Wednesday, September 17, 2014

Changing the Debt Equation

Complex debt issues have become a fact of life for both governments and individuals. Some formations in this regard aren't problematic, whereas other debt structures are aligned in ways that are not conducive to long term strategies. How to tell the difference? So long as government debt is acquired for circumstance with definite start to finish timelines. it remains amenable to the resource windfalls which can eventually whittle away past obligations.

However, when debt obligations become permanent in terms of provisions for retirement needs and expansive operating expenses, they can become problematic. That is particularly true, when debt is associated with aggregate time use negatives in populations which result from service structures. When too much government debt is forced to compensate for low skills valuations, it becomes difficult to detect the points where obligations can't be met through normal resource means.

Many primary debt formations are closely related to the non tradable equilibrium which represents assets to services flows. What's more, the real catch-22 for government debt loads is the lack of incentive for today's services structures to reform from the inside. For government, changing the debt equation means being able to adjust some services formations where they become capable of generating wealth directly, instead of through redistribution and production residuals.

For now, resistance to change on the part of special interests has also resulted in a backlash from the left. Calls for a debt jubilee on the part of the Occupy movement, are in a sense a reaction to the government generated equilibrium between asset and service formations. As Kevin Erdmann noted, the jubilee concept is conservative in the sense it seeks to preserve institutional formations as they have already existed. Of course the paradox is that much of the loan forgiveness would extend to portions of the marketplace (education and healthcare) which never had a chance to develop in free market terms in the twentieth century.

How to think about debt obligations in terms of family formation? It depends on income levels. While higher incomes can lose time use efficiency, particularly through tight definitions in asset formation (housing), debt related problems for low incomes tend to manifest as income deficiencies. Hence in debt based terms, the real scarcity tends to manifest in income among the poor, much as the same mechanism manifests in a lack of time for those with greater income. Timothy Taylor notes the similarity of higher and lower income response to this factor:
If you compare my own behavior in living deadline to deadline under a shortage of time, and the behavior of a low income person in living check to check with a shortage of income, some of the patterns look much the same.
This has bearing as to why so called "excess" debt structures are not obvious in terms of aggregate resource valuation. It makes little sense to insist on arbitrary divisions of resource use - for instance - which condemn individuals to live their lives within extremely limited social contexts. This is important if only for health reasons, in the sense that a life of solitude can decrease life expectancy to a greater degree than either smoking or obesity.

Hence, it can be difficult to disentangle what is necessary for anyone, from what may be construed as hedonic in measures of lifestyle gains. When we are forced to think about practical decisions for resource use, it makes more sense to consider one's time use perspective first. Otherwise, the arbitrary nature of hedonic measurement - enlightening though it may be in some respects, might not clarify societal needs. Also, it can be helpful to look at time use obligations for producer/consumer options at all income levels, so that changing the debt equation becomes possible in ways that all income levels have a chance to benefit.

For a low income family, government gains in the form of housing asset flows can sometimes be the family's loss, in that little is left for other necessities of life.  Mortgage and installment debt for families in the bottom quartile are far greater than credit card debt, for instance. Natalie Scholl's chart illustrating the leverage ratio of the poorest families, is a good indication that irresponsibility may be a smaller factor than it seems - particularly given the fact that installment debt is often necessarily to finance the car that gets one to their work destination.

If individuals are willing to commit to responsible processes more than they are given credit for, how can this be parlayed into constructive structural change? Many options exist at local levels to do so: if not where people live and work now, in new decentralized settings which can generate local investments to keep economic dependence on distant governments and cities to a minimum.

Not every city wants to take part in the methods that change debt equations, and understandably so. For instance, a news report on tiny houses came with a disclaimer from Austin, that structures such as this would be considered viable! I would have been quite surprised, had the news report been otherwise. Just the same, more cities and towns will find it in their best interests in the future, to seek new ways in which to change the debt equation.

Midweek Market Monetarist Links and Summaries - 9/17/14

You still want to talk about inflation? Okay...let's talk cars (Scott Sumner) The Great Inflation
At least the U.S. accounts for hedonics in its measurements...Further thoughts on "inflation"
Williamson's error is easier to forgive than the conventional wisdom "which views low interest rates as easy money" Williamson on monetary policy and interest rates
They have too much momentum to be losing ground now: China is still reforming
From Econlog Once again, tight money is the Achilles heel of the right

Nick Rowe and David Glasner agree that Walras' Law doesn't work but after that it gets confusing...
Scott Sumner asks David what is being differentiated, re the excess demand for money

A response from Nick Rowe for David and Brad: non monetary shocks can still cause a monetary coordination failure:
How to think about differences between countries?

When the specter of inflation destroys commitment (Marcus Nunes)

Who will step on the elevator next? (Benjamin Cole)
History gets revised!

Their growth trajectory continues to flatline (Lars Christensen)
There has been a correlation between the dollar and the NGDP gap in the past five years:
Scott Sumner responds to Lars: Level vs growth rate targeting
Lars explains the Mankiw rule:

"UK macro is really quite boring at the moment, and I cannot be happier to report that news." (Britmouse)

Bill Woolsey responds to the 4% post by Lars: The Fed's new 4% target

(James Caton) Endogenous credit creation and nominal income targeting: in defense of nominal income level targeting   Bill Woolsey also responds to Caton's post.
(Caton) Lesson of the gold standard: The central bank should target nominal income - revisions to my latest paper

This post includes a "cute" robot that a farmer would find most helpful...(Kevin Erdmann)
A thoughtful post about Jubilee:

Also of interest:

U.S. has the 32nd most competitive tax code out of 34 advanced countries (James Pethokoukis)

Poverty has changed little since the Great Recession

Tuesday, September 16, 2014

What Constitutes a Free Labor Environment?

Freedom in our choices of designated time use is not as simple as it may seem. Decisions we make, depend on a wide range of realities within already existing settings. Do the producer and consumer options we want actually exist, or do we have to follow paths which are already laid out? One might really want to work part time in a career that is mostly available as full time (or more) commitment. Or, one may need to pay for living expenses which require a full time salary, when only part time job options are locally available.

What forms do relationships take, within already existing settings that individuals and institutions conform to? What specifically about those relationships meets the economic needs of all concerned - or not? Over time, relationships once taken for granted start to shift, as dedicated resources begin to align differently within (and without) the system in use. What's more, relationships which once had a context that made sense to the participants, start to take on moral overtones when they are not readily amenable to change.

Slavery is of course an earlier example in this regard. Recent posts from Scott Sumner and Matt Yglesias reminded me of an intention to further explore this area - especially after Piketty's thoughts on slavery and graphs in his recent book which place slavery in the context of capital. Just the idea of slavery as capital is telling enough, and time use elements have been falling away from definitions of capital since the abolition of slavery.

Much as slaves had to reinvent their lives after freedom, each wave of recession means more individuals search for ways to reinvent their lives when the old definitions of work continue to fall away. When realistic options for economic access don't always exist, "freedom" is mostly a relative concept.

For instance, in a recent Econlog post, Scott Sumner speaks of the kinds of limits to freedom which people encounter now:
Blacks (and whites) are legally barred from many professions by occupational licensing laws.
Many people aren't used to think of their freedoms being limited in this manner. Indeed: for a long time, limits such as this might not have even seemed problematic, so long as adequate economic choices existed elsewhere.

In a sense, people can be forgiven regarding sentimentality about the "lost" manufacture which was skills intensive. When manufacture needed many hands, it was not hard to find places for all who wanted to take part in the marketplace. And today's manufacturing alternative does impinge on what was once the traditional territory of the few: the kinds of knowledge based services which proved so rewarding in pay structures throughout much of the 20th century.

As a result, the "bad news" is that the desirable service work which most could perform well into old age, now needs to be more widely shared. Of course, for anyone who does not have access to knowledge work, that is also the good news. What's more, it is the only logic which makes sense for the kinds of education which students are expected to pursue through the course of their youth. What's the point otherwise?

Why should anyone end up as a "slave" to all the unwanted work which everyone seeks to avoid? Not only can much of the drudgery be given to automation, the remainder which requires more thought can be shared with the work which gives all individuals a chance at a full lifetime. Doing so would bring people of all ages back into the same environments with one another, as well.

No one should have to be expected to carry the full load of difficult work which no one else wants. And yet this happened for many, particularly as the 20th century gave way to the 21st. What ultimately feels as though slavery of one form or another, often begins as coordinated attempts to carve out distributional flows which populations wish to rely on for economic certainty. Some of these patterns existed for centuries before they needed substantial change, which is why it is so hard to change now.

One way to move beyond gridlock is to listen to all voices and ideas, as to how to proceed with new work patterns. Otherwise, old ways of thinking about work will continue to run contrary to the potential of today's skills capacity. That is why it is important not to take existing definitions of the marketplace for granted, when the marketplace becomes problematic. When people forget that production and consumption are amenable to change, everyone ends up struggling. By attacking the root of the problem, much of the struggle can eventually be resolved.

Sunday, September 14, 2014

Where is the Foundation? (A Response for Lars)

Does a reasonable argument for an undeclared nominal target already exist, tucked away within the corridors of central banking? Certainly, market monetarists could hope so. Perhaps the logic has really been there all along since the Great Recession and we just didn't realize it. Recent posts from Lars Christensen suggest that the present level target of 4% could be purposeful along those lines. More importantly, he reaffirmed his belief that we need to let bygones be bygones, thereby accepting both the lower output and the growth path which has resulted since the Great Recession.

Regular readers know that I'm not convinced. Not only do I feel that the present (unannounced) level target is too low by at least a percent, but I also believe it is a poor strategy for the Fed to give up on lost output. Who exactly took the which we all gave up on future growth? In this response for Lars, my first concern (and that of others as well) is whether market monetarists can rely upon the seeming "goodwill" of the Fed to maintain a steady level nominal target. Even if the Fed has inadvertently done since 2009, to a relative degree.

Of course it helps to remember that an approximation of said target, versus a well voiced commitment to a steady nominal level, are far and away not the same thing. If one was to think of this "fortunate" reality more concretely, it's not at all clear that the Fed is very enthusiastic about the implied relationship with market monetarist expectations. If it was, not only would a potential nominal target rule be under active discussion, the Fed would also make that clear to the public as well. Sometimes I wonder whether the public will eventually convince the Fed of the importance of a nominal target, instead of the other way around.

As a result, little about the hopeful assumption on Lar's part really feels solid. Granted, to outsiders the U.S. can appear economically healthy compared to other countries, but many of the positive statistics are coming from cities of which economic circumstance are quite different from the country as as whole. In the U.S., the Great Recession should have been a strong signal for our governments and business interests to get their acts together and overcome the obstacles which stand in the way of innovation and the potential of a digital age. Instead, we have been subjected to moral stories about finance over and over again, as if our economic lives are somehow supposed to consist of little else than bank loans.

Hence, should we rely on hopeful assessments? Or will the first sign of high winds (i.e. the next really negative supply shock) send central bankers running for cover, once again? Supply side issues concerning Obamacare are one thing, as frustrating as they are. However, a primary concern is whether the Fed believes that certain commodities are worth a lot more than the economic participation of actual human beings. Unfortunately, I suspect this still holds true. How does anyone know that central bankers will not overreact again, should oil prices suddenly spike?

Without a level targeting rule in place, it's difficult to assume anything! But if one is willing to settle for "comforting" numbers in the meantime, how exactly does that improve the chances of gaining a rule for a nominal target? In the meantime the Fed continues to take on roles which imply it is capable of doing much more than its assignment actually allows. Even though the Fed concentrates on aggregate demand issues, it spends quite a lot of time debating and studying supply side issues - whether or not it is not in a direct position to do anything about them.

Worse, no one else is in a position either, to be responsible for the supply side problems which continue to create economic gridlock in the present. In spite of ongoing papers which continue to get churned out regarding both demand and supply side conditions, no one is preparing to take real constructive action on supply side aspects of this work as far as I can tell. If they were, we would not have already "gotten the memo" that real growth is out of the question.The problem for both the Fed and the U.S. government is that too many special interests have become highly resistant to needed change. The only way to circumvent the resistance is to begin the process of experimentation around the edges. This needs to happen before the possibility of greater growth in the near future is completely ruled out.

The Fed needs to do its part to break the logjam between government and business interests, instead of contributing to it. This is what worries me most about any praise for the Fed, even though I do not judge them as harshly as I once did. There is a chance that praise for them now, will only be interpreted as an "all clear" signal to move ahead as though everything is back to normal...when it clearly is not. What is problematic for market monetarists is that the Fed is still working from a perspective which lines up with the needs and expectations of finance, rather than the public as a whole.

In short, this is no time to declare victory. Not only is the present growth trajectory far short of its potential, but the purpose and intent of a nominal target is not yet obvious to the public, as a true source of monetary stability. As long as people associate money with financial concerns instead of the reality of their economic lives, not much can change. One only hopes if and when a nominal targeting rule is finally adopted, that its adoption will be associated with success and renewed prosperity, rather than the lack of it. There is still much work to be done.

Saturday, September 13, 2014

A Double Coincidence of Medium of Account

Yup, I didn't exactly make that clear in yesterday's post: new community "starts" would also rely on a local medium of account. It would represent time capacity separately for a monetarily compensated and aggregated base, whereas the primary monetary medium of account exists in normal economic context. This (still quite imaginary) reality of a double coincidence would exist for communities or local areas which would want to start fresh in economic terms. So how does one juggle the idea of money as central to the economy, while aggregate time use also holds a central function?

Aggregate time use would create a base in the form of a startup or entry (wealth creation) function, which then connects to local resource and investment potential. This is a better form of economic integration, than the base function a guaranteed income would provide for inadequate labor force participation.  Any form of guaranteed income is a static response, hence problematic in that it remains incapable of adaptation to constantly changing supply side conditions. One might say life isn't "fun", when populations end up arguing for improvements of underrepresented constituencies on their "behalf". What's more, this form of compassion does little to improve unresolved supply side issues.

Okay, the above paragraph also includes an idea why I believe a double coincidence of medium of account would be worth the bother. Time use aggregates allow producer and consumer functions at individual and local levels which are otherwise not possible. Instead of a static afterthought of an income base, create a dynamic time use base. The (parallel) medium of account function provides a direct monetary anchor for what otherwise does not always appear as monetary activity - given the barter aspect of coordinated time use. When I titled this post, a quick look at Wikipedia made me recognize my post title as an attempt to solve a double coincidence of wants:
The coincidence of wants an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions.
Wait...what? This description is quite useful but our problem is not for want of money - it's for want of time. There's plenty of money to be had for overall resource representation, and yet it continues to exist in tight monetary conditions in that time is not well represented. Small wonder these discussions can get so confusing. Hence my suggestions for coordinated time arbitrage alongside the production residual which provides abundant money...if somehow inexplicably limited output, as recent blog "battles" can attest. It's difficult to imagine aggregate time constraints as a central factor in all of this. And understandably so, because most individuals who participate in these dialogues already receive adequate time compensation though additional resource aggregates.

Once and for all: I need to disassociate the idea of time use or skills arbitrage from barter in general. What's more, that holds true either in terms of time or resource use. The above linked Wikipedia source explains a bit of the friction involved, particularly in resources or commodities separate from time:
In-kind transactions have several limitations,  most notably timing constraints. If you wish to trade fruit for wheat, you can only do this when the fruit and wheat are both available at the same time and place...
Fortunately, this is the kind of constraint that pricing mechanisms have overcome so well for goods and commodities. On the other hand, service functions have suffered in that we attempt to provide them by generating time use negatives (gross skills devalue) within aggregate settings. In some circumstance, surplus resources (and the money which represents them) are capable of substituting for unnecessary time deficiencies.

Often however, not so much. Since the Great Recession, resource substitutions for aggregate time loss are less effective, hence the painful pullback in output potential. Monetary policy could have maintained output on a steady trajectory in 2008. Instead, the Fed and other central bankers strongly overreacted to a general perception that it is impossible to reconfigure the services supply side, for continued growth in the long term.

Growing use of a double medium of account, could eventually recapture the earlier growth trajectory. What's more, accounting for time use in a direct monetary sense (even in limited scenarios) can shift pubic perception regarding time use as central to monetary representation. This is important within the context of income or wage targeting. Over time, the resultant increase in production/output, would give impetus to real GDP formation that could eventually close the output gap and give further credence to the option of a nominal targeting rule.

How might one consider the possibility of inflation in the interim, as knowledge use systems gain public acceptance and start to multiply?  Chances are, this would not be problematic, because monetary compensation for time arbitrage is more direct than the open market operations which have attempted to compensate for inadequate labor force participation. As time arbitrage becomes integrated into the overall economy, greater demand alongside further asset formation would follow. While various forms of guaranteed income (on the other hand) could provide economic "relief" they would not be capable of integration at this level.

Let's consider some long run implications of time use arbitrage. Perhaps the most important is that a growing use of time arbitrage would make it possible to shift economies toward time use and knowledge use as primary wealth. This is particularly important in the face of gradually declining fossil fuel consumption, for time use aggregates also mean the capacity to reach economic goals in smaller population densities. The creation of high density knowledge use environments is a step in the right direction, to maintain a strong GDP growth trajectory, well into the future.

What about the sticky wages aspect? In a short term sense, time arbitrage appears as though a partial solution for sticky wages but this is understandably a tough selling point. Time use arbitrage is likely not for most individuals who have a good chance of turning an expensive college degree into a well paid career. Rather, those at the margin in income based terms would have greater incentive to seek alternative economic strategies.

What happens if these new economies become prosperous over time? Their compensated time use base becomes more substantial, thus new entries into these original formations become more limited - just like today's existing desirable cities which can only take so many comers. The solution is generating further knowledge use economies which work towards the same forms of prosperous maturity. One could imagine a long term scenario for some new communities, in which local production becomes so substantial that even the local time use base approaches median income levels. A time use medium of account acts as starter fuel for new communities, where others have already matured.

Last but not least I need to explain why I have gradually moved from the definition of skills arbitrage towards time arbitrage. Certainly, the arbitrage of skills sets - as composites of education, local production aggregates and life experience, are primary. However, skills sets are but a medium of exchange within a potential medium of account framework. Community based time optimization seeks to provide greater value for skills sets than they might realize in today's institutional settings. That is, communities would seek to build a greater medium of account, through the medium of exchange which skills sets can offer. This is why I have gradually moved the framing of skills arbitrage towards a time arbitrage, medium of account framework.

Friday, September 12, 2014

Time Use as a Medium of Account

Today's post was "suggested" in part by a recent post from JP Koning, in which he argued that money should be thought of as a medium of account, as opposed to a medium of exchange or store of value. He also emphasized that everything has some degree of value or capacity for monetary exchange, but not in the overall sense that a medium of account stands for.  His arguments served to remind me that I had not yet fully described time use (skills arbitrage) in the local medium of account terms which are possible.

The fact that something as scarce as time is so unevenly represented in the marketplace, can occasionally present problems for meeting one's obligations. Even though decisions regarding time use are different from normal pricing mechanisms, the fixed and oh so finite nature of time use, makes it a great candidate for a medium of account framework.

What's more, this framework could give greater clarity to knowledge use in time defined settings. People need societal inclusion on broader economic terms than are now possible. Positioning human capital within a local medium of account, is one way to work towards what would be a worthy goal. Even though some time representation is value in use in economic terms, a coordinated local medium of account places it into a value in exchange setting.

Granted, initiating such a process would be a considerable undertaking. It helps to remember, that local systems for aggregate time coordination would not be needed in places wherever labor force participation remains quite high. New systems could prove most beneficial, wherever productive forms of aggregate time use end up compromised at local levels. These also tend to be the places where - because job possibilities are limited - services in general are compromised as well.

Presently, time use for economic activity serves as a store of value in a similar manner as other forms of goods. Even sometimes questionable asset valuations appear to hold greater value than today's time use aggregates, because of institutional structures which limit aggregate demand on supply side terms. As a result, the time value of most individuals - regardless of one's initiative or education, is unevenly represented in the marketplace.

Whereas, providing greater value for time use within local aggregates could free up supply side structures and further distribute coordinated activity. More productive services formations would once again become possible - some of which were increasingly being shifted to the margins. Not only would purposeful time use gain value through its own merits, but equal time matching would mean freestanding sources of wealth. Knowledge use and human capital would finally become assets, based on their capacity to perform over the course of a lifetime.

One aspect of the more vital services involved in these settings: they would mostly need knowledge sponsorship at the outset of new formations or endeavor, rather than constant support from outside means. Such sponsorship would occur with the understanding that any locals who wish to participate in these service settings, receive the opportunity to make the most of their personal skills capacity. Eventually, local time use aggregation for populations could also generate more reliable (and traceable) economic flows for local services, than tax structures are capable of providing.

Time use for economic activity, would become a medium of account in the sense that local aggregate time use is tracked and accounted for on an ongoing basis. By doing so, time use aggregates become a standardized quantification for value which directly represents other resource use potential within the same local domain. While some forms of measure still of course accrue at exogenous levels (resources purchased from outside of community) their cumulative value is incorporated into the flows which local community is capable of generating.

How to think about local monetary flows? With time use as a local medium of account, this generates a point of origination for other potential resource use which begins with land and building components and continues to other endeavor. One could imagine three local flows, which begin with ongoing services, generate local investment activity, and then seek means for otherwise normal economic activity outside one's own region.

Thursday, September 11, 2014

More Thoughts on Inflation

Inflation is such a tricky subject to discuss, in part because as a term it is too broad and difficult to explain. Some of the latest "fallout" continues because of a recent post from David Glasner, which highlighted continuing resistance to inflation as means to grow the economy. For the benefit of the population in general, it would greatly help to discuss monetary policy in terms of total spending capacity. Unfortunately, there are plenty of reasons why this has not happened. Many individuals and constituencies alike remain convinced that finance is central to monetary activity, when in fact it is an important but peripheral component.

Another problem for me: in my last post - I complained about housing inflation and perhaps sounded a lot more Austrian than I actually am. And too many internet Austrians simply use the plight of the poor as another excuse for further restricting monetary flows. I would not want to see aggregate spending capacity reduced because of housing prices. Local property values always represent a confluence of local aggregated time use value, local resource use representation and geographic identities within economic contexts.

For anyone with a relatively "normal" income, i.e. full time and approximately middle class, housing is no more of a problem than it has ever been. That is, unless one seeks to live in cities which are limited by their geographic desirability which is altogether another aspect of the marketplace. Much of the discussion online takes place about these realities, rather then the lower or no income reality I continue to highlight on this blog.

Where problems exist in housing based terms are at the margins: individuals who have no income at all and no government support, individuals with less than full time work at low wages, and individuals who make minimum wage. These are the three areas in which for the most part, one either lives with family through necessity, rents a room, or ends up homeless on the street. Unfortunately, this is not generally discussed in depth online, because most bloggers have little direct contact with this reality, and few commenters for that matter as well. Hence discussion about poverty tends to take place mostly in a political context which is not the same at all.

Were it just a matter of individuals in these circumstance, perhaps my concerns would not represent such a big deal. What I sought to get across in yesterday's post is that many communities are also having problems which are directly related to these margins as well. That makes many communities in the U.S. progressively more dysfunctional with the course of time. Many municipalities are simply not prepared for the lower end of income realities. They need to just say no, to the kinds of regulations which only make things worse and stand in the way of these individuals maintaining full ability to participate and remain responsible citizens. No municipality can expect to survive for any length of time by benefiting from the poverty of their citizens, as some are presently attempting to do.

What concerns me now as an advocate for continued economic growth and prosperity, is too many citizens remain convinced that prosperity is only possible through financial means. This is why I have such a problem with inflation as central to the conversation, because the dialogue becomes controlled to such a degree that no one can even imagine a role for aggregate spending capacity. From day one of this blog, I have emphasized the nominal target as representative of our time, because otherwise there is no way for the general public to make a real association with the value of money as important to their own destiny.

If no one can see the value of their time in association with money, no one can see the value of their interaction with resource use as central to economic activity, either. These images need to be uppermost within the context of aggregate spending capacity. Time is growing short, and we can ill afford the very definition of money value to be stripped away by financial interests. Even though my perspective scarcely makes sense to any more than a few in the present, I will continue in my efforts as long as I can.