Friday, July 31, 2015

Wrap Up for July '15

Long term, debt remains a concern for the U.S., in spite of recent progress in this regard. http://www.aei.org/publication/the-debt-is-still-a-major-threat/ Of course regular readers know I remain confident that a lot of debt could ultimately be transformed into long term growth and wealth creation.

One primary debt concern in relation to governmental healthcare obligations, is due to the current costs of chronic illness. Chronic illness costs are more substantial than those associated with end of life care. http://conversableeconomist.blogspot.com/2015/06/focusing-on-high-cost-patients.html
Local coordination for chronic illness - via knowledge use systems - could also help to relieve the burden of government debt.

"Off-grid" living is sometimes illegal, and could remain so until new communities seek combined gains in energy use with new infrastructure patterns. http://www.collective-evolution.com/2014/03/09/florida-makes-off-grid-living-illegal-mandates-all-homes-must-be-connected-to-an-electricity-grid/ New forms of internal corporate infrastructure would benefit from local energy use alternatives.

Present day energy companies don't benefit from these kinds of changes, hence both they and governments suffer from a "first mover" problem. It's not easy to alter default settings, when state government and externally structured corporate special interests depend on one another to override both free market and consumer alternatives. However, for knowledge and services formation to be possible through less sticky income levels, local equilibrium needs infrastructure innovation and adjustment, as well.

Greece: the numbers - http://blogs.wsj.com/briefly/2015/07/03/greeces-debt-the-numbers/

A chip that mimics human organs is the design of the year.

Peter Boettke reflects on Greece: http://www.coordinationproblem.org/2015/07/greece-and-wrestling-with-the-fiscal-commons.html

My thoughts on reading this post https://growthecon.wordpress.com/2015/07/06/the-glacial-speed-of-institutional-change/ from Dietz Vollrath:
Blazing the (most recent) path is what took so long. As to following the basic path? It happened fairly quickly, for nations which were able to do so in recent decades. However, much now depends on blazing a new path for growth - one which could take decades to fully develop - provided that growth is not reversed, instead.

A figure which would likely destroy lots of economic complexity in a hurry: Could you live on $64 a day if Greece's crisis happened here?

Texas and a few other states certainly could have done without the decline in nominal income...only consider the graphs: http://www.voxeu.org/article/surprising-decline-us-petroleum-consumption

When coordination goes wrong (The Economist) Learning the Lessons of Stagnation

A positive take on the future: Five New Technologies and One Very Old One That Will Save The World

She acknowledges the fact that services are a consequence of prosperity, and the tradable service sector:  http://www.voxeu.org/article/service-labour-market-engine-growth-and-inequality

Due to slower than expected growth: http://blogs.wsj.com/economics/2015/07/16/why-the-white-house-no-longer-projects-a-decline-in-debt/?mod=WSJ_EC_RT_Blog

"In the projections, which stretched from 2015 to 2020, the staff did not expect inflation to ever reach the Fed's 2.0 percent target." http://in.reuters.com/article/2015/07/24/usa-fed-forecast-idINKCN0PY1WB20150724

"The last time homeownership levels were this low, LBJ was president." U.S. Homeownership Drops To Its Lowest Level Since 1967

(WSJ) Grand Central: What if the Output Gap is Global?

Tim Worstall is concerned about social mobility in the UK. A difficult problem but we'd really better try and find a solution

"New analysis of U.S. Census data by the Pew Research Center reveals that 18- to 34-year olds are less likely to be living on their own today than they were during the Great Recession." (Time) Even More Millennials Are Living At Home

Tonight is one of those occasional "blue moon" events which - if I understand correctly - means a better "alignment" is on the way. I certainly hope so, because this past week it has felt as though my entire jaw is not correctly aligned with the rest of my skull! Sometimes pain management can only do so much good. At any rate, here's wishing better "alignment" in the days ahead for all my readers.

Wednesday, July 29, 2015

Money is Not "The Root of All Evil"

Notions of money as "the root of all evil" run deep, in spite of the fact money has been a basic tool to get things done as long as anyone can remember. While it's tempting to dismiss what some believe in this regard, remember this deep distrust also affects monetary policy, in that it extends well beyond political boundaries or personal ideology. For these individuals, money holds the dubious distinction of being on a par with crony capitalism, or perhaps politics as a whole. But even though money can be an easy scapegoat for imaginary "sins", it holds the same important coordination roles which governments and markets are also responsible for.

One reason money has a "checkered" reputation in some circles, is that it doesn't coordinate economic activity as smoothly as one would expect. Granted, money fulfills its role quite well for the goods, services and assets which higher income levels seek. But proceed further down the income spectrum, only to discover that coordination patterns become less reliable for both services and asset formation. As a result - even though money is far more effective than barter - some elements of the marketplace remain incomplete.

Coordination patterns also depend on whether individuals still have direct links to local production capacity. Indeed, whenever money became a major component of local group settings in the past, this would precipitate a shift away from inter group coordination patterns, towards the externally defined patterns made possible through more specialized institutions.

So long as sufficient means remained for local groups to work with local resource capacity, shifts toward externally driven resource use would not be so traumatic. However, in the twentieth century, governments did not provide some citizens a chance to maintain sufficient forms of internal resource coordination. Even though populations were reimbursed in various ways when they lost means to production, it did not take many decades for redistribution to create imbalances in monetary flows.

As it becomes more difficult for governments to provide these reimbursements, local communities will need the chance to recreate monetary representation closer to home. Even though technology now provides much of today's tradable goods, time value on everyone's part can contribute to the knowledge based services marketplace of the future. New local institutions are needed to create more sustainable structures for services and asset formation. Given the fact that local economies cannot always provide the income levels which governments seek, local citizens will need to have a voice in consumption options which more closely match their resource and skills potential.

Whenever money is not a practical tool for all income levels, misunderstanding can gradually spread through social and political structures, regarding money's actual capacity. When this process continues too long, historical atrocities are sometimes the result. Even though much social unrest can be traced back to these economic roots of misunderstanding, it is not easy to stop the process if and when it is set into motion.

Further, the same hard won lessons of monetary policy from earlier episodes are too often set aside, as well. Historically, it is not enough to know when something is clearly wrong, to keep society from making the same mistakes. This is why money always needs to remain a pragmatic tool for multiple income levels. When monetary policy gives too many favors to special interests, the resulting economic imbalances can become practically impossible to address. On the other hand, when money is allowed to represent the economic capacity of multiple income levels, it can remain a source of liberation and freedom for all concerned.

Tuesday, July 28, 2015

Notes on Organizational Capacity and Density Patterns

Organizational capacity - in terms of corporate structure - is woefully incomplete. How so? Even though present day capacity has greatly benefited nations through international trade, the potential for organizational structure has scarcely been tapped, in places where it is needed most. As a result, local non tradable sectors have become burdened with excessive infrastructure costs and obligations, even as the benefits of tradable sectors continue to improve the global economy.

Today, a majority of time based coordination is informally generated, as a side benefit of other (economic) capacity which relies on the geographic spacing of modern transportation systems. However, this reliance also means that family and friends have been separated across the globe from one another. Not only can this be problematic in one's later years, it can be problematic for families and friends which seek economic means to remain closer to one another. Could societies provide the option of closely spaced skills diversity, for time based coordination patterns?

Contrary to what it may seem, this is possible, through the density coordinates which time arbitrage would make possible. Today's dispersed means of organizational capacity are not always easy to replicate, in the places where they are needed most. A better corporate response for living and working, would be to build tighter density patterns within a single local corporate framework: one capable of providing a full range of production and services interaction, under a single umbrella.

One of the most important questions to ask about organizational capacity is what income and other resource flows do groups seek to rely on, over long periods of time. Even though resource flows cannot always remain stable, organizational capacity needs to move in tandem with changes in resource use patterns, instead of reacting against them. This is particularly important in terms of infrastructure, local asset patterns and services formation.

Whereas an international corporation seeks to maximize potential in the global marketplace, the internally driven - or local corporation - would seek to maximize the marketplace potential of its inhabitants in terms of both production and consumption. In these settings, the tradable goods of the international marketplace would represent further options for time use freedom, rather than competition to local production. Plus, local citizens would not only take part in locally generated production and consumption patterns, but also in the basic definitions of local consumption models. By matching time value with investment and production capacity, no one need rely on time based compensation as the primary source of income.

Time value - rather than skills value - is the first point of economic entry, which takes place as services arbitrage. From this starting point, one gains access to the investment options for local building components. As the participant becomes comfortable with this level of investment, they gain both time based investment options and financial investment options, for local environment definition and infrastructure maintenance.

As one further progresses, financial investment options in services capital can augment personal skills sets. From this point, production capacity for some knowledge use systems would extend to markets beyond those that are local. Some of this focus could be for the support of other knowledge use systems, such as the travel environments that would be possible in "sister" communities. While there are many advantages and possibilities for internal corporate structure, possibly the best is simply that of a "permanent" timeline for ongoing economic activity and knowledge use.

Sunday, July 26, 2015

Sustainability - Different Definitions for Different Groups

Sustainability...is it about budgetary responsibility, responsibility for the Earth's fragile ecosystems, or something else altogether? Sustainability concepts can be difficult to discuss without moral overtones, because people feel strongly about them - albeit in different ways. For this blogger, sustainability matters most in terms of the economic systems that populations rely on. How can individuals be expected to care for their environments, if sustainability does not take humanity into consideration?

Some on the right mostly think of sustainability as a balanced budget. In the present - unfortunately - both Democrats and Republicans associate sustainability with limits to growth, which in turn affects monetary policy. The Republican stance for limited government can come across as hard limits on services formation, whereas some on the left think in terms of limits to "crass" materialism. Both perspectives can be harmful, for more recent arrivals to the marketplace who could use a bit more of both. The "limits to growth" mindset is also a burden for all who seek economic access, because choices are now too limited, in what has become a "full equilibrium".

While some progressives view sustainability in terms of local economic potential, the "we'll grow or make our own" mindset tends to be a reaction against the benefits of international trade - even though tradable goods are not the problem. Tradable goods have provided immense benefit for the poor, even as the non tradable sectors have become problematic for all concerned. Granted, more production needs to take place in the U.S. But organizational capacity needs to be strengthened in the non tradable sectors of knowledge use and building options, where people of multiple income levels still have insufficient economic footing.

Both sides of the debate have missed the fallout from reduced labor force participation. This plays havoc with markets to a greater degree than is presently acknowledged. Only consider the effect of lower labor force participation on fossil fuels use in the U.S., which means further layoffs in states which only recently had been leading the way for economic growth. If the right can be faulted for ignoring the vital role of services in the economy, the left can be faulted for paying little attention to the fact fossil fuels use is already in decline, in spite of the fact that no infrastructure adaptation has taken place.

Another example of confusion regarding monetary sustainability is Steve Keen, an economist at Kingston University in London. For understandable reasons, his "quantitative easing for the people" has gained a wide audience. However, there are central flaws in the debt jubilee and basic income concepts, and their presumed capacity for solving the problems of economic access. A basic income would seriously distort the maintenance of any economic equilibrium, because it leaves no room for economic mobility or one's capacity to contribute to economic outcomes. Even if it were possible to create a basic income, this structure would not hold up well over time, because of the generational problems associated with those who lack economic access for the full duration of their lives.

One of the most important aspects of sustainability, involves the further proactive evolution of services structures which originated in the 20th century. Whereas the political left expects governments to continue funding services as they presently exist, others on the right remain unconvinced that services are an important part of the marketplace. This lack of foresight regarding services, helps to explain why both governments and economies falter when austerity appears as though necessary, and no one has a plan in place to ensure that services are not lost.

The fact that so many citizens in the U.S. still yearn for the broad manufacturing base which once existed, is a good indicator that much work needs to be done, regarding economic sustainability. However, the primary efforts need to take place at local levels, in the non tradable sectors of the economy. There are ways to rethink organizational capacity, so that the advantages of corporate structure need not be limited to prosperous regions, and I will touch on this in the next post.

Saturday, July 25, 2015

Economic Complexity: The Best Solution

The more economic possibilities available to any individual in the marketplace, the greater the chances of positive outcomes. Even so, how could economic complexity be considered the best solution for corruption? For one thing, economic complexity is quite different in nature from legal complexities, for it implies diversity and greater choice. While legal complexities limit marketplace options and mean more wealth for those who hold power, economic complexities generate wealth creation potential for the average individual. And when more economic options exist, the incentive for corruption is vastly reduced.

However, reforms in favor of economic complexity get short shrift. Instead, arguments for greater economic diversity are tossed aside, by arguments to supplement income for those who still have some degree of economic access. In particular, arguments about "helping the poor", tend to short circuit into limited approaches such as EITC, which is little more than further income compensation on the part of government, rather than one's employer.

Noah Smith is only the latest in a line of economists in recent years to defend this approach. But the earned income tax credit is only about alleviating the circumstance of those who already have work, rather than making certain that the marketplace remains viable and diverse wherever people live, and for all who seek economic access. I don't believe it makes sense to pay people for not working. But why is it proving so difficult, to talk about how people could be compensated for helping one another?

Unfortunately it is human nature to approach policy with an eye to alleviating the "bad", instead of finding ways to create more good - an approach which gets discounted as "planning". How is it that proactive policy is less desirable than policy which seeks more marketplace limitation because of negatives? The best approach is to provide more positive options, so that more individuals will ultimately be less inclined to choose negative options for survival. Ricardo Hausmann makes some related points in "Fighting Corruption Won't End Poverty".
It is easier to mobilize against injustice than for justice. We are more enthusiastic to fight the bad - say, hunger and poverty - than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful...But we should remember that casting the bad into the sea does not imply the sudden appearance on the shores of the good that we need.
Instead of constantly focusing on the bad and trying to "nudge" people towards the good, create environments which are capable of encouraging good action from the outset. Societies especially need simpler options for protecting the weak, disadvantaged and marginalized - options which do not continuously tax either governments or charity. The best way to do so, is to create simple legal and economic frameworks which allows individuals to gainfully assist one another.

No nation can remain strong, when it becomes divided against itself. But it is too easy to forget this, when reacting to the bad is inevitably the first response. Instead of reacting to the bad, it's time to focus on the good. It's time to get serious about economic complexity.

Thursday, July 23, 2015

Where "Understandable" Equilibrium is the Goal...

Some economists acknowledge what appear to be wide variations in general equilibrium. Nevertheless, equilibrium tends to be approached as though it is both reliable, and possible to categorize through rational marketplace expectations. General equilibrium patterns understandably hold the most relevance, for observers who rely on reams of statistics and continuous record keeping. Within this well documented terrain - for instance - many individuals appear to be in better economic positions than their parents experienced at a similar age. Also, what may be considered primary equilibrium, is what central bankers are most concerned with.

So long as missing time aggregates are not taken into consideration (reduced labor force participation), many of the main questions which stemmed from the Great Recession have been "settled". Consequently, as U.S. unemployment figures continue downward, policy makers are anxious to move forward. In all of this, some central bankers and economists believe that interest rates should reflect an economy which has long since moved out of recession. How does one define future growth potential, if interest rates are sending the "wrong signals" for the marketplace?

There's only one problem for central bankers and policy makers: the new normal is a far cry, from the old. As a result, some have resorted to Neo-Fisherian logic, in order for the desired equilibrium to have a more understandable context.  Within this agreed upon economic environment, "better" minimum wage floors are becoming a feature, as a starting point for economic access. Once again, however, less prosperous regions and rural areas are forgotten, for they will also need to comply with these same wage floors. Plus, many policy makers agree with the population, that inflation needs to be kept as "low as possible". If only this dogmatic approach could provide the imaginary stability it seeks to promise!

Policy makers are resorting to a Neo-Fisherian scenario, in hopes that rising interest rates will "normalize" economic activity through signals that "all is well". The big unknown thus far, is whether normalization can occur from a changed economic reality, rather than the output which existed prior to the Great Recession. Whether rising interest rates will cooperate with these hopes is yet to be seen. If central bankers are able to do so without undue harm, some policy makers will doubtless reason they are finally "home free".

I don't have a problem with anyone's wish for a general equilibrium pattern which makes sense to all concerned - nor do I take issue with anyone's desire for the economy to return to a normal status in spite of who (and what) has been left behind. A more robust long term growth trajectory is still possible, but I suspect it would need to take place through more negotiation than is likely, in primary equilibrium. Even though such flexible terms are difficult to come by in broad sets of circumstance, there is still hope that experimental strategies can occur at local levels. Over time, a return to a better long term growth trajectory is still possible.

In a recent post I highlighted some fundamentals about economic balance which remain my primary concerns. One reason growth has been scaled back in the present, is that it has become difficult for traditional production to maintain adequate provision for the services marketplace. One of the easiest ways to think about where - and how - equilibrium begins to break down, is in the rural areas - which of course never gained adequate attention after the Great Depression. Instead, they became reliant on government redistribution and subsidies - a pattern which continues to this day. Now, their circumstance is only becoming more problematic. Recently, Arnold Kling touched on this subject with colleagues at lunch:
3) There was a lot of talk about how things are not really as bad for the middle class as the left makes them out to be. I asked, if things are not so bad, then imagine giving a talk to people in a small town in Ohio or rural Oklahoma. What sorts of advice about future jobs would you give? Some of the answers were glib ("Move to the city") Others suggested that the jobs would be in fields like nursing. But not everyone is cut out to be a nurse.
There's another important thing to consider re the "move to the city" response. More and more, one finds online references to the fact that many sought after cities are uncomfortable with newcomers. New arrivals want to take part in a dynamic which locals suspect to be fragile, in spite of appearances. Hence those online "population full" signs for popular cities, can be considered equivalent to the "full" equilibrium, which central bankers now treat as a knife's edge between "overheating" and deflation.

Even though the idea of "overheating" seems odd in a near deflationary environment, it applies to any groups which reach for the expected "beyond the means" ladder because it's (often) the only one available. While sticky wages are still debated, it's the sticky marketplace which particularly makes problems for those still seeking economic access. Available options for both living and working, are often regulated so they are not amenable to one's actual circumstance and resource capacity. Further, should more individuals opt to become a nurse (for instance), healthcare practitioners also have the same watchful eye as city locals, as to new graduates who are waiting in the wings for their own jobs. Again, "full cities", and a full primary equilibrium need to be accounted for.

Hence the focus on the part of policy makers is one of maintaining the current equilibrium that exists, not attempting to expand it. Even though there are still open doors for future careers, there simply isn't as much room for entry, as what existed prior to the Great Recession. None of this means that dynamic long term growth is no longer a possibility - simply that it needs to occur on new terms. It is doubtful that anyone can achieve 4 percent growth for instance, by "nibbling around the edges" of regulations which prevent individuals from plying some of the simpler services trades.

Fortunately, it is possible to generate new long term growth, without having to rely on the transmission from production to services primary equilibrium. However, more direct forms of services wealth creation need to happen in ways which won't present problems for current primary equilibrium patterns. Ultimately, this will mean new cities, new means to "make a living", and new settings for infrastructure innovation to take place. The best part, is that real alternatives to primary equilibrium are possible. What's more, those options will not be dependent on other sources of wealth. Instead, they can provide additional means for greater productivity and new wealth creation.

People Are The Heart of Economic Life

If people are central to economic life, why has it become so difficult to think about the economy on these terms? Even though many suspect problems down the road - should too few remain employed as technology increases - few have dealt with this issue head on. It's important to realize that ensuring full employment does not create a "planned" economy. Instead, a steady focus on new organizational capacity, would ensure that people have voluntary means to interact with one another which are formally embedded in both social and economic structure.

Many on the left believe that governments define economic circumstance, hence should be responsible for any economic matters deemed most important. But governments can't take the place of the social coordination which sustains a civil society. In today's marketplace this coordination is incomplete, and too few on the right have noticed. Others on the right have grown less concerned about the economy, in relation to family and what they consider more important matters. But when economies don't have the chance to remain strong, families and cultures also struggle to stay afloat.

Regular readers know that I believe the marketplace needs a bit more help from people from all walks of life. Not just in the U.S. but also other nations, as central bankers continue to wind down the growth levels which were associated with the twentieth century. Are potential solutions too "boring"? Why don't domestic summits have the same panache as other kinds of summits? If given the chance, they might actually yield a greater benefit than often materializes from international summits. Yet how many nations have heeded the call to seek domestic vitality, in order to generate more positive monetary policy?

Time value in relation to other forms of resources, is the reason that economics matters. And yet the time value of the individual, is the central component which has been most neglected. How might one think about time value in broad terms? A few years earlier I touched on five stages of economic activity which seemed to apply regardless of other resource capacity, and it seems useful to consider them again, here.

These five categories provide ways to think about economic activity in both broad societal terms, as well as those of the individual. Not only do they provide a framework for decision and management process regarding divisions of labor, they serve as ways to think about time management as one transitions through different phases of life.

                   Maintenance - Building - Creating - Understanding - Healing

Think how coordinated activity evolved, prior to extensive monetary use. One can think of maintenance activity as the human element which transcends instinct, in terms of preserving what has already been formulated by the mind. Maintenance ensures that the gains of building and creating become embedded in society. As such, maintenance forms a pyramidal base for economic activity in general.

Even though building (of new elements) and creating (design) regularly come into play, they are not needed constantly, because much of daily activity continues to proceed from the reenactment and preservation of earlier efforts. Hence building, creating and understanding are layered on top of maintenance structure, and healing forms the pinnacle. However, it is important to remember that this is not the healing of the human body (which resides alongside all forms of teaching in the maintenance structure) but the healing across disciplines which preserves what lies below.

While building and creating are considered primary for today's forms of wealth formation, they are not needed to the degree that maintenance is needed, and yet they have been expected to fund all of maintenance capacity. This is why maintenance tends to break down over time. Consequently, the vital activities of maintenance need to be approached directly, so that they can also be capable of wealth creation on their own.

Otherwise, what looks to be a highly stable pyramid formation, develops holes at the base of the structure, when it proves too difficult for building and creating elements to regularly contribute to the base of the structure. The pyramidal structure is endangered now, because healing and understanding elements have already been fragmented. As the process continues, a breakdown can ensue in the building and creating components, which further extends to the base.

By tapping into personal time value, new wealth can be generated from the bottom of the pyramid, so that building elements do not have to carry the load for both wealth formation and maintenance capacity. The base is made up of every kind of knowledge use imaginable. Yet the services capacity which lies here is strangely unrecognized, for the distinctly human quality it holds. When one considers the immense importance of the maintenance base of the pyramid, the mistake of discounting services finally becomes evident. Far too much of maintenance was written off as governmental instead of personal responsibility, even as it became impossible for governments to maintain the vital processes of knowledge use and preservation.

This is why time arbitrage is needed, in order to preserve what has become so valuable in recent centuries. Technology provides elements of maintenance alongside building capacity, but technology cannot be expected to substitute for the vital work of the mind. Equal time use capacity would make multiple forms of knowledge use sustainable, at the base of the pyramid. People are the heart of economic life. It's time to recognize the role that every individual has to play in the maintenance functions of society, so that everyone can also reach for the other roles which personally matter most in the course of a lifetime, as well.