. I have little doubt that Heath's latest book should be a good read, for he made reasonable arguments in his earlier book "Economics Without Illusions" which I read about four years earlier. Here's a podcast in which Heath discusses some of its themes. Regarding the latter book, here's Tabarrok:
The limitations of reason provide Heath's defense of tradition along Burkean lines...Tradition knows more than reason can articulate. The problem with modern conservatism, however, is that "it has become a defense not of tradition against reason, but rather of intuition against reason." And we cannot found a civilization on intuition. Intuition was built for survival in small, primitive societies riven by "blood feuds, tribal warfare, [and] periodic famine" and these are the societies that we will revert to when reason does not override intuition with second thoughts.
Of course, by no means is the tribal instinct strictly limited to a conservative perspective, for it manifests in the reactions of progressives as well. Often, the dialogue one encounters in social media, does not ask what can be done better. Instead the first impulse is to simply assert (once again) what the "other side" is doing wrong. That's an impulse which thus far has been difficult to overcome.

As to the seeming abandonment of reason in public dialogue, a long series of economic contributing factors are readily traceable. Society was forced to compromise time and again, as artificial limitations in knowledge use prompted more and more complexity in redistribution structures than ever should have been the case. Ultimately, governments have painted themselves into a corner, and now have few means to maintain the 20th century version of a knowledge based economy. As services have become a more important part of the marketplace, so too has time value. Only one problem: While the time value of of the specialized few has been accounted for, it can hardly be expected to suffice for the economic time value of those who remain excluded.

Does anyone really wonder - after decades of snowballing effects from limits on knowledge use - why reason has "abandoned the premises"? Fortunately - if knowledge use is once again allowed its rightful role in the marketplace - reason could ultimately return to public dialogue. Sure, it will take a lot of time to regain lost ground. But knowledge use systems are one way to begin the process, and they would lead to renewed growth potential as well.

Wednesday, April 15, 2015

Midweek Market Monetarist Links and Summaries - 4/15/15

Some of the recent FOMC minutes were not very encouraging...(Marcus Nunes) https://thefaintofheart.wordpress.com/2015/04/09/i-believe-bright-high-school-students-would-provide-a-better-discussion-on-monetary-policy/
"Could we jolt business from its lethargy?" https://thefaintofheart.wordpress.com/2015/04/09/a-clear-call-for-a-higher-ngdp-level-target/
Still waiting for inflation to "turn up": https://thefaintofheart.wordpress.com/2015/04/09/jerome-powell-monetary-expert/
Divisia M4 remains low: https://thefaintofheart.wordpress.com/2015/04/11/monitoring-money/
Contrary to Wolfgang Munchau's assertion, the tools are there:  https://thefaintofheart.wordpress.com/2015/04/12/another-chapter-on-whats-wrong-with-economics/
Will the equilibrium real rate gradually rise? https://thefaintofheart.wordpress.com/2015/04/13/ruled-by-a-phantom-rate/

Scott Sumner revisits negative IOR, six years later: Second thoughts on negative IOR
Of portfolio rebalancing and "flightly deposits": Monetary policy is not about banking
"Given their insane stance on monetary policy, their stance on fiscal policy makes sense." The ECB has expected AD growth right where it wants it

Scott at Econlog:
Address the root cause of investment deficiency: Low interest rates do not call for more investment
Why do free market economists hold workers accountable for money illusion? Don't blame the workers
Scott highlights a study re downward wage inflexibility and the business cycle: There is no sticky wage puzzle
A response to Governor Chris Christie's suggestion: The wrong way to fix Social Security

The "Saving/Investment Hypothesis" versus the "Liquidity Hypothesis" (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/secular-stagnation-liquidity-and-rentprice-ratios.html

Excessive reliance on monetary policy...really? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/04/10/u-s-chides-europe-japan-for-overreliance-on-monetary-policy/
Benjamin's referenced WSJ article provides rant material for Kevin Erdmann as well: http://idiosyncraticwhisk.blogspot.com/2015/04/odds-ends-and-imh.html
Economic growth? Not on the GOP agenda (Cole) https://thefaintofheart.wordpress.com/2015/04/12/is-the-manhattan-institute-digging-a-hole-for-the-gop/
A growing underground cash economy? https://thefaintofheart.wordpress.com/2015/04/14/at-zlb-deflation-high-tax-economies-go-to-cash-well-duh-the-banana-states-of-america-or-japanification/

If people are trying to learn more about the Fed, they're not having an easy time of it (Bonnie Carr) https://dajeeps.wordpress.com/2015/04/10/another-episode-of-people-can-just-say-anything-anything-goes-cnbc-explains/

David Glasner responds to commenter JKH: http://uneasymoney.com/2015/04/14/jkh-on-the-keynesian-cross-and-accounting-identities/

Tuesday, April 14, 2015

Wage Growth? Context Counts

Adam Ozimek is concerned, and with good reason, about a growing consensus as to the need for wage growth. Why? Because of the terms by which this reasoning is often structured. When one hears arguments for wage growth, are those arguments to increase wages for some? This framing is incomplete logic, because it has nothing to do with wage growth in an aggregate sense.

By no means do specific wage adjustments imply increased growth overall, or an improved economy for that matter. Whereas, increased wages in aggregate would have the potential to move central bankers closer to the normalization they now seek, and improve labor force participation at the same time. The different is important. From Ozimek's recent post:
So when economists like myself argue that the Fed should let wages grow fast before raising interest rates, it sounds like it has a lot in common with the "new consensus" arguments. In fact, it is a distinct case for higher wage growth, and it is quite possible to believe, as I do, that we should be dovish about cyclical wage growth now, but be very wary about trying to mandate higher wages in the long run. Nevertheless, a chorus of economists making the cyclical case for faster wage growth is useful background noise for those making the "new consensus" argument for higher wages.
Ozimek continues:
This is all to say that those who don't buy the "new consensus", again including myself, have a lot to worry about. While you do read pieces that challenge individual elements of the "new consensus"...there is nothing with the same coherent and oft-repeated narrative...Rebuttals are piecemeal, attacking the minimum wage or unions alone, while the new consensus provides a whole story. Just as importantly, those voicing dissent are outnumbered...Nobody else has a very easy-to-tell story right now, or at least those that do have good stories aren't addressing the recent trends in empirical evidence. 
He concludes that others need to do a better job of presenting their case, particularly given the fact this will be a substantial part of Hillary Clinton's economic agenda. While her focus is in some ways a positive - especially since little about the economy is actually "back to normal", the context is problematic. Wage growth for "deserving" groups as "new consensus" focuses on minor tweaks to existing equilibrium, rather than much needed overall growth strategies.

For instance, consider how different the market monetarist argument actually is from the "new consensus". What is needed is aggregate wage growth that is capable of assisting labor force participation as a whole. More than anything, the Great Recession was an outcome of the fact the Fed abandoned support for already existing income based commitments, just when they were needed most. Even though aggregate spending capacity has followed a relatively stable path since, there's little guarantee the "new consensus" would contribute to gains for the earlier growth trajectory. Especially since the present cap on inflation, could mean that increased wages for some would (instead) lead to further losses in economic access, for others.

Part of what makes it difficult to provide a cohesive message for wage growth, is the fact that real supply side reform is still needed - not public announcements of intention to come to the aid of a "struggling" middle class. A considerable amount of aggregate supply and demand were destroyed when the Fed took the actions which exacerbated the Great Recession. This lost capacity is still reflected in a marketplace suffering from limited investment, and limited options for both producers and consumers.

While the Fed has long since allowed "bygones to be bygones" (the earlier level of output), residual problems in this regard still thwart their desire to raise interest rates this year. As a result, there has been so much reaction to the Fed's intent, that a "windfall moment" for symbolic wage hikes may well be the result. Just the same, it is difficult to imagine targeted wage hikes as the kind of cyclical response which would have actual impact. Hence there is likely to be confusion as to symbolic wage gains, as opposed to the real wage gains, that would indicate the actual growth environment the Fed - and supply side participants - are still reluctant to provide.

Monday, April 13, 2015

Knowledge Use and Alternative Equilibrium

Everywhere one looks, knowledge appears as though in abundance. Yet somehow, not much of it is actually being measured or applied in concrete ways. Even the digital realm suggests better means for economic infrastructure which have yet to materialize. How might these circumstance be changed? For one, both practical and experiential forms of knowledge need to be expressed through more personal means. Over time, pathways for voluntary forms of association, could prove amenable to services growth for the long term.

In primary equilibrium, personal time value is not well represented in any segment of the economy. However the need to explore skills development through individual relationships - and not just existing institutions - is a recent development. For centuries, primary equilibrium evolved through individual relations with specific resource sets. Resources were often personally shaped into product, then presented to others. Gradually, these personal production roles were supplanted by institutions which became intermediary production points. While this process still works to some degree, it is now insufficient for labor force participation as a whole.

Primary equilibrium particularly became dependent on expanding production cycles, in order to fund the knowledge use of high skill services. However, both traditional forms of production and services centralized to a degree it was often not possible to sustain them at local levels. Better targeted forms of wealth creation are now needed, in part because the roles of both Wall Street and governments alike are both increasingly questioned. Main Street has stumbled through its own uncertainties for decades, and many places need to become more directly involved in the wealth creation capacity that is now needed. Fortunately there are possibilities for doing so, through the alternative equilibrium option of knowledge use systems.

Alternative equilibrium would allow groups to individually match time based compensation. This process begins with the degree of local environment that a given group is capable of committing to at the outset. Instead of differences in local hourly pay, income variations would (gradually) arise through local investment options which all participants would commit to at some level. While time based services coordination provides an alternative to income taxation, shared local investment provides a viable alternative for other forms of local taxation. These investments would include everything from production and maintenance of building components, to local municipal grids.

While time coordination is inclusive, focused and ongoing efforts would be required, for local participants to gain the time availability of other locals whose time capacity they value most. Given the fact that all desired skills sets can only go so far, this is taken into account for local educational efforts - an important factor if time arbitrage is to be successful.

The finite nature of time means that competition arises at a personal level, to prove "worthy" of what one desires to match in services and other ongoing activities from others. Given these circumstance, "fairness" becomes less of an economic issue. Why? Constraints are more clearly that of personal and group time use options, as opposed to the institutional and educational barriers that one finds in primary equilibrium. Likewise, constraints for monetary compensation overall are more obvious when local participants are invested in the system itself.

How to think about variation in equilibrium? Many knowledge use systems would seek infrastructure which is capable of generating good deflation through ongoing innovation across a wide spectrum. What's more, these systems would seek to make the most of tradable goods, international trade, and innovation possibilities from international sources.  This combination of methods would also provide room - i.e. a form of group support - for the life of the mind, which often lacks settings to manifest in ordinary circumstance.

Most important is the fact that knowledge use systems cannot be built upon either external definitions or controls, because this would take away both freedom and incentive to pursue personal challenges. In other words, any attempts to dictate how individuals divide divisions of labor would only defeat the purpose, because divisions of labor for services need to be arrived at through spontaneous means. Otherwise, it would be difficult to determine the reasons why individuals seek one another for assistance, encouragement and social activity in the first place. This - after all - has been the primary problem with the top down structures of services formations of the 20th century.

Saturday, April 11, 2015

Natural Ability in Time Aggregates Context

Something about a recent discussion regarding innate human abilities, feels as though zero sum. Noah Smith and Scott Alexander went further into the particulars of Carol Dweck's growth mindset work than I am prepared to go. Still, I have to ask: is there a hard line between the success factors of innate ability, versus a strong work ethic? There are strong subjective factors in this regard, and "Lady Luck" also plays a role.

For instance: who doesn't adopt a stronger work ethic, when the work or education in question has a reasonable likelihood of eventual rewards (at some level) for one's commitment? Someone may even be trying to convince the student or worker that some reward - however tiny - is forthcoming. But chances are, in order for personal stamina to be maintained, that message needs to be duplicated somehow.

Rewards are also questioned, if it appears that education is all dressed up with no place to go. Why give false hope to those who supposedly don't have the stamina anyway, to follow through with their "highly illogical" hopes and dreams? Let's turn this argument on its head. What if all this negative judgement has more to do with the fact that the elite have become uncomfortable about maintaining a normal degree of aggregate demand? In other words, what if few are ready to generate a broad marketplace of knowledge and time based goods, for both producers and consumers?

Plus - given the present confusion as to economic circumstance - those wasted time investment arguments could still "win the day". Why? Right now, there are only so many knowledge use slots that can be compensated, by the external time use values assigned within primary equilibrium. And with ever more calls for tight money, the knowledge use slots which presently exist, could be further diminished.

Hence, might it be the end of the road, when people do not try "hard enough"? At what point does a public "judging" take place, if the masses do not expend sufficient energy to gain or "deserve" economic access? Is it possible to prevent human potential from needlessly dividing...even further? Today's matching processes for economic access mostly take place between a limited number of institutions and multiple individuals. Work based settings are also needed, which are capable of arbitraging multiples to multiples.

There are problems in the institution to multiples matching model. In time aggregate context, asymmetries now exist between the production and consumption for knowledge based services product. Indeed, one eventually ends up with a peculiar default scenario where due to constraints on healthcare production - as one commenter noted recently at Marginal Revolution - the eventual "cure" for cancer that most insurance companies may be willing to compensate for is...aromatherapy.

Wait...what!? What about the abundance of smart and extensively trained minds who stand at the ready to heal people? Scott Alexander - not the real name of this physician blogger - is among this group. But default positions in the artificially limited spectrum of healthcare are not very promising, right now. As far as career choices go, healthcare is also not going to appeal to every ("sufficiently") bright mind, because of the terms by which it is presently constructed. Some bright minds will not make the necessary sacrifices, because of heavy demands on both personal time and resource use.

It's difficult to express optimal aggregate supply and demand in terms of time based product, when no direct marketplace for time arbitrage exists. How many would consciously choose healthcare consumption for instance, if marketplace size were representative of natural, time based motivation? No one knows. Because time aggregates are missing in both producer and consumer context, individual choice does not line up with with the time based decision processes of any given group.

Observed prices for time based knowledge product, are often the result of political measures. These prices are less flexible, than the prices reflecting product which essentially exists separately from time use. Time use needs to be able to operate as a natural price mechanism. One's allotted hours in a day have a specific finite nature, and they exist as a fixed quantity relative to vast differences in other resource capacity. Without a marketplace for time use, any assumptions as to natural abilities are mostly educated guesses.

What's more, there is a often a "free lunch" of additional resources involved, when compensation for knowledge use becomes externally defined. The additional resource context which contributes to income privileges becomes a part of social patterns. This resulting natural ability and work ethic gets passed down to subsets of the next generation, but through income capacity instead of landholding.

All of which gives rise to natural limitations in knowledge use dispersal across populations as a whole. There are a couple of problems with this model. Populations assume the desired activity is more widely dispersed than is actually the case. It's difficult to envision knowledge use inequality, because knowledge is assumed to be able to carry out most necessary functions in the buildings which seek to represent it.

Governments will understandably continue to have the authority, to designate a number of "free lunches" for natural ability. In other words, they will be able to compensate a certain amount through unknown quantities of additional resources. But when nations endure recessions and budgetary constraints, questions quickly arise as to how many exceptional minds can be rewarded to the degree they appear to warrant.

The problem is not so much that skills capacity is compensated externally in a limited capacity. How else could the compensation of knowledge dispersal have begun, if not through the organizational capacity governments hold? However, government's role in the process is mostly complete. In the meantime the future of knowledge use is uncertain, and it remains suspended in a fragile state until preservation is sought on the part of populations as a whole.

Freedom is a vital part of the knowledge use preservation role. Time use freedom would also preserve the human capital investments which were avidly pursued and encouraged throughout the 20th century. Now that governments are becoming overextended in their obligations, they need to consider alternative means and settings for knowledge use and skills capacity. Varying degrees of natural ability need to be brought into the marketplace. Otherwise, too much human capital potential could die on the vine, for lack of economic access in primary equilibrium.

And it is possible to do a better job of tapping into natural ability, through the internal means of time arbitrage. By organizing activity from local time aggregate calendars, individuals can schedule both short and long range plans for skills portfolios. Personal effort and natural ability would not be questioned to the degree they are whenever skills compensation is limited by design.

Noah Smith begins another recent post:
One time, at a dinner, I asked a famous macroeconomist: "So what really causes recessions?" His reply came immediately: "Unexplained shocks to investments."
However in a sense, the recent shock to human capital is not unexplained at all. In recent decades, passive forms of investments came to replace the more active investments of traditional production. In this environment, it would have been difficult for knowledge use to gain more active positioning (through alternative services production), without disrupting the existing marketplace. As tradable goods production expanded across the globe, non tradable sectors elected to generate profits and windfalls through less innovative, less efficient means. All too often, governments and special interests alike profited by widening the placement of the goalposts.

In all fairness there were few easy alternatives. The process proceeded normally for a long time, and was in part about the improvement of living standards. Many who already benefited from a high degree of natural ability, didn't question the moat that was set up by governments and special interests alike. There are times when nothing is wrong with widening the distance between point A and point B. The problems occur when everyone is expected to bridge that space, or else.

Non tradable goods became the marketplace where innovation with broad gains, dared not speak its name. Good deflation in terms of knowledge use work or building environments, would have mostly meant smaller budgets for governments and fewer profits for local special interests. Just the same, the moat of high expectations has meant more hard questions for both natural ability and motivation. Who is still strong enough, to go the distance? It depends...

Thursday, April 9, 2015

All "Educated Up", With No Place to Go

How is this possible - a moving towards "inevitable" secular stagnation - given the high level of societal commitment to time based investment? Have the investments of human capital been forgotten? Think about what education at all levels has worked to produce for so long - a broader level of intellectual capacity than otherwise would have been possible.

Normally, one thinks of production as either intended for consumption, or else as an intermediary societal position which is intended to further more means of production. Even though knowledge based consumption holds value in and of itself, the value of consumption is greatly increased whenever knowledge is allowed to provide for both means and ends of economic endeavor.

The work of the mind can easily be lost, when its capacity is treated primarily as a consumption good to further special interests. All too often, the challenges of the mind get little respect, for they are treated as expensive consumption signals which might gain economic access. For reasons that are difficult to fathom, there have been few organizational attempts to tap a vast wealth of educational gains in the marketplace.

More of the U.S. population is already well educated with "no place to go", than anyone can comfortably acknowledge. Granted, there are those who do not have sufficient education to take part in knowledge based endeavor. Still, the greater reality consists of many who are marginally employed, given the skills capacity they would be able to bring to the marketplace.

One of the stagnation arguments which especially frustrates me, is the idea of slowing population growth as supposedly responsible for the current economic malaise. Particularly given the fact that many baby boomers remain at a point in life when they seek to engage in time and knowledge based services at multiple levels. The older one becomes, the more important the life of the mind becomes, and individuals crave the experiential product of time value.

Even though there are cultural factors which play into reduced manufactured goods consumption, this sector nonetheless remains limited because of present day housing costs of entry for lower income levels. For the most part, reductions in family formation are related to a lack of economic access and limited opportunities for advancement. With a time based marketplace for knowledge use and services, and an innovative building approach, education and the people who take part would have more "places to go". In turn, family formation would return - alongside higher levels of consumption for manufactured goods.

Greg Ip mentions the population argument in this recent contribution to the stagnation discussion, but fortunately he highlights more substantial arguments. Like Jason Furman, whose WSJ article I referenced in yesterday's post, Greg Ip is concerned that productivity growth has slowed in developed countries.

Most important: Greg Ip highlights the lack of discussion regarding supply side circumstance. After noting that both Bernanke and Summers are still ignoring monetary policy, he continues:
Something else I think is missing from Mr. Summers and Mr. Krugman's version is any role for the supply side of the economy. Mr. Bernanke himself says that "the secular stagnation story is about inadequate aggregate demand, not aggregate supply." Yet many of the symptoms of secular stagnation are consistent with not just weak demand, but weak supply - that is, slower growing labor, productivity or both.
Understandably, policy makers have good reasons for their reluctance in stressing supply side issues. And not only because it's difficult to know where to begin. Who wants to antagonize multiple groups with a "get your act together" message, in order to encourage growth? And how - exactly - are the wildly diverse elements of supply side interests supposed to respond as a group?

There are multiple factors in these circumstance and while many participants are responsible for a consequently limited economy, limits hardly exist in isolation. Fortunately, there are ways to target new growth through which the assistance of various supply side groups can be sought, instead of needlessly putting them into a difficult position. What's more, the supply side isn't just about special interests in terms of traditional production. Production reform needs to address what isn't widely recognized as the most important supply side factor: knowledge utilization.

For anyone who is concerned about knowledge use, the fact that much of it remains in government hands is worrisome, because government does not have the capacity to extend this valuable marketplace to all who actually need it. If that were not enough, government budgets cannot hire all those whose education has no place to go. I can scarcely blame Brad Delong for his recent wishful thinking, in regards to more government funded services than are presently the case. And if nothing else, I wholeheartedly agree with him that a future without sufficient future knowledge based services would be economically catastrophic.

But how to convince Keynesians that populations could prove capable of knowledge use preservation through voluntary means? In the U.S. a lack of services at local levels, has bearing on the fact that more individuals are abandoning the idea of knowledge use as meaningful economic growth. There are plenty of specific examples in this regard, but they are so politically charged that I would rather not "go there", if possible. Suffice to say I never imagined that anti-intellectual arguments would ever be taken so seriously, in my lifetime.

If production reform cannot be tapped to bring broad based knowledge use to populations as a whole, education may lose its time investment potential. But even worse, is the possibility that individuals become convinced education serves little purpose. Let's make certain that this does not happen.

Wednesday, April 8, 2015

Some Thoughts on Globalization, Going Forward

How does globalization still matter? Is it possible to return to the positive global outlook which was still widely shared, a decade earlier? Even though financial overreach played a considerable role in the global slowdown, it helps to remember that this was hardly the first time. Societies need to take it to heart, to refuse to allow finance to ruin perfectly good economies which simply need a chance to evolve. Credit tends to develop an oversized role in multiple dimensions, whenever other supply side factors are neglected for too long.

This time, even though many banks received the assistance they needed, other aspects of the economy lost ground in the fallout of the Great Recession. Nominal spending in particular took a dive, while the dysfunctional supply side factors which led to a growing finance sector in the first place, were never addressed.

Among those supply side issues: building components in many circumstance and locales, have yet to receive the benefits of innovation or technological gains. Plus: not only is there a need to rethink labor force participation in services, but knowledge based growth needs to happen on measurable and understandable terms. As Jason Furman recently noted, neither Larry Summers or Ben Bernanke addressed productivity growth in their stagnation debate. And Furman believes that productivity growth is the most important economic question facing the nation.

For one thing, production reform is not a top down responsibility to be dictated from either national or state levels. Instead, new forms of local organization would integrate services and asset formation for coordinated results through the same monetary means. By way of example, these groups would not be dependent on pension or retirement funds which attempt to "predict" a future based on investment strategies which work in the present. Instead, risk sharing through the coordination of local time based aggregates, could bring a greater measure of predictability to the later years of one's life. The safety nets generated by monetary means, would also be augmented by time investment.

Developed and developing nations alike need new strategies for knowledge based services, which recognize a common set of rights for the use of human capital. Given the fact that developed and developing nations might build knowledge based communities at the same time, they could seek mutual benefit from the sharing of infrastructure options for similar income levels.

One can only hope that nations do not give in to a globalization backlash in the near future. Nations need to remain open to the positive benefits of tradable goods from everyone concerned, and doing so would make it much easier to implement new strategies for non tradable goods in local communities. However, the financial activity which had previously been globalized, is not as beneficial. Many aspects of non tradable investment activity would need to be internally driven. By so doing, knowledge use communities would be able to use investment planning to generate ongoing projects for the long run.

A recent E21 article suggested that the states should take a larger role in the economy. While this (somewhat political) strategy sounds good on paper, it helps to remember that state governments are in circumstance similar to that of Washington, regarding their commitments to special interests. As a result, most states aren't yet in a position to determine means for increased labor force participation, for instance. From the E21 article:
The solution is to move the provision of welfare benefits back to the states, who can better evaluate which residents need help.
Right now this would not work, because states remain quite dependent on Washington for the limited services marketplace of the present. Instead of rushing to shift responsibility, a better strategy would be to seek states approval to implement knowledge based communities projects. Decentralization needs to take place through incremental means. Success stories in this regard could help states to make room, for both citizens and municipalities which suffer from limited economic access.

Nations are more likely to remain open to one another for trade possibilities, if they are able to generate new growth at home through production reform. Productivity needs to be better understood, at the level of non tradable goods and service sectors which became so important in the 20th century. Done right, non tradable goods sectors could provide a strong backbone for economic structure, instead of contributing to the downfall of tradable good sectors as has been so often the case. This is no time to give up on globalization and continued growth. Both just need a second chance.