Wednesday, March 25, 2015

An NGDP Target Rule is the Right Commonality

On March 30th, the Cato Institute will host an event to discuss possibilities for a Fed monetary policy rule. Scott Sumner - one of three speakers - will of course be advocating for a level nominal target. From the invitation:
The Federal Reserve Accountability and Transparency (FRAT) Act, introduced in the 113th Congress would have required the Federal Reserve to adopt a monetary policy rule. A new version of that bill will almost certainly be introduced in the 114th Congress. Could an unchanging monetary policy rule actually improve upon discretionary monetary policy? Many economists believe so, and several have proposed specific rules that each claims would foster greater economic stability than the Fed's current procedures.
As readers well know, I have "kept my fingers crossed" for the acceptance of NGDP level targeting. Those who have followed Scott Sumner's arguments, know that a nominal target is certainly not central planning on the part of the Fed. Rather, it is an acknowledgement of the kind of commonality that matters most: what any given society commits to economically and monetarily, at a given moment in time.

Acknowledging those commitments is not the same thing, as discretionary targets which could arbitrarily change marketplace conditions - as sometimes occurs with inflation targeting. Not only is it important to maintain aggregate spending capacity in an immediate sense, maintaining a steady level is also key to the stabilization process.

Part of the problem for any rule adoption, presently, is that central bankers are influenced by uncertainty in Washington as to long term growth potential. Are governments willing to commit to the stabilization of income aggregates, for instance? Or will they remain insistent on parking income in tightly specified asset formations, instead of supporting broader labor force participation?

Too many central bankers are caught at the "knife's edge", exhibiting firefighter responses to what sometimes appears as jobless growth. Inflation targeting was in part a response to the uncertainty of maintaining income aggregates. Even though inflation targeting has proven quite inadequate, it provided temporary cover for a changing set of labor force participation realities which have yet to be addressed. One reason that labor force participation has suffered, has been the imposition of a sticky market equilibrium for all income levels. Unlike the good commonality of a nominal target, the imposition of narrowly defined parameters for all participants is a negative commonality. Imposed by both governments and special interests, sticky markets remain a real threat to long term growth.

All too often, the harsh bust cycles of oversized financial sectors are simply the result of earlier damage, which slowly builds up from harsh consumption and production requirements. Those requirements result in mass failures, which often should not have to be necessary. Why are people willing to knock one another down - time and again - with depressions and harsh recessions, instead of allowing room for true economic diversity? As it is, the requirements of a sticky marketplace scarcely leave any room at all, for the stability of incremental growth.

The danger now is that central bankers will continue to use inflation targeting as a means to slowly "let the air" out of aggregate wealth potential and labor force participation. Don't let them do it! With a little luck, we can convince them not to continue down a desolate road where little hope can be found. Key to all this is restoring faith in the capacity of time value, as the central component of the economy it actually represents.

How, then, to think about potential growth levels? Much depends on what happens in the supply side sector in the years ahead. Will services become defined in more inclusive terms, for instance? Will knowledge use become more widespread? A decade may pass, before definitive answers appear certain for a stronger - possibly upgraded - growth trajectory.

Hence those who advocate for a nominal targeting rule, can hardly be expected to hold similar opinions as to growth levels. Much divergence is opinion as to presently existing market conditions. Plus, as Scott Sumner noted (in comments) recently, decisions re growth rate would be a group consensus. Even though it's good to have a commonality of viewpoints for an appropriate growth target, that commonality would be a benefit, instead of the necessity that aggregate spending capacity might represent for monetary stability.

Not only would the nominal target rule become the shared commonality that matters most, it provides the greatest clarity for how to think about the future of both monetary activity and the economy as a whole. Even though a nominal target is subservient (i.e. responds) to actual economic growth, whether or not it is adopted could still affect the long term growth trajectory. How so? Central bankers would not be able to continue using discretion either way (expansionary or contractionary) in favor of credit based goals.

What are the chances for an NGDP level target to be adopted in the near future? It's hard to say. But one thing is for certain: once this happens, it will be like a breath of fresh air. Everyone will finally be able to concentrate on the kinds of supply side reforms which mean real economic growth, for all concerned. Hey, it doesn't hurt to dream a little. Here's hoping that this week's Cato event goes well.

Midweek Market Monetarist Links and Summaries - 3/25/15

David Beckworth highlights a recent National Review article by Ranesh Ponnuru on the "test" of Market Monetarism

(Lars Christensen) "...start out discussing what we want our monetary machine to produce. Furthermore, we also want to discuss what the monetary machine cannot produce."
In a deflationary environment, central bank competition to ease monetary policy is a good thing:
Lars provides links for an inspiring lecture series:

There's a difference (Scott Sumner) Don't mix up tactics and strategy (The straight story)
They even needed a consultant to defend themselves! Hawks try to rewrite history Marcus Nunes responds:
Ryan Cooper's piece about market monetarism in The Week was somewhat confusing: Conservatives are not abandoning market monetarism
Scott notes several articles: The New Yorker on monetary policy
Plenty of profits: It's good to be the Fed
In 1964, China was even more poor than India: Global Growth
Scott contributes to a NYT discussion on the strong dollar:
"But gosh darn it there must be some reason the Fed needs to raise interest rates because...well, just because." The WSJ wants to raise interest rates; now they just need to find a reason
Making the of luck to all!

Some Econlog posts from Scott:
Brad Delong on the "sell by date" of Krugmanomics
A post definitely worth taking the time to read - The Fed: What's the minimum acceptable accountability?
Bonnie Carr responds:
Differences between Western Europe and East Asia...Hard Asia, Soft Europe
Fischer's optimistic outlook is not warranted: Is Stanley Fischer too complacent?
Marcus Nunes responds:

Bill Woolsey rebuts Joe Salerno: Salerno on Market Monetarism
Since 2008, intentionally so: Are open market operations distortionary?
Ben Southwood responds to Woolsey's OMO post: Quantitative easing isn't a distortion
George Selgin also has a post re Salerno:

Still lowering the unemployment threshold (Marcus Nunes)
Theoretically impossible outcomes?
In January 2009, 6 months into the NGDP crash, Blinder was "blind" to the real reasons behind the economic downfall
Even though Fed credibility has been "shot to pieces"...
Inflation targeting was waiting in the wings, long before it took center stage:
Marcus highlights the recent dollar discussion in the NYT:

What did the bond sellers do with their $4 trillion? (Benjamin Cole)

A telling FRED chart for currency holdings...(Bonnie Carr)

Will the Fed repeat the 'Mistake of 1937'? (James Pethokoukis)

"What's possible for one is impossible for all." (Nick Rowe)
How difficult is the trade off?

Monday, March 23, 2015

Charter City vs Charter Community: Some Comparisons

After listening to Paul Romer's latest interview with Russ Roberts at Econtalk, I wanted to sketch out a few differences between charter city or community approaches in this post. Econtalk also includes a link for a brief Romer interview from 2010, ("Give poor people a chance") which provides additional perspective.

Of course the primary difference would be in terms of scale. Whereas a charter city needs to commit to a well understood approach at the outset, charter communities could be more flexible and experimental in nature. And while charter city infrastructures may need to accommodate millions of citizens, charter communities would often be laid out for walkable and other non motorized options. This would allow the inhabitants to coordinate ongoing schedules and activities in ways that are also capable of overlapping, where needed.

Charter communities would rely on direct democracy for service formations, in part due to ongoing time use choices which involve long term educational planning and local resource use. Whereas services formations in charter cities would probably utilize traditional division of labor structures and representative democracy. The difference is also one of density optimization: divisions of labor in knowledge use communities would reflect the varied needs of a much smaller population at any given moment in time.

In the 2010 article, Romer spoke of increases in land value which would stem from the authorities providing public goods. For a charter community, land value would likely increase slowly, due to gains from increased ability to coordinate services and production more effectively over time. Local investments could be apportioned so that gains can provide fallback options for citizens as they age, as well.

Participants are more likely to be involved in initial planning processes, than would be possible in charter cities. Especially as the concept starts to take shape, more individuals would be able to play "founding" roles in domestic summits which seek to create new chartered communities. Domestic summits would also focus on the formation and definition of public spaces. These would vary widely, according to common interests and the kinds of infrastructure formation which best match investment options for potential citizen groups. As Romer noted, public spaces facilitate the interactions which make cities valuable. Certainly the same would hold true for charter communities.

A common characteristic of both city and community would be the fact that multiple interests would be brought together and harmonized. While broader sets of income levels would be able to live in charter cities, to some extent chartered communities would be able to make provisions in this regard as well. As Romer noted in the Econtalk interview, "An attractive climate is a luxury good." To a degree this is also true for other attractive geographic features. However, the U.S. still has vast stretches of property which could be made attractive in multiple capacities. What's more, some communities would include time commitments which lend to unique land use characteristics.

Only consider how long it's been since many cities were formed in the U.S., for the twentieth century mostly saw suburbs added to already existing cities. Not all big city infrastructure is going to hold up well in the decades to come. There are a couple of things to consider in this regard. Not only do future infrastructure patterns need to be more versatile, they will not always require require the same spatial dimensions of the present.

City formation slowed in part, because of origination patterns which were reliant on manufacture and traditional production. The fact that chartered communities could use knowledge based services as a point of origination, suggests new models for town centers and conceptual ideas for Main Street. Would a single primary street remain vital to communities of the future? In part, it depends on the designs that individuals find appealing, once domestic summits become a reality.

Last but certainly not least, chartered communities represent self supporting internal economies, which would be approved within given nations as the special exploratory zones they represent. In the U.S., states would agree to honor the same exemptions for these communities that would be honored by nations. Likewise, long term economic efforts on the part of these citizens would be recognized and compensated, as the new wealth they would bring for all concerned.

Sunday, March 22, 2015

What Really Stands in the Way of Freedom?

A few centuries earlier, liberty didn't seem quite so elusive. Indeed, freedom in a newly formed United States was possible, due to the presence of private property in the form of land. That land not only meant ownership rights for personal production, but protection by an otherwise minimalist government. However, that basic framework included some wealth creating economic circumstance which have shifted considerably in the last century. Personal production is no longer quite so simple, in spite of an infinite variety of ownership options which seek to reduce risk in this regard.

Freedom is difficult to ascertain without the meaningful economic access that production allows. And back then, land was the economic access that mattered most. Liberty was a relatively simple concept, so long as one's holdings included adequate means to make a living - even if only through subsistence means. For instance: once individuals became landowners, even subsistence gardens tended to be more reliable to maintain personal circumstance, than subsistence employment. Time ownership has become extremely fragile (whether rich or poor), compared to the time that could once be dedicated to land ownership with understandable reward. And yet, subsistence gardens are no match for the consumption requirements of developed nations in the 21st century.

Today people can be misled by calls for greater freedom, if and when recent shifts in wealth creation and societal participation are not taken into account. The kinds of property which one associates with wealth formation, have completely changed since today's democracies were formed. In the meantime, time use in coordinated relation to others has become the primary key to economic access. If no one was an "island" before, that characterization holds especially true today. Unfortunately, today's marketplace has yet to define property protection for time use options. This means there are no individual time and knowledge use rights, even though both have become necessary to make freedom and economic participation possible for populations as a whole.

As new pathways for knowledge use wealth emerged, they were staked out as holdings which resembled the claims of kings for their countries, as new nations were discovered centuries earlier.* Only consider how long it took for the private (real estate) property which became associated with democracy, to emerge from those earlier massive holdings! One only hopes that local knowledge use holdings - in the form of time use rights - do not take centuries to unfold. After all, knowledge use and the success which accrues to populations as a whole can be quite fragile, compared to changes in the use of land over time.

Even though royalty has largely given way to meritocracy, the latter nevertheless still stands in the way of personal freedom, when knowledge use comes to the fore. How so? Without a distinct marketplace for time use, "one size fits all" meritocracy has little choice but to monetarily fill in the skills gaps for information, technology and the digital realm which individuals could otherwise put to use for services in local circumstance. As Friedrich Hayek noted, "Competition...means decentralized planning by many separate persons." One of the more counterintuitive aspects of a thriving economy is the greater the inclusive nature of what is allowed, the greater the degree of competition, coordination and personal choice.

When meritocracy stakes the primary value of time use in association with knowledge, the ability to ascertain time use value for complete time aggregates is lost. However, that time value could gradually be regained. Should those with meritocratic claims on knowledge choose to make room for chartered knowledge use communities, people could rediscover freedom they scarcely knew they had: that of (1) real choices for time use organization, and (2) experiencing time choice in ways which generally lie within one's control, and (3) rediscovering economic personal time use value, as opposed to institutional time use value.

One could describe freedom as a right to participate in the kinds of "planned" institutional settings which Hayek spoke of. Still, participation in these institutions has become limited, particularly given the fact meritocracy leaves too few remaining avenues for growth in services formation. What's more, Hayek's arguments for decentralized knowledge were largely understood in a tradable goods production context. It was not as easy to apply decentralized knowledge for services, because - without a designated marketplace for time use - too much compensated time can be extremely problematic for both profits and monetary flows in general.

Therefore, knowledge use decentralization has not been adequately understood for present day services product formation - which unlike other forms of production - needs to maintain time as a central element. Unfortunately, meritocratic structure has little choice but to limit compensated time aggregates, in order to maintain knowledge values as they are defined in primary equilibrium.

The arguments of this post are not to suggest that meritocracy isn't useful, desirable or even relatively necessary in many instances. Rather, time aggregates need coordination to include those who otherwise have little room to participate in the important knowledge and services of the present. New paths of freedom would allow everyone to partake in knowledge use, in order to maintain personal responsibility and social commitment.

Monetary and time use roles for purposes of freedom, are scarcely complete. Even though barter has no place in monetary economies, economic validation (monetary compensation) for group forms of time coordination would allow the further evolution of freedom for knowledge and time use which are now needed. Not only would time ownership make comparative advantage in services possible, it would mean the validation of personal aspiration, as well. Think about the comparative advantages derived from tradable goods over recent centuries. What if a marketplace for time arbitrage meant the same advantages could be derived from time use and knowledge use? Comparative advantage for personal time use freedom, has the capacity to restore humanity to a better place.

*In other words, a total wealth value of time aggregates can also be defined by knowledge based activity that the group as a whole is specified not to perform, in a given economic setting. This in turn can be a factor in permanent limits on economic growth, if the activity holds an important consumption function.

Friday, March 20, 2015

A Different Kind of Corporate Responsibility

It was interesting to come across two different interpretations regarding corporate social responsibility in the same day: one from Justin Fox at Bloomberg, and one from Kevin Erdmann which noted an essentially cosmopolitan rationale on Milton Friedman's part. Indeed...what to think when a corporation does decide to embrace something which at least ten percent of the population does not agree with? Perhaps it depends on the actual corporate stance!

Both of these posts are revealing, in the contrasts they provide. Practically speaking, today's corporations have little incentive to express social purpose as part of a mission. Only consider the degree to which governments in developed nations - particularly in the twentieth century - managed to constantly expand the missions they espoused. Consider particularly the way this redistribution mess gets in the way of helping the poor, who are in line well behind the others who are always ready for another handout. Governmental desires to "please" most everyone becomes built in tax obligations for businesses - by default. How can private industry be expected to meaningfully tackle additional social missions, when overlapping social purposes are already embedded in their preexisting commitments?

What if corporations and individuals alike, had the option of taking on social obligations which would be capable of benefiting the participants involved? Before anyone insists this isn't "fair"...what about the tangled web of random social obligations that are skewered beyond recognition?? Populations now feel sufficiently burdened by existing tax obligations, that nations have become reluctant to remain open to new citizens. Is there room in any of this nonsense, for people to once again start helping one another?

Local chartered communities could opt for investment structures that have the capacity to provide a safety net for everyone involved. Not only would this strategy help lower income levels, it could generate corporate responsibility based on a highly pragmatic set of needs. A bare minimum of local taxation would be necessary, because maintenance responsibility would be built into locally invested production, asset and infrastructure formation. Services which normally would be partially funded by governmental redistribution, would instead become a part of what local educational structures are actually intended for. In other words, little about the transmission process of resource commitments would remain hidden.

How might one think about corporate responsibility, in terms of organizational structure for knowledge use systems? Even though a strong social component is involved, it would override those random non voluntary commitments which are far less tangible. Plus, intangible tax burdens contribute to the needless failures of countless individuals and businesses - in the workplace and life in general.

Local corporations would be exactly that - inclusive of those who share their geographic location.* Rather than "mining" the best knowledge in a given (wide) area, these corporations would seek to maximize the skills capacity of local time use aggregates. This marketplace for coordinated time use would eventually strengthen individual abilities, alongside knowledge use patterns at local levels. Time arbitrage would allow broader representation of a local marketplace, than money alone has been able to provide through merit based compensation.

Time arbitrage would simply provide a voluntary option for knowledge use, beyond the meritocratic ideal which both governments and present day businesses follow. One way to think about the time ownership this corporate structure would allow, are the comparative services advantages that would become available within dense groupings. In some instances, services formations would become possible, that rival what one would normally associate with prosperous regions or large cities.

Knowledge based communities would have corporate structures whose missions include maximizing local time aggregate values by the most productive means possible. Even though this sounds open ended, there is a recognizable framework which makes the transmission between wealth creation and services formation understandable. Corporations which prove capable of organizing human potential in diverse settings, could help make the future brighter than it presently appears.

*Entry would be gained either by familiarity with the system (by partaking in other knowledge use systems) or study of the relevant group beforehand.

Update: Plenty of confusion regarding how to invest, presently (Pethokoukis on Power Lunch):

Wednesday, March 18, 2015

How Much Austerity is Illusory?

Before any nation succumbs to "future necessary" austerity, fiscal restraint gloom and economic slowdowns in general, it helps to remember that meaningful action now could still change everything. But first, consider where change might begin. Where money is spent by governments, how helpful is that spending in general? How much does political compromise or hidden tax strategies blunt the effect? How much is simply lost in translation to entities which already had the power and ability to take care of themselves? Inevitably, these groups stand between governments and those who could have put redistribution to reasonably good use. The process isn't just inefficient, it is often counterproductive. So why bother at all?

In a perfect world - should fiscal spending still be deemed necessary after the hard questions are confronted - what can these forms of management and organization contribute, which may be difficult or "impossible" to procure from other vantage points? If said activity is difficult to imagine elsewhere...why, exactly? Granted, if justice is at stake, public management may be better able to represent the whole. But are other determining factors of wealth provision - such as healthcare or building codes - culturally "written in stone"?

Of course, fiscal policy will remain a major component of economic activity - in spite of protestations to the contrary or the limited marketplace results of the present. However, the fact that fiscal spending has entered a period of relative retrenchment - partly the result of a supply side which is damaged from too many government favors - cannot be ignored. And without production reform, privatization of services in their present incarnation, would prove a huge mistake. In all of this, governments are losing their ability to provide the kinds of safety nets that populations need most - particularly in the U.S. It's not so much about where or how the money gets spent, but what is ultimately accomplished.

Austerity would not have to be an inevitable reality for any government, if debts and obligations were better understood by everyone, and provided for at the outset. Today's future austerity threats are a result of accounting obfuscations and the default gridlock which Washington now experiences. Even though monetary policy has proven capable of offsetting fiscal losses, the limited nature of both services and housing provisions continue to distort growth potential. Services growth in particular remains stymied by political opposition, where determination on each side effectively means that no one "gets their way".

It would be better to begin anew, with services that are capable of sidestepping both governmental redistribution patterns and the hard consumption definitions dictated by special interests in these circumstance - particularly for lower income levels.  As noted by Korpi and Palme in "The Paradox of Redistribution", "The greater the degree of low income targeting, the smaller the redistribution budget." Eduardo Porter, in "Patching up the Social Safety Net", says:
Unsurprisingly, the United States government provides one of the most threadbare social insurance nets among advanced nations The question is, as we age and put more demands on Social Security and Medicare, will our dependence on narrowly focused, narrowly financed programs unravel what social insurance we have left?
Only consider the efforts of Republicans to repeal Obamacare when they have scarcely concentrated on the supply side reforms which could greatly improve the marketplace. Many calls for a smaller government are simply the desire to move services towards personal preferences in programs and services, instead of actual improvements for Main Street. For the U.S., austerity would likely be the eventual result of gridlock when no one gets their way.

By now, it should be clear that large scale government is too inclined to favor special interests to be effective at managing programs for services. Likewise, state level governments are no panacea for today's services and effective asset formation. Not only have they extended many of the same privileges to special interests, but they are in tenuous positions regarding safety nets as well.

Long term economic growth needs to be explored one privately structured community at a time, so that small successes can be shared, and small failures can become the learning experiences that governments now need. Austerity need not be an inevitable future. Just the same, marketplaces need to make room for greater participation, so that politically defined austerity can give way to a better growth trajectory.

Midweek Market Monetarist Links and Summaries - 3/18/15

And the economy hinges on...patience? (Marcus Nunes)
Abe and Kuroda need to keep the momentum:
Even as inflation and the dollar continue to move the wrong way...
There's no "surprise" in this index:

(Nick Rowe) Central bankers need to make Say's Law true in practice, even if it is not true in theory:
Nick responds to David Levine:

Even Germany "is growing at the pace of a turtle" (Bonnie Carr)

A $210 trillion "fiscal gap"...(Scott Sumner) Who do you trust, Kotlikoff or the market?
Presently, the major factor is easier money overseas: The rising dollar will not impact US growth
Whatever metric one may use, The euro is still far too strong
At times, Bernanke was willing to speak up: The biggest basher of them all
This stimulus probably wouldn't boost net exports: Apart from boosting NGDP and RGDP, euro depreciation will not help Italy
"Never reason from a price change" is also a part of Econ 101: Krugman on NRFPC
Only one step from Krugman, to Friedman: Brilliant Krugman, dumb leftists
Wait...that's Scott's argument! Krugman on European growth and the euro

Scott at Econlog:
The public needs to know exactly what the Fed is trying to accomplish: Everyone needs to be accountable
Scott highlights a great nineties essay from Krugman: Krugman's dangerous idea (it worked for me too!)
What's the "sell by date" of Krugmanomics?
Repudiation of big spending? We'll believe it when we see it...Will the GOP once again opt for big government

Lars Christensen highlights the open borders manifesto

Even though households may not be able to afford homes, rents aren't falling (Kevin Erdmann)
Kevin looks at asset values in the U.S. over time:

"Cash in circulation has doubled in the last ten years." (Benjamin Cole)

A circular flow model for income and expenditure (David Glasner)

Simon Wren-Lewis worries than an NGDP target is not enough to restore growth: Radical macro lessons from the Great Depression

Tyler Cowen lays out some of the possibilities for Fed tightening: Should we listen to Ray Dalio? Should we taper? Be patient?