Tuesday, September 18, 2018

Can Our Non Tradable Sectors Embrace Free Markets?

Why do governments and citizens alike, increasingly act as though we live in a zero sum world? After reading Alberto Mingardi's post "A political realignment in Europe?", I wondered whether I'd spent enough time emphasizing the connections between high levels of protectionism in non tradable sectors, and the shift towards identity based political alignments.

We are beginning to witness the results of what has been excess protectionism at home in recent decades, at a global level. Is it still possible to reverse these non tradable sector inclinations? The supply side limits of these market constructs have created intense identity struggles across an entire spectrum of marginalization. More direct forms of wealth creation in our non tradable sectors, could make it possible to preserve the economic dynamism which brought so many quality of life gains for populations across the globe. In all of this, my concerns are similar to those of Mingardi who writes:
I find the scenario of a realignment around cultural issues potentially terrifying. It seems that the advocates of a closed society have an advantage in forging an alliance with advocates of a closed economy: they tend to be highly ideological and, thus, committed. On the other hand with the exception of libertarians, the preference for a free economy is rather "weak"...with the exception of libertarians, how easy is it for people that care about civil rights to forge an alliance with those who want a freer economy? 
Indeed, some of the focus on redistribution is also about the desire for retribution. He concludes:
The old political allegiances were confused and incoherent for a reason: it is very difficult to develop coherent ones.
Is it possible to become more free in the use of knowledge and property ownership options which could accrue to the benefit of all? Should non tradable sectors become more willing to embrace free markets, they could play a considerable role in reducing the political struggle over redistribution which now threatens to unravel economic stability. Let's hope today's levels of wealth creation don't come unraveled by the excess inclinations of wealth capture and redistribution. Even though they are in need of a more inclusive and dynamic organizational approach, non tradable sectors have the capacity to contribute to future prosperity, much as tradable sectors have already made possible.

Monday, September 10, 2018

Centralization and the Production Rights Factor

In "Democracy in America" (George Lawrence translation, 1969, 1988 edition) Alexis Tocqueville carefully considered both advantages and disadvantages of centralization and decentralization, and how these organizational patterns play out differently, depending on the citizenry involved. How to account for the fact Americans were able to utilize decentralization more effectively, than was often the case for Europeans?
...in America, the people are enlightened, awake to their own interests, and accustomed to take thought for them.
One likely reason, is that Americans at the outset were used to taking a full array of production rights for granted - rights which brought the costs and definitions of their local environments within reach of their abilities and resource capacity. Small wonder these citizens were so engaged! Again, Tocqueville (page 91):
I also think that when the central administration claims completely to replace the free concurrence of those primarily concerned, it is deceiving itself or trying to deceive you.
A central power, however enlightened and wise one imagines it to be, can never alone see to all the details of the life of a great nation. It cannot do so because such a task exceeds human strength. When it attempts unaided to create and operate so much complicated machinery, it must be satisfied with very imperfect results or exhaust itself in futile efforts. 
It is true that centralization can easily succeed in imposing an external uniformity on men's behavior and that that uniformity comes to be loved for itself without reference to its objectives...Centralization easily imposes an aspect of regularity on day-to-day business; it can regulate the details of social control skillfully; check slight disorders and petty offenses; maintain the status quo of society, which cannot be properly be called either decadence or progress...In a word, it excels at preventing, not at doing. When it is a question of deeply stirring society or of setting it a rapid pace, its strength deserts it. Once its measures require any aid from individuals, this vast machine turns out to be astonishingly feeble; suddenly it is reduced to impotence. 
Notice from Tocqueville's argument, how centralization "excels at preventing, not at doing", which can impact both long term growth and economic dynamism. For our purposes here: What do citizens or special interests find especially worthy to "prevent" in the first place, and to what extent do they use government for such purposes? Only consider how this process has played out for healthcare in general. How much of government "assisted" quality healthcare has actually been an unconscious exercise in preventing ("excess" supply side), in lieu of doing (responsive markets)? Sadly, "excess" supply side prevention has placed additional burdens on most personal, corporate and governmental budgets in recent decades.

Perhaps governments will proceed with more caution in the future, when deciding whether to limit production rights to "special" citizens and special interests. Once extensive educational standards were imposed on healthcare, many had little choice but to abandon healthcare practice to those better prepared - financially and otherwise - to guarantee quality product for consumers.

If freedoms are restricted for lower income levels, how can freedoms be realistically maintained for upper income levels? After all, once governments elect to impose supply side limits in knowledge and skill, many policy makers feel they have little choice but to somehow follow through for citizens, by extending additional welfare benefits to ameliorate those losses. Once losses in production rights fade from collective memory, citizens come to expect governments to "protect" them in ways which often simply aren't possible.

Twentieth century healthcare is just one arena which holds ample historical examples, how not to build dynamic marketplaces for services capacity. What governments gain in financial support from special interest groups which seek to limit the use of knowledge on their behalf, governments nonetheless lose in terms of the wealth potential of citizens in aggregate, who presently lack means to fully contribute to what has become a major component of national GDP.  Might citizens regain the capacity to become "awake to their own interests, and accustomed to take thought for them"? Let's hope so.

Thursday, September 6, 2018

Good Urban Rural Connections are Vital to Freedom

One could be forgiven, for wondering why populism seems to bring out the worst in today's rural urban divide. While progressives too long ignored the importance of these connections (here in the U.S.), conservative populists are opting to make them even more fragile, via polarized cultural battles. Yet how do opposing sides expect to fit square pegs into round holes? Can't we just "live and yet live"?

Nevertheless, the struggles to impose a single set of political preferences on millions of citizens, appear as though just getting started. Yoram Hazony, for instance, is among those who reason that a "one size fits all" framework is suitable for nationalist governance. Even though I'm dismayed at nationalist arguments on the rise, history has plenty of clues why the most recent manifestation of this tendency, isn't particularly well timed. Extensive control over the lives of citizens is no simple matter, once non tradable and service sectors come to the fore in extended cycles.

Centralized control depends on the promises a government can make and keep, at least for its most highly valued citizens. Yet today's budgetary realities have become too precarious, to maintain the welfare state that has emerged since the 20th century. Given the natural scarcities of non tradable sector product which is connected to time and place, this major component of advanced economies is not as amenable to governmental redistribution, as the tradable sector activity which nations were able to take for granted in recent centuries. Put simply, there's lots of wishful thinking all around, re what fiscal policy is still expected to accomplish in the near future.

While this is a somewhat depressing moment for libertarians and classical liberals, perhaps all isn't lost. We still have the option of transforming non tradable sector patterns, so that the natural scarcities of non tradable sector product, need not remain such a economic restraint for populations and governments alike. It's still possible to pursue new frontiers for economic freedom in a knowledge based economy, for a full range of income levels. New platforms for economic engagement could help to bridge the urban rural divide in positive ways. We have the ability to use abundance to augment scarcity, instead of allowing scarcity to slowly drain away the natural abundance of nations.

Economic freedom requires well functioning platforms which make it possible to support a broad array of production possibilities. Only recall how the conceptual freedom of the United States in its early years, was in large part due to strong local community production. No nation can expect to maintain economic dynamism indefinitely, if many of its towns, cities and communities suffer too long from lack of production potential. Ultimately, our economic freedom would fade away, if too many decide that large segments of society need not take part in our economic destinies.

Friday, August 31, 2018

Wrap Up for August 2018

If information is destroyed in today's economy, value is also destroyed. James Pethokoukis interviews Cesar Hidalgo in a Q & A re Hidalgo's new book:
...the big challenge that societies and firms need to solve is that of learning collectively, learning in the context of a social network.
From the Brookings Institution:
"The Measurement of Output, Prices, and Productivity: What's Changed Since the Boskin Commission?"

Edward Lazear: "Compensation and Incentives in the Workplace"
Incentives especially matter when the targeted output of individuals and groups takes a highly specific form.

And, when might the nature of one's work become integral to incentive structure - whether or not service product is expected to assume a specific form? Greg Kaplan and Sam Schulhofer-Wohl: "The Changing (Dis-)Utility of Work" The authors explore changes in the nonpecuniary costs and benefits of work.

One more on the personal nature of work, alongside related economic considerations. I've been reading "The Reshaping of Everyday Life: 1790-1840" by Jack Larkin. (1989) This early U.S. history is fascinating reading, for everything about our work environments was quickly evolving during these decades.

Mark Lutter for Cato Unbound: "Local Governments are Changing the World"

Will populism disrupt technological gains?

NPR takes note of the housing crisis.

What happens when the retail sales tax becomes a burden?

Sam Bowman makes some valid points about today's centrists.

What accounts for the multifactor productivity slowdown in U.S. manufacture?

Consumer spending has changed considerably from 1901 to 2012. We've been aware of increased housing costs but sometimes forget how much transportation costs have risen. Even though healthcare appears as though somewhat limited at 6.9%, the fact both government and business share this burden as well, helps to explain how today's human capital costs of doing business, is a factor in reduced wages.

Who has time to read economics research articles when they are really long?

How to think about policy questions, if the criterion is to expand individual opportunity?

A wonderful tribute to Nick Rowe from The Economist.

An apt description of a supply chain system that has "grown up to accommodate the variety of goods that we demand, and the speed with which we want them."

When cities lack affordable housing and rural areas appear tempting because of lower housing costs, the relative lack of economic opportunity unfortunately means less incentives to either build new housing, or to restore older housing.

A "grand narrative" draft for Brad Delong's "Slouching Towards Utopia"

"The tragedy of our generation is that our dynamic innovation economy and the most pressing needs of our society are ships passing in the night."

Linda Yueh considers reasons why the Bank of England should target growth.

It could be that Trump's main influence on Fed policy will turn out to be fiscal in nature. Is the Fed already pushing the limits of its floor system?

Will the majority of our efforts in the workplace eventually become "zero-sum"? Better organizational alignment is key for services generation. The purchase of time with time value, could ensure that new wealth would still be generated, and not simply recirculated from other sources.

Even though we know doctors are "too educated", this is not a problem that can be addressed directly, because there are already too many millions of people who need to seek alternatives, both here in the U.S. and in other nations as well.

"Hume modeled a way of life that was gentle, reasonable, amiable: all the things public life now so rarely is."

"Firms create value by managing tensions between competing priorities."

Fungibility as a gradual process.

Of the European contributions to the Great Depression: "The deflation was thus inevitable, but was made much more harmful by its postponement and then abruptness." Scott Sumner and David Glasner also respond.

James Pethokoukis discusses the case for a universal basic income, with Annie Lowrey

How does the loss of the old trend line affect the future?

Sometimes, those who struggle are more motivated by giving advice than by receiving it.

"US exports of goods and services to China in 2016 were $170 billion; but total revenues of US multinationals producing and selling in China that year was twice as high at $345 billion."

Karen Dynan and Louise Sheiner for Brookings: "GDP as a Measure of Economic Well-being"

At the very least, taxing and spending is better than cross-subsidization.

Writing usually involves a lot of work to get the right words on the page!

Ian Hathaway offers a condensed version of "Startup Communities".

The "Malthusian" equilibrium as an "upper limit to returns on labor".

Wednesday, August 29, 2018

Degree Deflation and General Equilibrium Expectations

Might a recent example of degree "deflation", illustrate good deflation potential for the economy as a whole? In a recent post for AEI, Preston Cooper writes:
Last week, Kentucky's teachers licensing board made a decision all too rare in today's credential-happy labor market: Teachers in the Bluegrass state will no longer need to get an advanced degree in order to keep their jobs.
The board's move is a rare example of "degree deflation". Previously, Kentucky teachers were expected to obtain a master's degree or other advanced credential within ten years of first becoming licensed as an educator. The American economy has experienced degree inflation in recent years, as employers have attached new degree requirements to jobs that did not previously require such advanced education. 
It will be interesting to see if more educators follow their example. And how might other employers respond? All of this matters, insofar as societal expectations are concerned. In his article, Preston Cooper also noted the opposition from both the teacher's union and Democrats in the state legislature.

The initial good that could come from this scenario, of course, is partial relief in the form of reduced human capital investment costs. One might envision education in general, as part of a knowledge production "factory", whereby aggregate inputs (in this instance at general equilibrium level) required in relation to aggregate outputs, are somewhat relaxed.

However, will there be positive societal expectations regarding degree deflation? It remains to be seen, how the education board's action could affect economic circumstance in Kentucky and possibly elsewhere. Might approaches such as this start a trend? If so, how how to discern whether the deflation effect turns out to be positive?

Only recall that good deflation potential, involves more than just lower input costs and/or requirements, which are sometimes a response to economic downturns - even if mostly regional in nature. Ultimately, positive forms of deflation result in higher aggregate output. Real output gains would make it possible for degree deflation to translate into standard of living gains (perhaps discounting certain quality product implications). Nevertheless, if apparent limitations to economic access were partly responsible for the decision making process of the school board, one hopes the decision doesn't prove to be too much of a gamble.

Much also depends on which sectors decide to take advantage of degree deflation. Will various sectors reduce wages accordingly? If so, other costs of living would need to be responsive to such a reality, in order to (at least) maintain total or aggregate output. Even though more tradable sector activity in the region could lead to greater output; non tradable sectors - given their present dependent status (and time/place logistics) - may lack incentive to increase output. Importantly, the ability to reduce wages could encourage non tradable sectors to enhance professional rewards as well.

Hopefully the licensing board has made a decision that turns out well. Even so, I feel the greatest potential for reduced human capital costs, is via defined equilibrium settings - structured so as to generate additional output on primary market terms. Perhaps defined equilibrium settings would prove more reliable for good deflation, than what much of today's non tradable sector activity is structured to provide. The catch in all this, is that it's difficult for non tradable sector providers to raise output, if and when they function in revenue dependent contexts which could dilute professional income levels in the event of additional supply side capacity.

Friday, August 24, 2018

Commonality and Economic Coordination

Are there commonalities which could encourage individuals to coordinate economic activities as a cohesive group, when they might otherwise lack incentive to do so? For instance, how might marginalization affect such incentives? Perhaps it depends on whether marginalization is due to social identity (which may in fact discourage economic solidarity), or commonly held physical and related mobility challenges which inhibit workplace commitments, at least to some degree.

In particular, time arbitrage and the defined environments of this organizational approach, could be a game changer for the latter group, in terms of economic solidarity. Not only would mobility-specific environments lessen transportation woes for the marginalized (many who don't drive), the mutual employment of time arbitrage might also encourage individuals to remain economically and socially connected to others. Only recall how such individuals often have difficulty being hired because they face multiple challenges which can impact their workplace performance.

I found myself reflecting on these issues after a Marginal Revolution discussion a couple of weeks earlier, titled "The Microfoundations of Intersectionality". Tyler Cowen also included the Wikipedia reference for this term. However: After reading some of the responses to his post, I began to wonder whether intersectionality is actually a useful term, since it appears to be highly charged in terms of gender and race - neither of which I find especially useful in promoting a more inclusive economy. How can the sometimes intense focus on specific groups of marginalized, help the aggregate? That said, there are precious few responses to this problem thus far, which aren't essentially zero sum in nature. Plus, if intersectionality discussions are mostly about access to top positions in society, that's not my focus either. To Cowen's credit, he highlighted the fact wheelchair bound individuals also suffer a lack of economic access.

A helpful institutional focus would create settings which address mobility issues for a wide range of marginalized employee potential. As a result, the access problems these various groups face would be minimized by a simple template for thinking about infrastructure and logistics for living and working. Even though it's difficult for firms and other institutions to assist would be employees in more than any single capacity of disability, walkable communities would greatly improve mobility for all concerned. Hence defined equilibrium settings would mean not having to overcome additional costs for the same disability struggles time and again, to bring each marginalized individual to our collective workplaces.

Those with disability commonalities - including everything from getting old to lack of "appropriate" credentials" (two which I face) - have more incentives to respond to well planned logistics for work environments than is normally recognized. One way to think about the framing involved, is via the concept of time as commodity. Time use in these settings becomes a standardized economic unit for mutual time priorities. Like an apple harvest, a primary goal of this approach, would be to make good on as much of the "harvest" of time potential, as is humanly possible. When it comes to time based services, the emphasis on quality product has meant a consequent loss of far more harvest potential than is actually necessary.

There's other logistical advantages to templates that reflect commonality. Recall that the equilibrium corporation non tradable sector activity would not be intended to compensate time or skill as institution specific. Rather, it would support the coordinated settings of similarly minded individuals who are willing to assist one another via multiple levels of skill. It would be a no brainer for the equilibrium corporation to back such settings, given the fact it would also manufacture a full range of modular and flexible infrastructure and building components. Since the compensation and resource utilization processes involved are internally driven, a sustainable continuum for many who were previously marginalized, becomes a distinct possibility.

Essentially, the time as wealth approach makes it possible for individuals to work with others whose combined disabilities become far less of a burden, in a common service generation context. Hence the reasonable chance that commonality in what otherwise often appears as "multiple shortcomings", might actually prove effective, as a strong social security network.

Saturday, August 18, 2018

A Meditation on Physical Infrastructure

Among the reasons I've promoted flexible forms of physical infrastructure, is that ownership patterns for more permanent and capital intensive infrastructure, are in a state of flux which may take decades before the dust begins to settle - alas, literally and figuratively. Clearly, the process could profoundly affect societal expectations for overall economic conditions, as well. While some may scoff at the idea of physical infrastructure which local groups could simply pick up and take with them at will to get things done, the adaptability of these movable parts could prove priceless in the short run, for institutions that are able to embrace life on such terms.

Indeed, it can be overwhelming to contemplate, just how many aspects of basic physical infrastructure, now lack fiscal revenue reliability from either governments (or other institutions) which once seemed prepared to "guarantee" long term maintenance and sustainability. The nature of highway networks here in the U.S. is just one example, how our economic expectations became augmented and to some extent taken for granted, since the latter half of the twentieth century.

Let's step back in time for a moment, to consider how the dynamism of tradable sector activity, made so much of these earlier infrastructure upgrades possible. During periods when the general equilibrium circumstance (of today's developed economies) began to take recognizable form, it was difficult to ascertain how capital intensive long term maintenance obligations would eventually prove difficult to uphold - in part due to rising labour costs. Nevertheless: Paradoxically, the rising wages of long term tradable sector dominance, made it feasible for majorities of citizens to take part in the taxpayer obligations which funded so much national infrastructure in the first place.

It's when nations experience periods of rapidly rising wages (especially as tradable sector activity remains dominant), that their ability to define and create capital intensive infrastructure is at its greatest potential. Plus, capital intensive decisions during periods of tradable sector dominance, give additional impetus to general equilibrium possibilities at a national level. On the other hand; for developed nations which have become obliged to subsidize non tradable sectors as dependent organizational capacity, there may be little left over, to offer continued support of permanent physical infrastructure which is already in place.

Once non tradable sector activity (inevitably) begins to dominate any long term economic cycle, it becomes more important for societies to designate ownership patterns for physical infrastructure, which directly include the individuals who are close to the spaces and time frames such patterns represent. Otherwise, too many individuals would lose the forms of economic access which make for a normal life. In the meantime, many citizens in developed nations have become less supportive of infrastructure which they aren't likely to personally utilize, and this societal reluctance could make quite a difference, for the ways our physical and economic landscapes take shape in the foreseeable future.

Now is the time to begin building more flexible forms of physical infrastructure, which are geared towards solution sets and ownership patterns that reflect the resource capacity of local groups who rely on them. Adaptability also means the ability for everyone to experiment, so as to discover how the use of knowledge can reconfigure more effective means of services generation. And just as strong and lightweight building components might physically define such living/working spaces, these components could also transform what are excessive burdens for electrical and plumbing requirements. In particular, future transportation needs to involve a lot less cement, and a lot more alternative means for moving people and things from place to place.

Early stages of defined equilibrium settings would first need to stabilize the steady state nature of knowledge building through time arbitrage, with its somewhat limited wage structure, before branching out into broader ownership patterns which could (once again) provide more diversified infrastructure options. At the very least, in the here and now, the more that nations are willing to give their citizens a chance to create knowledge centered wealth at local levels, the more fiscal revenue may remain available to maintain the transportation networks of the 20th century. It means a lot presently, to be able to keep moving ahead one step at a time.