Thursday, October 23, 2014

Notes on Economic Platform Potential

Since Jean Tirole took the recent Nobel prize for economics, I've been musing over unexplored possibilities for platform concepts. As Vox noted (Yglesias), one of the more important papers for Tirole is in regard to the two sided marketplace of platform competition. Much of today's platforms exist for digital and far flung markets. But what about sparse economic activity in general, at too many local levels? One way to think about platform potential, is in terms of knowledge use systems and time use aggregates. To what degree could multi-use platforms improve - and transform - local government, citizen and marketplace functions?

Done right, platforms could increase production and competition along a wider scale They would allow more precise frameworks for resource capacities, which would also increase the velocity of transactions that occur among populations. One could also think of this as microeconomic attention to aggregates which further leads to macroeconomic gains - a link which could be encouraged by monetary policy. One reason local knowledge use platforms are needed to assist governments and central banks: all too often, it is difficult for either monetary or fiscal policy to adequately reach economic conditions in underdeveloped areas*.

Multi use platforms (which include both production and services) could provide greater labor force participation, particularly in regions where complexity in economic environments is lacking. Domestic summits would provide means for exploring underutilized resources which would benefit from new adaptations. Local economic platforms are also needed to break up some of the polarities which are increasing between urban and rural populations: polarities which only serve to make political conditions more problematic than they already are.

Not every present day platform is helpful or "complete" in the sense of transaction potential. When do platforms limit economic participation? To a degree this is true of the Amazon platform for books, which because of the marketplace it serves, generates scale factors which can sometimes discourage authors and economic activity (particularly dispersed bookstores) at the margins. This may not be so much Amazon's fault, as it is a paucity of local platforms for diverse low risk competition.

While transaction limitations re Amazon may seem counterintuitive in that one can order books from wherever they are, one problem is a lack of sufficient incentive. That is particularly the case in areas which already have limited economic activity. Many books - particularly those with high value - serve highly specific purposes. Yet one may not be inspired to buy books that would personally matter, unless friends speak of them, or they are discovered on bookstore shelves.

Some centrally designed platforms do not always come into contact with the ongoing patterns of our lives. As such, they may tend to capture already existing markets, rather than expand market growth. There are many competing interests for one's time (and purposes), which don't link up well to other time commitments. Still, the obligations one already has are not always optimal. Only consider the platform of LinkedIn, which has more social than economic value. A good economic platform is one in which - because of the correlated resource paths it delineates, makes it worthwhile to commit to time use which adds further depth.

In fairness I want to note that bookstore loss (or author market share in general) isn't just problematic in the sense of present day Amazon dominance. Knowledge use environments had begun to centralize, long before their platform came along. As to the "helpfulness" of good non fiction, individuals had knowledge use limitations in local settings, unless they were employed in high skill occupations.

What's more, even gainful employment could still mean "bare bones" knowledge use applicability. It is in the context of (hopeful) wider knowledge use at local levels that I hope for a resurgence of the bookstores which once dotted the landscape. Despite a present day lack of belief in books, they were the best representation of full scale entrepreneurial knowledge product the world has even known. Most schools are but a bare whisper of this wealth. Only consider that a resurgence in bookstores would assist real transaction gains in time use - i.e. the growing "manufacture" of human capital.

One aspect of platforms is the degree to which they are able to connect disparate elements to central infrastructure components. A good example involves decision making processes on the part of domestic summits for walkable communities. The walkable transportation component would be central. Hence other resource options would factor for it, in terms of time use coordination aggregates and density considerations.

Preexisting economies of scale need to be considered. Are economic platforms set up to enable a region or area to generate more transaction potential? If so, the proposed infrastructure seeks to make it easier for local competition which would like to remain in competition with one another. What's more, this is a kind of competition which provides tremendous benefit for consumers and locals. This is not the negative "bicycle with training wheels" interpretation of entrepreneurship that some imagine. After all, this form of business longevity comes not by government's bequest ("beneficial" regulation that excludes others) but instead exists on everyone's behalf - i.e. beneficial regulation patterns that include others.

The distinction matters, in that many larger platform formats end up as monopoly defaults by which all players are then expected to comply with. The monotony of monopoly! Whereas some participants wish to compete on terms in which creative destruction is not just about knocking down competition levels. While this involves settings of - say - either business people or teachers who appear to desire low risk environments, that doesn't mean these individuals don't want to explore or take chances. They just don't want to fail every time they try to do so. Fortunately, entrepreneurs are not the only ones who create platforms, by any means. And sometimes, platforms need to be built for entrepreneurs to generate economic growth.

After years in both employed and self employed settings, a few words about the desire for risk. Much of this comes down to factors which include the desire for challenge in one's workplace, whether that challenge is already being met, and the degree to which one might be compelled to shift from an inadequate setting. How those factors interact has considerable bearing on the risk any individual may take over the course of a lifetime. Some of us still desire to take on risk when life suggests we slow down, just the same! Suffice to say that thinking about platforms is interesting.

*Regarding underdeveloped areas of the U.S., I don't mean in the sense of rural areas not being "rural" anymore. Rather, they could further evolve greater (lifelong) economic depth which would embrace local knowledge use and services. That would provide balance for local tax burdens and obligations - particularly in today's local school environments. Graduation often means being cut off from daily routines and local activities, with little else meaningful to take their place. Even as school cultures dominate many of these small town environments (education monopoly), too many of the resources they demand never effectively benefit the student's life, afterward. That can be a long term problem not just for individuals but also the sustainability of communities in general.

Wednesday, October 22, 2014

Midweek Market Monetarist Links and Summaries - 10/22/14

For the BOC, the promise extends from the past period to the present, but not the future (Nick Rowe)
No Operation Twist allowed in this set up:
It's very easy to get the signs confused:
Expectations about "counterfactual conditionals" are just airy fairy!

How well does John Cochrane understand the New Keynesian model? (Josh Hendrickson)
Nick Rowe's interpretation:

Still scraping bottom with a flawed monetary regime (Scott Sumner) The real problem with Fed policy
When loose lips sink ships...The Fed finally says "enough"
And, Quick update on NGDP futures
Scott highlights recent posts from Ben Southwood and Sam Bowman at Adam Smith Institute

At Econlog, Scott makes some market predictions: It's the economy, stupid
Because of housing, Texas has less poverty:
NGDP is a monetary concept:
Did the Bush tax rebates actually work?

No time for "policy normalization" (Marcus Nunes)
Some never realized that long term growth fell away from its long term trend:
Bullard sent the stock market on a wild ride this week:
Oil prices? This time, deflation is involved:
Has the implicit nominal target been abandoned?
Escape (from ZLB) as attributable to...WWII?

Unfortunately the UK is no longer "boring"! (Britmouse)

Lars Christensen puts together some adaptations:

If only Tyrone had written this post instead of Tyler (Cowen), but alas that was probably not the case. Scott Sumner replies here, David Glasner here, and my response is here.

Labor?? Who needs it...(Benjamin Cole)
Confusing logic:

Tim Worstall defends market monetarism in a Forbes article:

Also of Piketty interest:

Bill Gates provides reasonable framing:

"Picking" on Piketty!

Tuesday, October 21, 2014

Aggregate Transaction Potential > Exports Potential

Don't get me wrong. I'm not saying there's anything wrong with exports - only that exports don't always have to be the indicator of growth and prosperity one might expect. Indeed, if multiple nations were to attempt an augmented exports strategy at once, problems with aggregate demand might ensue for some of them, as David Glasner noted. Hence my concern about a recent post from Tyler Cowen, which posed exports as a potential solution for nations in need of structural reform. My question: why does no one consider serious domestic structural reform, instead?

Any ability to reflate economies also depends on how many transactions are actually taking place in given populations. Gains in production - while they are always desirable - does not address this issue directly. What's more, sets of regulations tell stories about the kinds of transactions that are even possible. And yet, regulations represent many things that governments would just as soon forget or not have to deal with, about the marketplace.

Perhaps the wish to make things a bit simpler than they actually are, is responsible for renewed export dialogue. However, it would be more practical for policymakers to consider what populations might actually be capable of, instead of lecturing them about circumstances of which they have little ability to act upon.

In response to Tyler Cowen, Nick Rowe points out that regarding gains in overall economic activity, it does not matter where transactions actually originate. Scott Sumner also touched on monetary factors regarding exports potential with Nick Rowe in comments, in a response post for Tyler. If monetary policy does not reflect supply side efforts, in terms of output and representation, it is as though they did not even occur. Hence monetary policy has the "last word" in this situation.

Of course as my readers know, I am particularly concerned with the structural nature of potential output. Tyler's approach - rather than considering export potential impartially, seemed to be oriented towards dismissing the IS-LM model. While I don't have strong feelings about the model and agree with Tyler that credit and finance are quite muddled, I'm not sure how that has direct bearing on supply side considerations in this instance. What's more, I am also concerned that such an approach can give supply side ideas a bad name. There are far too many blogs where I do not feel comfortable expressing supply side ideas in comments, as it is.

However - and this is too often missed or glossed over - supply side efforts need to be focused more on increasing transactions among all participants. When this occurs, aggregate demand is easier to regain, particularly in depression circumstance. Nick Rowe also pointed to the fact a domestic side of this story needs to be taken into account. In the sense of individuals trading with one another, exports are not even strictly an economic function. As far as I can tell, exports would be considered a component. As Scott Sumner also indicated in this early post:
Macroeconomics should be about aggregates, not components of spending. 
When it comes to the missing marketplace, nothing could be more true. When too many vital transactions between individuals are undone - when labor force participation falls - the purpose and meaning of money can also be forgotten. Even though the periphery is suffering the most, they serve as a reminder for other nations, what happens when policymakers neglect to seek means for economic inclusion at local levels.

Monday, October 20, 2014

Investment, Inequality, and Economies of Scale

Admittedly this is an odd post title, and I'm trying to integrate somewhat layered concepts (or perhaps nested) as well. So hopefully this post will not be too convoluted!

Resource use densities tend to agglomerate, and in the process, generate inequalities in both investment and production structure. Where does that pose problems? For inequality, it mostly depends on whether product formations are important components of basic consumption. Nations remain in a high point of a long scaling up process for resources in general. The result is - however - a bit different from Piketty's wealth conceptualization. Because many investments are internationally held and structured, their benefits accrue to participants in the same international (further scaled) context.

The good news? Some of these investment and production processes can be readily scaled to local levels, with few negative effects on profit formation. However, doing so could meet with some resistance. This is particularly true for knowledge based services, which tend to organize their marketplace from already existing wealth densities. Most of these further concentrate holding positions for resources, rather than dispersing service production and consumption where it is needed. The fact services are organized in this manner is why I am highly skeptical of many government redistribution patterns. Thus far, government redistribution mostly serves to intensify the process of resource density agglomeration.

It is far better to counter these densities through the creation of decentralized services and production zones at local levels. That would allow smaller economies of scale to prove advantageous for all participants in these local patterns.

Investment options for new systems communities - in spite of their "closed" nature, would make it possible for local economies to move from dependence to interdependence with larger economies. Local investment opportunities (beyond housing in particular) would also allow local participants of all income levels to retire without reliance on government assistance. Only consider that higher income levels need not rely on housing investment to the same degree as lower income levels, because of their access to international wealth flows. In a sense, local residents would become their own government, as co-creators of wealth and community.

How, then, can local economies do a better job of reaching out to international economies than is now the case? First, consider the ways in which local economies need to remain open to the world. Chief among these is accessing the knowledge and skills capacity which can come from anywhere. One reason nations are reluctant to do so now, is that immigrants are more often perceived as a drain on services than an add to services. By integrating services into aggregate time use context through skills arbitrage, each human component "add" becomes a plus, rather than a minus. Also, few in the U.S. are aware of new infrastructure patterns that other nations are generating for different income levels

Through local production diversity, local economies could benefit from production gains wherever those gains from come from, instead of blocking them out. This is particularly true for resources which could augment local production patterns. By maximizing local investment potential and competition in diverse settings, products from without would become inputs that add to production capacity, rather than being perceived as threats. When technology is capable of retooling at basic levels, no one product line needs to be paramount. This in turn makes low cost production possible for local and regional needs.

Local diversity in production makes it easier to envision high skill levels in time arbitrage, as well. Populations would likely concentrate on generating product which is not as easy to acquire from other regions and nations, without paying more than they would expect to pay for local production.

Inequality is best addressed by populations having input into not just consumption, but also production. The twentieth century focus on government as "protecting citizens" in consumption based terms has not always turned out well. Fortunately, technological gains make it easier for citizens to once more become part of production processes.

What would be the "closed" aspect of new systems communities? Production and consumption functions would also be a recognizable whole, in that the monetary flows necessary for this process would be measured at local levels. This is possible in that - through time arbitrage - services formations would become a direct source of wealth in their own right. In some instances, combined knowledge use patterns would also become capable of acting as dynamic community starters. These are methods which could not only address a lack of labor force participation, but some important aspects of inequality, as well.

Sunday, October 19, 2014

Knowledge: "Free"...or Free to Use?

Some clarification is in order, regarding my promotion of knowledge use., exactly? Not in the sense of "wresting" current knowledge holdings from their owners. Rather, basic knowledge concepts should be freed so that individuals can carry out everyday complex tasks without ending up in a bind. While individuals are often able to do so for themselves, there are too few means to do so for others - particularly in a compensated services context.

Knowledge use on economic terms does not have to be an "all or nothing" endeavor, as it is often presented in the U.S. And much can be done to make information gathering processes an easier enterprise. Particularly given the fact that people define and organize knowledge spontaneously, when given the chance.

Local service formations need simple versions of credentialing, which citizens can feel comfortable with. Dedicated research paths are also needed in knowledge use systems. This would provide recorded studies and applications not only for local residents, but for participants in other knowledge use systems as well. Sometimes, individuals would need to "reinvent the wheel" if knowledge cannot be "begged or borrowed" for important tasks. Doing so might not be so bad as it seems, because moving ahead to get the job done - however possible - could discourage some of the rampant knowledge theft of the present.

Also, I am equilibrium sensitive in terms of knowledge and skills valuations. Services require more money in some places by virtue of the real estate they operate in. Much of government debt is a result of trying to cram more customers (and/or patients) into high value areas, than limited real estate formations can realistically hold. The present service equilibrium is the obvious place for recently developed concepts and the latest (presently defined) research. What exists in this regard needs to remain intact as a separate knowledge entity, for it remains supported by international wealth.

In some instances, state of the art services formations could reach out to assist the development of services marketplaces which don't have access to international monetary flows. Doing so would help them as well, for they have been subjected to government demands to serve more than is actually possible. Places which would be building a skills base from scratch, need to tap into knowledge use which more closely matches local resource capacity and the abilities of local citizens. Gradually, that limited skills capacity would evolve and grow.

Imagine for a moment: communities already in place, which have generated comprehensive knowledge use systems. What might happen to some which are particularly successful? Would they be tempted to enclose the knowledge sets that their own citizens gradually constructed? Of course, in a sense this is what has already happened - albeit in slow motion - as institutions came to define the knowledge which was allowed, and consequently gained government's backing.

Once knowledge is separated from the value of our time, it is not easy to get either of them back. And that is the present dilemma. The importance of keeping open avenues for knowledge is paramount. By making knowledge use more free, the best compensation of all would be the greater time value, that can recreate the missing marketplace.

Saturday, October 18, 2014

Income Inequality Rationale: Cover for a NIMBY Nation?

Inequalities which result from unnecessary limitations in knowledge use, start to have cumulative repercussions with the passage of time. Knowledge use limitations also include NIMBY reactions to economic access which takes a myriad of forms. Often the intent behind access limitations can be deceptive, thus not amenable to easy solutions. After reading an article about no compete clauses, I thought about that article in relation to Janet Yellen's recent speech on inequality. Just like the neighborhood variety, the rationale basically comes down to...growth? Perhaps, so long as it doesn't disturb my own back yard.

When NIMBYs multiply, growth - and the monetary policies associated with it - don't inspire as much support as before. Of course when the growth stops, everyone looks around the room to see what they want to grab - hence today's renewed income inequality debate. Silicon Valley has been one of the nation's last remaining bastions for equality of opportunity, in knowledge use. Even though knowledge use had long since been limited for individuals - particularly in services - at least business wealth formation had not suffered that fate to the same degree.

Increasingly, that has changed. Many now turn to governments, to form knowledge enclosures for their own personal gain and survival strategies. Few other strategies create such a stranglehold on economic growth. When people cannot even utilize or share the knowledge they need most, does anyone wonder why more suffering is the result? How does anyone help others, if they have lost the means to help themselves? Here's Janet Yellen, in a speech to the Federal Reserve Bank of Boston:
The extent and continuing increase in inequality in the United States greatly concern me...I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.
Again, as I indicated in my last post, there needs to be organized action on this front so that monetary authorities can return to the job they are actually assigned to do. For instance the Fed's option to maintain economic stability through aggregate spending capacity, sometimes seems as though a distant hope. They don't need to be blindsided by misleading arguments on income inequality as well, particularly when the public is already expecting them to take a more active role in financial concerns.

Presently, I want to give Janet Yellen the benefit of the doubt, for she comes across as someone who is concerned about inequality for the right reasons. Hence my problem is not so much with the fact she decided to speak about it, but that her words will be subjected to interpretations that can mangle logical thought processes in a hurry. Piketty's recent book has already been mentioned in at least one article which covered her speech, and doubtless there will be other mentions.

Just like Piketty, too many elite want to generate yet more redistribution in the name of inequality - all the while pretending they didn't benefit from the most recent round of tax hikes and knowledge use exclusions. Too many ladders have already been pulled up, too many doors to economic access have been closed...let alone the zoning restrictions in place all around. Does collective guilt account for a rising chorus to raise wages? Extra dollars in the paycheck is not much of a consolation prize, for the egregious theft of knowledge use which has already taken place.

One only hopes that Washington will not take seriously the solution that Piketty thought was appropriate for income inequalities. But governments may well try to do so, if others do not step up first to offer specific courses of action. When alternatives are not forthcoming, many special interests will ultimately go along with government, in order not to have their own sense of order disturbed. Alternatives need not be perfect, and they can develop slowly. But they need to be established, so that Washington will not keep returning to non solutions.

Friday, October 17, 2014

Where Is Supply Side "Forward Guidance"?

For some time, there has been a lack of supply side momentum in the U.S. economy. As public and private institutions became less able to adapt and innovate, central bankers maintained demand on a steady course for a consumer driven economy. But with the Great Recession, central bankers stumbled as they overreacted to supply side issues. Even as the Fed concentrated on improving monetary policy afterward, supply side issues still weighed heavily on the reluctance to maintain growth. Of course the U.S. is far from alone in this regard - even so, that is no excuse.

Yet who is in any position to promote widespread cooperation and coordination in this regard? Never mind an Ebola czar! A czar to repair systemic supply side breakdowns - particularly in non tradable sectors - would make a lot more sense. Perhaps because there's so little forward momentum in supply side terms, the marketplace hangs on to every Fed utterance, to determine the degree they will continue to support monetary demand conditions.

Instead of maintaining monetary stability, the Fed continues to get distracted with responsibilities which should have been assigned elsewhere. If monetary policy were a dependable (i.e. boring) process, more business activity could be safely undertaken, with the knowing that adequate monetary flow would be present to make success more likely. Because of ever changing discretion that is not well accounted for, uncertainty on the part of private interests is further reflected in Fed uncertainty, in a negative feedback loop.

This leaves forward guidance as a continued emphasis on demand based consumption growth. However, that also means the same government responses which made little sense prior to the Great Recession. In these circumstances, it is difficult to know whether the Fed can be relied upon, so long as discretion trumps a rule to maintain a level for aggregate spending capacity. In spite of the dominance of the supply side, they remain hobbled by the fact that few can form any group consensus which reflects local economies and the possibilities held therein.

By hardening their institutions and their gains, many among the supply side - and also governments - have turned their backs on the future. The rejection is so strong that it has upended a lot of monetary common sense rationale which existed prior to the Great Recession. Because so many components of the workplace and marketplace are stuck in yesterday's patterns, no one really knows where to begin the process of untangling them.

Hence many supply side factions leave it to the government to assure the public that growth can slow down yet all will "be well". How do Republicans expect to win "no growth" campaigns while the economy "dog paddles" its way into the future? Apparently by making the opposition look even worse. Looks like there's going to be a lot more moral and smear campaigns that are not very inspiring for voters, at this rate.

Everything about this scenario is completely unrealistic. No nation can expect to remain secure and stable, by averting its eyes from declining growth. The voices of those who are trying so hard not to be left behind, need to be taken into consideration and acted upon. Real strength - the kind that molds the character of steadfastness - happens when populations are not afraid to turn around to retrieve those who have stumbled and fallen.

Granted, there are always going to be ebbs and flows in economic activity. But this decline is completely unnecessary, given the resource potential - let along the human capacity - that is currently being wasted. Not only is the threat of decline being ignored, central bankers are trying to gloss over it as though the economy is returning to normal.

Should nations give up on continued growth and further economic integration, that means populations take the chance of giving up on themselves. There's just no good reason for doing so. Millions of individuals are still being impacted by the fact that nothing has really been done, and this is no time for political factions to stand in the way of progress. Forward guidance should not be offered up as false promises in hopes the patient will not go into cardiac arrest. There needs to be real action behind the promises.

Governments and central banks can no longer use the rear view mirror to determine what lies ahead. While neither cannot be expected to play central roles in production reform, the efforts of others to move forward will at least need their blessing. If factions among the existing supply side cannot begin the process of renewed growth, others can begin the process in their stead. Time is of the essence. Anyone who is displaced by automation in the years ahead, will need viable alternatives that offer new hope. New growth need not disrupt what already is, but it needs to progress beyond today's limitations, just the same.