Friday, May 31, 2013

We Can Create Our Own Demand

Sometimes the idea of knowledge use feels like being on a raft in the middle of the ocean: water, water everywhere, but not a drop to drink! Of course - in this case - we can "drink" in all the water we want (knowledge) but it is not quite capable of sustaining us, because we do not yet have equivalent ways to make knowledge matter with others, unless we have a special "key" from the knowledge landlords of our time, to do so. Essentially, they loan us a key to our abode (paid work) even if we paid the price of a mortgage to obtain the key. In turn, the cost of the (loaned) mortgage makes those who paid it understandably reluctant, to allow the poor to help their own state of affairs with their own knowledge use. While we claim a degree of ownership in our paid capacity, it makes for confusion in our mental capacity (to say the least) when we have to "give the key back". In other words a specific valuation, or even lack of one for knowledge isn't so much the point, as our right to utilize it and categorize it for the mobile real estate it actually is.

However, in spite of my rather sad lead in (arghh!), I want this almost-time-for-the-weekend post to serve as a positive wrap up of sorts, for some recently presented ideas particularly in regard to knowledge based services. So today is more of an emphasis on what can be done, and how in fact what we create could in fact be quite different from the Big Bang way that knowledge dispersal was brought forward in the 20th century. Nothing about such a dramatic change in procedure is automatic of course, and to do such would require a couple of things.

First, it helps to reflect on how societies have previously used knowledge and to what ends. Also, we have a chance to approach such prospects in very different ways from how institutions have previously defined product for us (as indicated in the last post). How might we be interested in recreating knowledge product and utilization for ourselves? For one thing, we want to recapture that now (mostly) missing social, up close and personal part of the process itself, at local levels. The best part of that process is no one has to select limited moments of specific experience as be-all solutions, as institutions have so often tried to do for us. We can have more flexible arrangements for knowledge use which take always changing evolutions of thought patterns and processes into account - both new and old.

Let's back up a bit. Of course it's a given that formal education greatly expanded knowledge use in the twentieth century, until the process recently started to slow in places such as the U.S. Now, knowledge has become like a fertile garden soil which has yet to receive its first planting, in the 21st Century. Still, how communities previously held knowledge depended on how it was utilized in respect to other ongoing activities. When we think of how communities might "hold" skill attributes today, it helps to remember earlier forms of knowledge use spontaneity, when knowledge use was interspersed through all ongoing activities and community members of all ages.

Consider a most basic example: a village where money primarily represented exchanged goods and not time based services. Here, knowledge and skill attributes were held in open ways across populations and were utilized through the community's interaction with its physical environment, both for purposes of family and community goals and activities. Most important, knowledge use was spread amongst all members of society in ways that gave them the security and self respect of economic reciprocity with others. The fact that knowledge was utilized as a commons allowed each community member to gain strength from other community members, even well into one's older years, as remembered by the wisdom of the elders. Only the inadvertent closing off to knowledge use, through exclusionary forms of formal education, put an end to the knowledge of the elders.

No one is suggesting a return to earlier (either literal or non monetary) forms of knowledge use which of course were far more limited! Just the same, specialization of all kinds is now capable of becoming a vital part of local ongoing economic activity in countless areas around the globe. What's more, it would no longer be just the fragile transplant of a school education which is then transplanted yet again to more "fruitful" environments to flower. All the more important, especially, as those limited knowledge gardens have become highly valued, due to their limited nature.

However, a beautiful variation on the earlier wisdom of the elders could be recaptured, were the holders of knowledge confident enough to open up knowledge use to whole populations once again. By so doing, meaningful identities can not only be regained by individuals, but countless towns, cities and villages can once again become strong and vital parts of the global economy. By claiming knowledge use as integral for local forms of wealth creation, greater economic stability on the part of every community becomes possible, and dispersal of knowledge in such democratic ways also assists the preservation of knowledge in perpetuity. Otherwise, knowledge remains desperately fragile whenever populations hold - and use - the most valuable portions of it primarily in large population centers. We have it in our power to create greater economic stability. But most importantly, we have the capacity to create our own demand, and redefine what wealth actually consists of, in the process.

Thursday, May 30, 2013

Services And The Luck Of the Draw

When we need to access services, how do we imagine them as a product? Is that something we really think about beforehand, or do we simply experience disappointment when the time comes that, yes, some sort of service is in fact necessary so we'll get through the torment as soon as possible and write it off as a necessary consequence of life? Perhaps this is why we don't think about a possible decline in services in the same sense we worried about the decline of our former retail establishments. After all, those were set up for more positive experiences. Indeed we sought them out willingly, and yet the effects of declining service product in a personal sense are every bit as significant. What's more, there's a good chance we wanted to provide something meaningful to others based on our education, yet don't really see how it's quite possible to do so, even with the coveted job. Services as only production residual become a limited hand over time, in which some advantages of skills capacity tend to give way to the luck of the draw. But wait...what about those who still plan to participate in skills offerings and thus hope for the best?

Upon hearing we have the "wrong skills for the market", which market are we talking about, exactly? We can be forgiven for wondering...according to who? What exactly does that marketplace consist of, which supposedly has no interest in what challenged us and what we committed to? What to make of all the other people who were also inspired by courses of study, only to find there is no reasonable way to coordinate our activities for one another? Didn't society have ways figured out, as to how one might line up those multiple capacities with one another? Somehow, our colleagues are not the ones we are "supposed" to be corresponding with even if they share space on our social media. Somehow, everyone's trying to help one another but the next person up is just trying to hold on to what still is...are the ones with the "in" who we are supposed to be replying to? Or, do we keep waiting for the "right" job contact who might actually pick up our resume and call us back in for a real interview?

Before we actually become a customer or provider of any significant healthcare, for instance, we may think of it as a multifaceted range of product not unlike a popular supermarket's range of offerings of goods one can actually see and touch. After all, what we hear about ongoing research and method possibilities is in fact an incredible range, capable of filling libraries of books, the stuff of evening news broadcasts and doctor's shows. Those possibilities include many options and choices from the present, and yet by no means do they all originate in present day terms and in fact some of the products continue in some form from product utilized hundreds of years earlier. Sounds like something any consumer in a developed country would pretty much take for granted, right?

Wrong. Unless one is going back to the somewhat limited and pre-economic method of mostly self reliance (nothing wrong with this, but why is it becoming the default option for so many?), the marketplace in most U.S. healthcare is based on pre-selected options of which the providers are expected to follow. One's personal maintenance expectations likely runs on a different  trajectory, than the expected medication and treatment after the formal healthcare encounter takes place. What's more, the interrelated nature of one's health issues and the ways they interact is not the focus of a Medicare visit, for instance, in the U.S. One issue at a time, please. For those who live in a small town with a doctor's office, there may still be no more room available on the calendar for new patients, or if you can get an appointment in a local office, you might see the physician scurry down the hall, as a nurse tends to your needs.

In other words the multifaceted products of the mind - those that hold composites of one's own experiences past and present, have little bearing on the product that gets served up or recognized by the present day industry of healthcare. Today's healthcare services define product as a specific way to address individual symptoms...even though healing is by definition an act of reconciling what is incomplete or asymmetric. As a product of the mind, knowledge has the capacity to be infinite in nature, even though it is attached to the scarcity of our time - which in turn has always asked us to individually coordinate focused activities in space and time, because of this limitation. Let's consider what happens when our time is used primarily as a residual economic component. What appeared as an infinite array of knowledge choices must now (in the present institutional configuration) be reduced to an agreed upon range of offerings resembling a small cafeteria line.

For purposes of profit in specific institutions, each hour of time is treated as a residual flow, from the physician's oversight of medication to the menial worker who cleans a hospital room. If a hospital patient needs something, divisions of responsibility mean the right designated service provider needs to be in the room, in order to comply...or, don't ask the person checking your meds cabinet for a glass of water. While choices in service options do exist in this setting, they exist as decisions for the institution, not the person receiving the service product, or the individual service provider. While such an arrangement perhaps "made sense" in the 20th century, and still makes sense for manufactured product separate from our time, people continue to wonder why their work remains unfulfilling. This is especially true, as ever growing need for financial accountability only means people will be expected to limit their actual time amongst one another even further than exists now.

In terms of market choice, it is therefore fair to call present day organized healthcare only a small sample of what could otherwise be available marketplace options. Somehow, we are supposed to move forward with these small samples which nonetheless provide the "most with the least" in a profitable way through (highly specific) institutional capture. However, considerable folly can result from such a setup, in which luck (or not), rather than skills capacity, may play an outsized role in terms of the results. Therefore, what one would expect to be optimal in healthcare, may instead  be suboptimal in that it represents sample bias. Shane Parrish at Farnam Street offers an explanation as to what might happen, when a full range of options is not actually accounted for:
  • underestimating risk
  • over-estimating risk
  • undue confidence in trends/patterns
  • undue confidence in the lack of side-effects/problems
In other words, it really helps to have larger samples, or more healthcare options, to distinguish between individual skill levels and chances for success, in an aggregate sense. However, with the present day limitations of healthcare service as institutionally directed, we have to cross our fingers and hope that the sample bias of pre-chosen methodologies is going to provide what we need and do the job. In some instances, the luck of the draw with benevolent services as residual is appropriate enough. But in terms of circumstance that call on many individual faculties over the course of a lifetime, getting the "most with the least" does not really serve anyone, in the ways people actually desire to interact with one another. Healthcare services, just like other services, need to be reconsidered in more direct ways which are capable of providing both a fuller range of personal choice options and wealth creation at the same time.

You Say Wealth Creation, I Say...

When do higher, or greater monetary valuations become "arbitrary"? Chances are it's when they create certain lifestyle illusions which everyone - of whatever imaginable income - then is expected to adhere to, or else...(by hook, crook or government decree) Except there's one problem when such negative forms of arbitrage take hold and become a part of our daily lives. Not only do they tarnish what is normally a sign of human progress and ability, but they also diminish faith in free markets. Captured interests are so integral to everyday economic life that we often forget the results they leave in an aggregate sense, and so even productivity measures get confusing in the process, as detailed in one of yesterday's posts.

Recently I wrote a post entitled  "Izabella Kaminska, Why Do You Think Arbitrage is a Bad Thing?" in which I defended the concept of arbitrage. That post was especially a response to what seemed like a negative reaction to arbitrage in general, which I could not understand - not to mention the fact that arbitrage makes the difference between gain and loss at multiple levels. But today, Arnold Kling "shoots from the hip" with good snark (I know - where's the civility) in a response to school corruption as a response to mandated standards, with this quip:
In other news, the way banks are being held to risk-based capital standards can corrupt how banks seek to achieve the standards, according to a new paper from researchers at the department of education.
What made this observation stand out for me was the title of his post:  Schools Suffer From Regulatory Arbitrage. While many would doubtless go "duh"! (As one commenter noted - this just in: incentives matter) I hadn't quite made the connection as to why arbitrage had gotten its bad reputation. Just the same, when we have true believers in a "better world" such as Izabella Kaminska thinking that arbitrage should not even be a part of it, I believe it's time to rescue the true wealth creation aspect of arbitrage from the special interests who have hijacked it for their own ends - ends which subvert countless innovations and a world of personal effort in the process, just to create forms of wealth that look good "from the road" and in a few pocketbooks, but not on the aggregate balance of per capita destinies.

(A brief side tour - that Kaminska post was one of the more popular thus far, and one of the interesting things about blogging in real time is the fact that my (brief comment) reaction to Kling about arbitrage - before starting this post - apparently routed more people to the Kaminska post before I could complete this one.)

For all the monetary lifestyle illusions which negative forms of wealth capture can create, one thing is apparent because of such ongoing activity which is no illusion at all: reversals in family formation from earlier decades. People get that when they don't always have the necessary means to tend to their own realities, they aren't necessarily equipped to assist with the realities of others and such knowing is not as irresponsible as one might think. In fact, at times such knowing proves to be more responsible than trying to pretend one can uphold such familial responsibilities, only to bail or otherwise come up short when the going gets too tough - in spite of what some conservatives may believe as to individual failure and responsibility. Note to conservatives: want more family formation? Create innovative mass produced housing that any income level can afford without help from our tax base and Uncle Sam. No you're not being unfairly picked on...liberals caught my ire yesterday.

The problem for me is when people of any ideological stripe set up impossible goalposts for a sizable part of the population, and then self righteously deride the "losers" among one's population when - in fact - many cannot actually meet the impossible yet profitable demands as inefficiently, unimaginatively structured (and often end up blaming themselves for not being able to do so). The icing on the cake, of course, is when those same powerful interests get the government, the Fed, Wall Street or who the heck ever to financially back all those unreasonable and often stupid goalposts in the first place. How does one even pick a point in all these processes to lay the blame?

Still, the vast real estate black hole of wealth capture is where I especially empathize with Arnold Kling, in regards to the out of control expectations of entire vampire industries that coalesce around building and construction, and the co-dependent relationship between government and business in this regard. Of course, unlike myself, Arnold isn't quite convinced the Fed can regain a better balance through nominal targeting, even though he was the one who introduced me to Scott Sumner's blog back in 2009. I must admit: getting Arnold "on board" with the Market Monetarists seems to mean making him more optimistic as to outcomes in general!

None of this means I don't think the Fed shouldn't be backing asset values for housing in the present, because I believe doing so is highly preferable to letting them slide into oblivion, along with every other kind of wealth valuation. This is a one-two step process: first support what is, then create something more sustainable. Apparently people are getting stuck on the first part of the process, and who knows what about the second...However NGDP level targeting gives us a bit of a clue, as to the present flaws. Nominal targeting opens our eyes as to what actually occupies the economic commons which we partake of, and how those elements currently exist in the space itself. NGDPLT could assist with important shifts in asset formation and holdings, so that the most basic needs in any  highly variable population can be readily taken into account. Nominal targeting hasn't become monetary policy rule yet in part because special interests keep getting their way, by insisting that everyone live as though most incomes are essentially the same, and then capping monetary policy arbitrarily to fit their own made up reality.

Not only is that a dangerous way to structure our daily economic lives, it makes people clamor for ever higher minimum wages, which in turn makes the rents go up again... Is there a tit for tat mechanism in which vested interests simply react to one another by upping the ante and then trying to deny the money necessary for the other side to react? People lose faith in monetary policy in part because too little coordination exists to point out where  purposely inefficient wealth creation distorts the process. Whatever the rationale, it is one that needs to be tended to sooner rather than later, so that wealth creation and arbitrage can once again be associated with positive gain for all.

Wednesday, May 29, 2013

Money Matters At The Margin, But Our Time Matters Everywhere

If one is gainfully employed and has not really encountered substantial problems in that regard, they might also feel free to say, "Markets don't really work". One might even voice such an opinion with an air of certain knowing and a nice dollop of closed mind. Forgive me but I'm a bit sensitive in this regard as I've not had traditional employment for some time. Therefore, I would have to reply that such a confident phrase is true indulgence, quite as rich as an entire box of chocolates in one sitting. Yes there's always government in lieu of the marketplace I suppose, but the last time I took a government job, I had to pay more than $1000 to get it (yes, here in the U.S. back in the nineties) and no one gave it a lot of thought when I was only able to keep the position for seven months.

Here's the part the gainfully employed might not realize (oh if you could walk a mile in an unemployed person's shoes). Think about how valuable your time is, and the choices in life your job gives you, which you understandably take for granted. Family - friends - you give them your time when you can but that is basically your choice. You can be as sympathetic and understanding as you like, but generally (except for special situations) on your own time, which is as it should be. Indeed many of us in the U.S. were raised to believe that we needed to be frugal with our time because, in spite of other resources we might have access to, we all have the same amount of time. And no amount of money in the world will ever change that.

So every minute we devote to something is a minute we can't devote to something else. Most anyone who is gainfully employed gets that. The problems come in for those who are no longer gainfully employed, and some vital aspect of this once valuable time gets lost in translation. Yes, our time factor hasn't changed, but the fact that our level of potential responsibility has, tends to make others think about us differently. Lack of money means lack of mobility and flexibility. So what had been spontaneous time spent with people of one's choosing may become an all or nothing proposition, depending on the luck of the draw. Okay...my liberal friends, this is the part of the path where you have doubtless wanted to turn and go another way. I implore you to travel with me a little further, to see what lies ahead...

What happens now? For awhile everything may be fine as sympathetic understanding rules the day. But before too long, someone feels like a burden and someone feels put upon. If someone isn't chucked out the door there are always reasons for that too, especially if someone is needy but they have little to gain from admitting it. Whatever happens, chances are the relationships start to solidify into circumstance where mutual respect and reciprocity become lost, because all participants are beaten down by the stunted circumstance.  People we really cared about become the enemy, because we have lost our freedom in the ways we relate with them.

Anytime anyone hears me utter the word freedom in the future, now you know what lies behind it.  Freedom is not some abstract thing I utter as to God and country, it is the stuff of life that every one of us, whatever our political or ideological leanings, hold most dear. And, my friend - from now on - please, I implore you not to forget what makes our treasured choices possible, the ones that allow us to present our "good side" to the world so as to make it better: economic freedom.

We are the ones who make markets work. Not some abstract power figure or even Wall Street for that matter. If we choose not to make markets work, well then yes the original platitude was "right" but that is nothing to be proud of, I guarantee you. Now, what about that time we all hold in common? It is our time that makes us equal, in spite of our many differences in aptitude and motivation. Again I implore you, if you care about equality, never forget the scarcity of our individual time. We make it count by understanding that even though most economic activity happens at the margin, no such thing is true of our time, which matters everywhere. We need every bit of it to count, when we consider how to recreate services so that all can participate and be responsible for their needs. Appeals to government as solution do not provide us economic access. Appeals to raise the minimum wage do not provide economic access. We provide economic access for one another by validating the right of each and every one of us to participate fully in our dreams, our aspirations, and our responsibilities.

Why Is Productivity Such A Confusing Concept?

Important though we know productivity to be for human progress, there are economists who nonetheless question the role of productivity in the present. Or - if they don't - some still discuss productivity in traditional terms which are reminiscent of the roles productivity played before services became such a vital part of the economies of the developed world. Whereas I share some of the same structural concerns that Austrians have, just the same I find myself limited in dialogue with many of those who are referred to as "Internet Austrians" because of this factor. I have two basic questions for them: "Have you created a valid mental space for services in the economy? Have you even considered the lack of innovation in construction as important?" Likewise, I worry that some on the left take services provision too much for granted, even as the services we need most continue to be outsourced to our families and ourselves in non economic ways.

Arnold Kling notes that he is becoming a "productivity measurement pessimist". He continues, "That is, I am becoming pessimistic that what we call 'productivity' is anything but a crude indicator of trends in living standards." His pessimism is certainly understandable, because the "waters" of production measurement have definitely been muddied to the point where some forms are nearly unrecognizable. However, it is my contention that we need to gain a better understanding of the ways productivity measurement functions, especially regarding the groups who utilize both knowledge and resources for economic gain. This is important not just for the future potential of nominal targeting, but also because of present and ongoing implications as to the stratification of income and the separation of classes.

In earlier posts I have touched on the inadvertent battle against globalization, on the part of local economies which have often been responsible for production confusions of the present. What are the sectors local economies turn to most, especially when they don't rely on manufacturing, mining or extraction activities? This argument from the Spring 2013 issue of the International Productivity Monitor (HT Conversable Economist)  gives us a clue, where the authors write:
Education, healthcare, infrastructure (construction) and government are large sectors of the economy that have lagged behind in productivity growth historically. This is not because of a lack of opportunities  for innovation and change but because of a lack of incentives for change and institutional rigidity.
First I'll consider the more obvious of these: education and healthcare. It's important to stress that innovation in these areas does not have to mean the negative results of further economic exclusion and income stratification that may immediately come to mind in such arguments. What I'm concerned about is avoiding eventual default settings in this regard, where doing nothing does lead to less access and more extremities in long term economic outcomes. The problem for all of us is that everyone relies on education and health in their lifetimes, yet both structures were set up as exclusionary institutions whereby only some can expect to access them both in terms of use and participation. While such a services "production" setting may make sense for the institutions that profit from them, they set up imbalances that only grow over time, as governments struggle to include more individuals in knowledge use sets which are continually expanding.

The basic issue in this regard is that education and healthcare needs are the most representative of overall aggregate demand needs that any society has. However, aggregate need and participation in terms of time components is an anomaly for the residual component of time measurement in productivity. That sets up serious limits in access and definition for services, which can not be overcome as they are currently structured. Services can be set up as (integrated) self supporting structures at local levels, but people need clear rights to knowledge use before such a proposition is a true possibility. This is why I also advocate for the right to heal, because without such knowledge use rights and delineations for skills use potential, not only will people continue to lose access to health care over time, but knowledge use limitations in healthcare  also set up monetary devaluations in all other areas of knowledge over time. That means healthcare participation has the potential to overcome equally important and vital aspects of our educational lives - an ongoing process which has already been discussed extensively online.

There is much explaining to be done regarding the above paragraph but I need to move forward in this post! One aspect of this line of thought is especially important in the measurement of per capita individual participation, through nominal targeting. Just as Scott Sumner stresses that it is important not to reason from a price change, Marcus Nunes noted in a recent post: "Don't infer from a GDP component change". Why? Because when we consider monetary stability from the standpoint of per capita measures by participating individuals, prices and markets adjust to how the individual shapes the markets themselves through one's participation in them. George Selgin has considered the marketplace in a similar fashion, and his work with the productivity norm in a sense also intended to maximize economic participation to the fullest degree possible, by making certain that productivity measures are understood. When his PDF, Less Than Zero was put online in 2009, lots of interesting discussion ensued, and just Google "productivity norm" to check some of it out, where you will find posts by Scott Sumner, Bill Woolsey and David Beckworth from that time frame, discussing the concept.

Here's why adhering to productivity norms matters: the greater transparency they would allow also means a potential for more vital and inclusive services structures. A first glance and one might think "austerity", but by no means is that necessary, especially given the fact that so many today want to find work in the areas they study, only to end up settling for work in other areas. Local skills arbitrage systems can change that, over time, to allow many areas of knowledge to once again  flourish. Through productivity norms, nominal targeting and greater transparency, special interests would not have the same opportunities they have now, to steal participation from those who want and need it most. Something needs to be said, however, if Germany is indeed following a productivity norm, as I read in one argument against such norms: Germany, you're doing it wrong if you are...yet don't recognize the vital role for services instead of just partitioning your jobs part time! One reason Germany doubtless "gets away" with part time jobs, however, is the fact that its real estate markets are not as highly valued as many nations.

This post has already gone on a bit long, but I at least want to touch on the inefficiencies of construction and how they contribute to the problems of our present. Here's a thought experiment: why are health dollars able to go so much further in countries which lack infrastructure? They are not forced to take place in buildings of such expense that much of a nation's health care budget has to account for the ongoing use of that limited space (In the U.S. patients get juggled around in hospitals a lot). That's not to say that we should save money by doing healthcare "in the open", by any means.

However, the fact that building codes never took advantage of ongoing innovations in technology means we are all paying the price, in terms of limited access. The fact that innovation was never allowed in the buildings we inhabit needlessly stratifies society, which in turn destroys trust over time. We need to remove the building regulations that prevent mass market building innovation. Anyone who is allowed ownership of small scale building components efficiently produced, is also an individual who can be trusted in society to a greater degree. These are "dots" that need to be connected and acted upon. We do not need the distortions of outdated building codes making our incomes appear depressed when they could buy so much more with innovative construction - perhaps that could be one of the greatest money illusions of all.

Tuesday, May 28, 2013

Nancy Folbre Deserves a Thoughtful Response...

...Of course, she's far from the only one. All of us could take a bit more time to make thoughtful responses to one another even when it's tempting not to do so. Because in today's world, the fact that it's easier to just poke fun and jest at one another has left the most unusual of  results: Sad, lonely, empty buildings to match our sad, lonely, and yes empty unemployed...lots of such structures all over the U.S., some aging and in need of repair, others really could be torn down for something better. But here's the "kicker" - in too many small town downtowns as well as big cities - essentially "new" buildings, which were never utilized for the intended rents or purposes they were built for. Sometimes they get stuff stacked in them from adjacent businesses, which elicits the reaction  "that's some mighty expensive storage space you've got there". The former contractual expectations seem to lie somewhere lost in the wilderness between North and South Korea...

Such buildings aren't easy to hide, certainly not the way that the unemployed sometimes are. It's not like people didn't want to utilize these buildings - be they old, new or somewhere in between. Would be entrepreneurs, waiting in the wings or digging through the regulatory maze for their chance at convincing the landlord they were a worthy cause: "lusting" after the potential they dreamed of and the desire to create a vibrant environment which would - hopefully - be just as appealing to a paying public as to their own imagination. Sometimes these business wannabees got their chance, other times they didn't, and of course it's debatable whether actually a good thing if they didn't get their chance, as that meant escaping with one's hide intact.

Nancy Folbre had some good points to make in her recent NYT article. Had I continued over the years as strictly an employee rather than also an employer and businessperson, I probably would have agreed with the whole thing. The world I once lived in also seemed to suggest that "Business should just take care of this unemployment problem, already! Git er done!" Of course, that was also a world that didn't seem to require the same thought processes as today's world. The first time I really had occasion to think about that oddity was when people came in to my little bookstore looking for work (mid nineties), who clearly had more knowledge, skills and abilities than myself.

One of the things I like about Nancy's writing is the fact that her snark level doesn't really seem all that different from my own. Yes, we have the "let them eat cake" allusion in the title of her article, but then also there's the understanding that for entrepreneurs, the long road to success is certainly no cakewalk. She gets that the problem is especially demand related in terms of skills, which is extremely important. Perhaps her confusion is the same as the rest of us in this regard: yes, the Fed has the ability to provide an appropriate monetary demand response, providing it doesn't stumble on the road to additional stimulus. But who is ready to answer the call, in terms of making the most of the Fed's continuing efforts to maintain economic stability? That is the factor which has yet to be truly addressed, and it's not necessarily the businesses one thinks of first. Also not ready to meet the call (clearly) is the still contractually significant "no man's land" of asset "sadness and desolation", which loudly proclaims its continuing importance even as it fails to meet its own expectations.

Empty buildings and empty individuals sitting in spare rooms whenever family circumstances prove too harsh to overcome, are the direct results of a lack of common meeting ground between left and right as to economic solutions. As mentioned in my past post, "far" thinking can be easier in its way than the hard work of the present, as it sometimes creates "feel good" thoughts that step over the present day impasse. However, the time has come, to bridge near and far in terms of solutions. That means I don't just walk away from people like Nancy Folbre who is not taking about this issue to belittle anyone. She's talking about it because she wants to see something done about it. That's the really important distinction from some conversations in which it appears people are making progress over time, only to discover the conversation was taken on just to score points, in what turned out to be opponents in a purely ideological debate.

Monday, May 27, 2013

Untangling Potential Solutions

Over time, the better ideas of creative thinkers frequently win out, take hold, and make the world a better place in the process...right? Mmmm, maybe not so much - by no means is progress as automatic as it may seem! For instance, in the seventies, thousands of innovative energy related endeavors were put on the back burner, indefinitely. Many of those imaginative and creative projects were sold to corporations which would turn around and bury the idea, so that products more capable of making money for the long run would win the day. If the primary object was simply to grow GDP by any means perhaps this could be called a "win". However, the fact that centralized solutions too often "win" can eventually backfire on any society which utilizes those solutions exclusively, as it slowly becomes more difficult to redistribute the gains of centralization over time.

Also, as far as the spread of ideas goes: ego and its first cousin, revenge, sometimes get involved in the proceedings. At Digitopoly, Joshua Gans wonders if revenge might keep the kernel of some ideas from remaining readily apparent, on some of the more obscure Wikipedia entries. And of course one of the more recent battles amongst economists has been slow to fade away, amongst all participants of the Paul Krugman dust-up with Reinhart-Rogoff. When the progress of ideas sometimes slows to a crawl, one can be forgiven for wondering how progress ever takes place beyond the "one funeral at a time," as is often noted.

Robin Hanson at Overcoming Bias has touched on this subject over the years as well, noting that the further one is from the mainstream, the less likely his or her ideas are to ever see the light of day. Another related discussion at Overcoming Bias over the years is that of "near" and "far" thinking, which I would like to touch on in this post as well. Most recently at Kottke.org, (HT Farnam Street), three kinds of specialists were described in the book "Bluebeard" written by Kurt Vonnegut.  The quoted passages from "Bluebeard" noted just how difficult it is for someone with few social ties, to ever have a true audience for their ideas.Without the help of those who can not only readily relate to the public but explain ideas at length, often there is little chance of such proposed measures ever taking hold, in society.

Sometimes we have to untangle ideas for potential solutions by first wresting away earlier concepts from dominant groups and political parties, who may be reluctant to abandon those previous concepts even when they no longer work. This is also why - even though Bernanke knew that a drop in nominal targeting worsened the Great Depression, he has not been able to convince others that nominal targeting could overcome the impasse that is now a fixation on practically non existent inflation. What's more, the monetary background of the Great Depression was different from that of the present, in that the gold standard was still a preferred means of monetary policy. Even though the limitations of a gold standard have been clear for decades, some still imagine a return to a gold standard as desirable. And even though inflation was brought under control prior to the Great Moderation, inflation fears still lurk in the minds of many a central banker, in spite of the fact that inflation has long since ceased to be a real problem in many developed nations.

Oddly enough, the reluctance to budge from earlier monetary policies seems to have put something of a "far" spin, in Hansonian terms, on the ideal of nominal targeting. Nominal targeting allows a  focus on greater transparency and balance in economic activity in general. Yet one still has to speak of it in future terms which then have to be contrasted with suboptimal - and somewhat different patterns of economic activity now. It's bad enough that Market Monetarists find themselves "settling" for QE. What's even worse is having their efforts for continued monetary stimulus claimed as victory for the "opposing team" which had no desire for monetary stimulus in the first place.

What's more, the idea of QE as an appropriate measure is lackluster at best, even though it is better than nothing in the face of austerity which neither political parties of the left or right are able to come to grips with. The problems of ego have meant some are unfortunately willing to settle for austerity for no better reason than their preferred methodology is not being used. Overcoming austerity at this point in time also means being able to unpack the idea of nominal targeting and making it a real tool - "far" though it may still seem - while there is still time to preserve the resources and skills which continue to be so abundant in the present. The bridge between near and far needs to be built while the banks on the other side remain as they are now.

Update: My apologies to Shane Greenstein who wrote the referenced Digitopoly post - not Joshua Gans.

Credit is Peripheral, Not Central

...Just the same, credit appears all too central in the present - a problem which attests to the degree some of our lives have been stretched to accommodate limited definitions of growth. We have many aspirations, desires and challenges that call to us, all of which we would take on one step at a time if life but allowed us to do so. For whatever reason, one would think our commitments are "supposed" to take place in tremendous chunks which really are sacrifice, in spite of the fact that few such reciprocal commitments are actually waiting for us in the workplace. Just the same, we are still trying to work with the same sets of societal expectations that made more sense when the commitments from the workplace to the individual were more real.

And those commitments frequently involve heavy debt loads. That is the fallout from the present reality, of personal debt loads which I can only apologize to those readers which now have them, for the rationale of this post. For those with heavy debt, credit remains central whether one wants it or not. Be it the home mortgage which one remains "stuck" with, the student loans that may take decades to repay, or the hospital bills one would need to have steady work for years just to make payments on...I can only hope that communities are sympathetic to these individuals in their plights - people who tried to do things right, yet now bear the burdens of a society of which such obligations once were well within the bounds of reason.

For some, credit is still a part of life - within reason, of course. For others of us, credit is a part of the past that will likely not be a part of our futures, so we bid good riddance to credit use in spite of the isolation such a "goodbye" can sometimes engender. And yet it is in an aggregate sense that credit does need to count less for our futures than it presently does. In recent decades, debt became a burden that many simply did not need, and hopes for a debt jubilee - while certainly understandable, just don't seem likely. Even though there is plenty of blame to go around to those in finance who helped life become overextended, they won't change the definitions for us - we have to change the definitions of economic access for ourselves, through the seemingly countless ways in which our communities define it. And changing those definitions will often mean putting credit use at the periphery of our lives, eventually by means that no longer need isolate us for doing so.

So the title of this post is a sort of  mantra, in a sense. Yes, Market Monetarists such as myself stress the superfluous nature of credit, and yet some who are sympathetic to the cause cannot always understand why this assertion is so important. For one thing, in a practical sense the use of credit is a distraction from the ways people use money in an ongoing daily sense. Before anyone asks for a loan at the bank, a lot of things about their life or business already need to be in reasonably good order before a loan even becomes a consideration. Those daily life activities: velocity which involves more spontaneous use of money - tend to be "forgotten" when monetary flows are tallied, in part because ongoing obligations may not seem as significant as the contractual arrangements, which are designed to maximize loan potential (bank profit) when it appears the debtor is in fact capable of repaying the loan.

A major part of the struggle now in central banks has to do with the designation of credit centrality as opposed to that of actual aggregate demand, in the guise of interest rate targeting. Some have been  distracted by what has happened in this regard in the belief that fiscal policy is more important "anyway". That distraction has proved tragic for some who have consequently lost work, as it  only makes it easier for monetary policy to short money supply per capita for each individual while few even notice what is actually happening. Even as a shift to nominal targeting appears more rational - especially given circumstances of the zero bound - special interests know that nominal targeting has the potential to be more transparent as well, and that the focus would eventually become less on what banks are willing to lend (or not), and more on the actual potential of individual actors for participation in the economy itself. Unfortunately, forced austerity especially backs the idea of credit as central, not just in the present but also a future where people are expected to suffer, who had nothing to do with the contractual terms or economic access definitions of the present.

In the past these monetary struggles were not as well understood by the public, if only for the reason that governments had come to be  responsible for the economic well being of their citizens in the 20th century...such doings were supposed to be "their job". While similar arguments for government responsibility continue to play out now, citizens are starting to find out what is really at stake, and that they can in fact take matters into their own hands in terms of creating greater economic stability. Importantly, many of the problems that governments struggle with now have roots at local levels that can be addressed. The best role governments can actually play in the present is that of facilitator, for communities to find better ways to create economic momentum. Incremental growth is that which allows people to make progress a step at a time on their own terms instead of just those of the loan officer, and nominal targeting in such a framework is certainly a return to sanity.

Sunday, May 26, 2013

Services Are Pure Velocity

...Not necessarily always productive, perhaps, but give me a chance to explain! Most of the notes for this post were already compiled, when I came across Miles Kimball's  Storify, on velocity. At the link, one will find relatively traditional descriptions of velocity - one might say the standard paved road, so to speak. For me, this post is reminiscent of some interesting back road trails explored over the decades, so perhaps an "adventure" of a similar sort in the mind! (I know, I don't "get out" enough these days)

The monetary phenomenon we call velocity has decreased somewhat over time, with no clear rationale as to why. Some aren't necessarily crazy about the word - I remember a conversation at The Money Illusion  a year or two ago, where one commenter said he didn't like it. Just the same, it's the way we measure money in circulation through time increments. While the measure may seem confusing in some respects, it matters much more than may be immediately obvious. Most importantly, there is a contrast between the elements of velocity which flow to what gets termed as "actual wealth" (frequently contractual), and services. While monetary flows may be "caught" long term in assets to some degree, other velocity flows more freely and frequently, in "ephemeral" services with seemingly no intent but the present. What goes to services is questioned by some: where is the value in a residual time factor that does not create additional wealth on its own...

In a certain literal sense, this has at times been true. But think about it: If we do not want the service, what do we want in economic terms that causes us to purchase something in association with the service itself? Just like the expression "all dressed up with no place to go": why buy the outfit, if indeed that is the case? Services are like electrical current that runs through the conduits of our physical assets, hence are also what brings assets to "life". If the residual (ongoing) monetary flow falls short in per capita terms, the "hot potato" effect of monetary policy has the potential to bring more to services options, which are frequently the first activity to fall short when NGDP is insufficiently targeted. One reason this process may not be immediately obvious is the degree to which previous flows are caught in fluctuating tax assessments.

When GDP is measured, it's not the assets that are getting measured, it's the money that gets spent on "all of the above" in certain timeframes. That's why we miss the focus, when we try to focus on precise amounts of debt or contractual obligation as the appropriate  measure, which actually appear as random elements in the measured monetary flows in contrast to their perceived values. On the other hand, both elements of income and time based services show up in the nominal measure counts, in an immediate sense. This is precisely why I call services pure velocity. Services are dynamic in the sense that they are ongoing and lead to additional monetary flow, when they are not interrupted.

So it seems reasonable to call services the heartbeat of the economy. We are measuring economic momentum, not those "lucky" assets that increase in value primarily because of the momentum itself (duh). Assets are a passive aspect of wealth which tends to gain or lose value on a lag, while services are an active and present aspect, which also can drive the potential payoff of the investment. One can have a home in a really nice neighborhood, but if the area somehow gets cut off from good employment opportunities, the home values will eventually suffer. Debt contracts valuations can also go underwater when they are relied on as drivers of (monetary) service flow origination, which is just one reason why services need to be visualized in more sustainable terms. Such terms need far more consideration than simply moving away from government  redistribution to the currently structured private marketplace, which also remains highly unbalanced in terms of knowledge use.

Economic sustainability requires ongoing momentum, which especially emphasizes flexible and changeable motion in terms of economic reciprocity (recall the mobile in the recent post on dysfunction). One of the primary reasons it is so important to create independent structures for services is so that we do not revert back to a pre economic state, i.e. a default back into settings where many services take place outside of planned monetary arrangements. Such default settings include servitude and forced slavery in many forms for the poor (not even considering today's imprisonment levels), also forced familial and even "tribal" settings which see all outside activity as pure coercion. Some subdivisions are already seeing an uncomfortable degree of reversion (including  prostitution) in parts of the U.S., as vital aspects of economic activities dwindle among lower income. The group Rush sang about the exclusionary nature of subdivisions in one of my favorite songs, years ago ("...be cool or be cast out"). Once we go too far down the road to exclusion, it can be hard to find our way back, to inclusion.

People on the right are understandably uncertain about continuing increases in asset values to maintain services. People on the left are justifiably concerned about their own ability to thrive, in an environment where services cannot simply expand based on demand under current conditions. But there are some on the right who are seeking ways to continue momentum (freeing activity to more participants) while others on the left continue to hesitate. For them, spontaneous service offerings outside institutional settings may represent competition to the subsidized institution, so they inadvertently join forces with entrenched interests on the right in this regard . While liquidating (subsidizing) or auctioning unneeded services may appear feasible for those who are left out, this is not the way to maintain the vital structure that was built in the first place - a structure which relies on balance and utilization of all resources in order to remain strong. By minimizing services potential which does not appear  "necessary" in the present (a mistake by both the right and the left), the economic organism is ultimately weakened.

There's also an aspect about this I want to explore before I forget: why, in a time of greater services, has velocity decreased? Much of income is caught in contractual agreements of all kinds which consequently involve non spontaneous activity. However, spontaneous activity (eating out and shopping more, buying services from others who don't rely on redistribution, tax monies, or for profit knowledge collectives in institutional settings) has become more limited, so that the velocity that shows tends to be more in the form of time payments on preset activities.  Anyone who would open a business is up against these pre-existing commitments and taxes on the part of the consumer. Perhaps measured velocity has fallen in part as well, as institutions continue to outsource paid services to us on DIY terms. While this is primarily conjecture of course, it makes as much sense to me as an argument about velocity and the availability of ATMs!

Whether or not we continue momentum in the economy depends on our participation in both active and passive terms.  When we lose our ability to reciprocate for what we need from others, imbalances result. Sometimes the ability to reciprocate is actually out of our control, i.e. extreme disability, illness or social breakdown. But in the present, we have lost means of economic reciprocity every time someone appeared the least bit suboptimal in any way, and now society is paying the price. Services can not just be conceived in terms of situational wealth flows that are fortuitous primarily by limited coordination terms.

Consigning "unneeded" knowledge and skills to the dustbin of history is not an option - at least it's not an option to the stubborn host of this blog. Both wealth and spirit die a slow painful death, when people throw up their hands and speak of a future which relies on robots, slaves or indentured servants. We keep the velocity of services alive by acknowledging the life force they actually are, and then learning to coordinate them amongst us all on those terms. Options for sustainability especially include understanding what aspects of economic life are active as opposed to passive in this regard, which will be further explored in future posts.

Saturday, May 25, 2013

Long Term Unemployment...Whose Problem, Exactly?

Oddly enough, it's everyone's responsibility and yet no one at all, really. More than any other dynamic from the 20th century on, levels of unemployment serve to bring different strands of economic thought into sharp contrast with one another. While the long term unemployed still languish in their forgotten spaces, dialogues continue unabated in the public at large, as to who might be the bigger fool for somehow "allowing" the lingering issue of the early 21st century.

We especially continue a dialogue that existed in the days of the Great Depression, even if those difficult times existed prior to the memory of many who are now living. I am quite fortunate in that I still get to hear some of my father's recollections. For him, one of the primary takeaways of those hard times was to live a practical and frugal life. Yet, even that rationale underwent quick adaptations for those who were born in the later days of the depression. Some who experienced the hardships of those times learned to hoard: not just things, but also, money. Unfortunately, hoarding of all kinds turns into a difficult passive response which can destroy economic momentum . It is quite literally the economic equivalent of a house full of "stuff", which finally gets in the way of one's ability to move around and even utilize the space properly.
 
Even as cyclical aspects of unemployment continue to fade into the background, structural aspects of unemployment are finding their way into ongoing daily realities. One of the most significant is the changing statistics of suicide rates, as they appear poised to continue on an upward trajectory into the foreseeable future. The significance of a Venn diagram, in one study, is an integration of three seemingly insignificant factors, at least on their own: thwarted belongingness, perceived burdensomeness, and capacity for suicide, which ultimately takes on the aspect of fearlessness as to the act itself. Such studies are reminders that we can't just put long term unemployment on the back burner, yet again. Recent recessions gave most economic thought divisions a chance to hold up their identity flashcards a time or two, then economic life rebounded to normal. That hasn't happened this time.

What to do, when simply restating one's actual position no longer seems to suffice? Formalized education and other institutional structures have a strong response mechanism when it comes to models and research in defense of one's position. However, the problems come in whenever it's time to step beyond one's actual identity, to the "great beyond" of hashing out solutions. Because of this situation, amateurs such as myself also get caught up in the maelstrom, which is not as unlikely as it sounds. Those with "real jobs" in this regard have careers and one's relative wealth position at stake, thus are often caught in the expectations of the status quo. So the end result is that the solution destroys the "moneymaking" aspect of the problem! Small wonder that think tanks and formal education might shut down the "factory" that manufactures solutions for problems! Well maybe not as simple as that but you get the idea...

One of the interesting aspects of Market Monetarism is the degree to which it has some Keynesians reclaiming the issue of unemployment as their own personal territory, in a sense. Which would be fine if....um, fiscal policy could actually filter as effectively through society as efficiently as monetary policy, at least when monetary policy is done properly (Bernanke are you listening?). The primary advantage to monetary policy is the fact that - because it filters through so many channels - one can't just line up at the source of the fiscal spigot to demand more than their "fair share" of ongoing economic activity. Unfortunately, anyone with a good travel budget can still go to Washington and claim their portion - along with that of a few other "special" million or so - when it comes to fiscal efforts. However, very little of a fiscal or monetary nature is getting to the long term unemployed now. In spite of the struggles over appropriate mechanisms for aggregate demand, the unfortunate reality is that opposing voices focus more on cyclical and short term aspects of unemployment in general. People are still getting rich tending to the needs of the poor - public and private interests alike - while fewer than ever have jobs to go to.

If anything realistic is going to be done about structural long term unemployment, it is going to take more than just the efforts of political parties or even economists for that matter, many of whom also point to supply side concerns. What those supply side concerns really boil down to is this: structural unemployment is a problem that belongs to all of us. We bring the younger generations and solitary Baby Boomers back into the world of the living when we commit to finding ways to include them. Otherwise, we not only spend the rest of our days pointing fingers at one another, but inadvertently leave a future to tomorrow's inhabitants which is less than optimal by any stretch of the imagination. Lest anyone think it doesn't matter, they also take the chance of ending up alone - which is such an unnecessary and disappointing place to be. We really are in these circumstances together, even stubborn libertarians such as myself who want to be in a shared space by the most free means possible.

Friday, May 24, 2013

Wealth is (Still) Relative

Believe it or not, this title is really important and not just a throwaway line. What's more, we know in our hearts that wealth is in fact relative...how often does one speak of the things "money can't buy"? Perhaps the point, of course, is that there is much of value money could represent, were our aspirations better coordinated. However, there are ways to acknowledge the fact that we could create better destinies through the many difficult lessons we have learned. There are plenty of people who would like to live their lives in more of an experiential sense and less of a material sense, if in fact they could. Too many of our present material demands do not match our income realities and yet we hold these impossible demands on ourselves without even understanding why.

More than once, for instance,  I've come across online discussions of "affordable" neighborhoods where the housing was perfectly fine...if only one could actually trust the neighbors enough to be able to live there. The fact that trust "appears" to be missing in affordable places is just one of many reasons we need to start taking the subjectivity of wealth into account, both for the betterment of our lives and our surroundings. It would be great if we could wake up tomorrow with all the knowledge and resources we presently have, but a giant case of amnesia as to the rules, regulations and countless dictates in our minds as to what we cannot do with all of our resources, knowledge and skills. What might we actually do? How to start over?

The relativity of wealth is vital for the terms in which we structure our own ability not just to survive, but also the definitions we rely on, to actually thrive. Think about the endless laws and restrictions we too willingly impose on one another, for no better reason than "It was really hard for me to make it (in life) so there's no reason I should make it any easier for anyone else". This thinking underlies any  number of austerity themes, but what gets neglected is the fact that those prior definitions how wealth should take place, were created when individuals could be more certain of income and career expectations than actually holds true in the present. As a result, we end up with economic scenarios where it actually appears that youth must "somehow pay" through diminished lifelong expectations, for the excesses of their elders!

Granted, it seems somewhat extreme that the top one percent holds more wealth now than at any time since the Great Depression. However, the way out of recessionary times is not so simple as redistributing "excess income" from the rich. What matters is how they actually ended up with more than they could even realistically put to use, in the first place.  That present dynamic is a direct result of the rules we have imposed on one another, because the one percent are often the ones we expect to fulfill our mandated restrictions upon one another. While it may seem counterintuitive, the easiest way to lessen the gap between us and the top is simply to take it easier on one another, so that the top no longer directly benefits from the battles we have waged with ourselves.

The difficulty of visualizing wealth in relative terms can also make it hard to envision the advantages of nominal targeting. One of the problems people encounter is that they try to see nominal targeting through the wrong lens. Interest rate targeting basically acts as a cap which seeks to suppress more substantial elements of economic life when they "overheat" or appear to form bubbles. However, what often looks like a bubble needs to be considered from different perspectives, as to why it is even occurring in the first place. Why are individuals even drawn to that particular form of investment as opposed to another which might be of more use, to them? By recognizing levels of economic activity and responsibility that a given populace can realistically meet, we also lose the need to seek out remedies that play on economic imbalances in the first place. The gaps we observe now can be reduced, by the choices we have as to our own social and economic structures. By making life just a bit easier on others, we make it much easier on ourselves, as well.


Who Remembers the Source of Dysfunction?

...For the source is quite visual indeed, and my counselor pointed out the mobile hanging in the corner of her office,  more than twenty years ago. She set it into motion, and the brightly colored pieces circled around one another in a myriad of ways. Then she reached for it again, stopped the motion, and the pieces slowly settled into place. "This is what happens to a family whenever each member takes certain roles for granted, and assumes they cannot be changed", my new friend told me. "Eventually, the family members forget how to act otherwise".

Back then, the idea of dysfunctional behavior created quite a stir, and it didn't take long for the concept to move well beyond family definitions and into the public at large. However, something must have gotten lost in translation, and that something was also missing from the definitions I found in Google search, Wikipedia and the pocket American Heritage dictionary in the office. Of course the standard "Not operating normally or properly" tended to be mentioned first, along with "deviations from the norms" and somewhat dated mentions of co-dependent behavior which can nonetheless apply. There were plenty of definitions as to how dysfunction might appear or manifest, but not a potential "why" in sight! Interestingly enough, the definition of dysfunctional bureaucracy was not among these, although group systems were mentioned and that's certainly close enough.

So now I consider myself fortunate indeed for the example of the mobile, the first time I was introduced to this expression. Somehow, it's not hard to imagine Adam Smith smiling in agreement as to the motion itself. In terms of one's body, freedom of spontaneous movement is certainly a definition of health. So it is that the marketplace can be equivalent, at least when both public and private interests don't  reach out to stop the moving parts of the mobile. Smith certainly understood the civilizing and positive effects of spontaneous and ongoing activity, which he was able to observe around him and also in his travels. Just the image of internal flexibilities in one's mind can be powerful protection against the demoralizing effects of individuals and systems which try to lock us into  highly specific roles. How, then, did this powerful aspect of dysfunctional relationships become lost in translation?

Years ago, a writer told me of her day job in a government office, "It feels just like high school, with the same kinds of relationships, as if one was frozen in time". While this was a strong individual who had the tenacity to rise above the fray, the job nonetheless took its toll on her.  Her creativity and spontaneity was to be reserved for the long awaited evening hours, when she could become the person she wanted to be. How did so many of the same individuals who value these traits make the mistake, over time, of removing them from their own workplaces? Likewise, how do so many who clearly value free markets nonetheless take actions which routinely make those markets less free?

Whenever the mobile gets stopped, one's aspirations can be frozen with it, even if only for a limited time frame. Besides the personal aspects of dysfunction already described, markets become rigid, hoarding becomes evident as money gets stashed away into hiding places, or a house may become so full of things that one can scarcely even move around to use the space as it was originally intended. Every time someone gains the ability to touch the mobile in order to secure a long term "regular" gain, the colorful floating pieces become immobilized in their turn and slowly stop. In conversation, one mistakenly gets the idea that savings as "freezing" liquidity in place is a rational safety measure in uncertain economic times, but locking the money away as in Hume's chest is only more uncertainty, not less. All too often when liquidity is lost, it does not come back with the same strength and vitality which people imagine it can. Velocity is like the circulation in one's bloodstream, in that it needs to maintain at least a relative degree of constancy.

This is also why a nominal targeting rule could go far in the present, to regain the confidence of a public which believes recent economic gains could just as easily be lost. When markets hear of Bernanke "tapering off" recent QE, it's as though we are being told the way back to "health" is to put one's body into a suboptimal state! The frame of reference has itself become the problem, as no one knows whether the mobile will be stopped or allowed to keep moving. NGDPLT has the capacity to provide confidence that liquidity would be able to freely circulate in ways no longer possible with interest rate targeting, which only jerks circulation first one way, and then the other. Let's keep the moving parts free.

Thursday, May 23, 2013

Imaginary Individualism

While David Brooks often writes thoughtful articles, his recent NYT article, "What Our Words Tell Us" was somewhat disappointing in that the usual complaints against "rising individualism" just don't ring true, for me. Unfortunately, such arguments have been voiced too many times over the years. Supposedly, as a society we become problematic because we are materialistic, greedy or otherwise thinking primarily of ourselves. In recent studies, here are some of the words which had apparently risen in use: personalized, self, standout, unique - as opposed to those which had declined: community, collective, tribe, share, united, band together, and common good.

Perhaps some of both categories have simply been adapted by the institutions which find them most useful, which would make them less spontaneous or meaningful in any circumstance. There's no need to pose these descriptions in such contrary terms. We do ourselves a disservice by making ourselves feel worse about them, instead of examining why in fact we find ourselves vulnerable to these tendencies and then striving to change those circumstances. What bothers me is that we have continued to chastise ourselves, for something which we really don't understand. Sometimes, accusations of rampant individualism on our parts can seem like a cruel joke, especially where people are trying to make up for other, perhaps more "noble" aspirations which seem totally out of reach. But, at the very least, criticism of rampant individualism certainly seems off the mark, as to the lives so many of us would prefer to live were it possible to do so.

We often give in to the (supposed) "individualism" of the material, because it appears as the primary rational option we have. But for many, it may not satisfy the individualism we really want: that is, to express our own voice, or our own "take" on life itself. Consider Maslow's hierarchy of needs for instance, which also suggests that if we are able to actualize higher aspirations and needs, those lower on the pyramid would not be so out of proportion in our lives. However, the higher needs have more to do with experiences rather than physical objects, which even the pyramid shows as less significant! Clearly it is primarily a reference point; but for the purposes of this blog, it nonetheless works better than the one it was replaced with (attachment theory in psychological studies), in part because of the economic references which show up in the Maslow pyramid. Those reference points provide clear possibilities as to what services - as a more integral part of economic life - might actually strive for.

Many are already familiar with Maslow's theory as opposed to attachment theory, which also attests to its usefulness in our consideration here. Oddly enough, the positive ramifications of individuality show up in Maslow's theory, whereas they scarcely make an appearance in the more familial replacement (surprising, given the degree to which psychology tried to overcome dysfunctional frameworks in recent decades), which also took aspects of economic life out of its assessment. What I want to do now is show one particular aspect how the basic economic activities mentioned in a recent post relates to issues in Maslow's theory. This correlation is particularly useful, as recent graduates grapple with the demand problem which has emerged for their skills, on the part of institutions which don't actually have room for their capacities. How might such knowledge use space be reimagined?

Recall from my earlier post (linked above) the five areas of economic activity: maintenance - building - creating - healing - understanding. The building discipline became the inadvertent default for a beginning point of economic activity, in that it relied upon actual product as the point of wealth transfer to the other points of activity. Because services (along with higher aspirations) had been seen as secondary (and occasionally even incidental), there was an overreliance on actual product and the environments we could make room for the products themselves. However, when we finally reacted to the excesses in this regard (liberal and conservative alike) that reaction inadvertently took the form of monetary policy austerity, in part because a) we don't yet know how to reconfigure our environments to adjust to today's realities, and b) we don't yet have structures in place that utilize time based services more efficiently, without the assistance of product which is separate from time.

The main takeaway in this post is simply that our individuality is more important than economic life in the twentieth century seemed to suggest. We utilized product creation extensively in the previous century because it made sense to do so. However, much of we actually desire in the present for our economic lives has changed, and the primary task of the moment is simply to determine what aspirations are most important to us as a society, before we try to move ahead. We have to stop telling ourselves that such aspirations are out of reach, especially as so many have tired of the material default setting. It helps to remember that our aspirations change, and what intrigues us also changes. Our economy can become more flexible to reflect our own need for change. One of the first steps is to find out what challenges us the most, and how to integrate that with the challenges others also experience. What we want most is to recapture a dynamic economy, one which accurately reflects our most important realities.

Wednesday, May 22, 2013

Sticky Markets and the "First Mover" Problem

Aahhh, complexity is a many splendored thing, especially when it involves sticky wages which do not readily change just because people say they should! It's tempting to look at wages as the obvious place of correction whenever unemployment rises and economic conditions go south, but then whose wages exactly are we talking about: mine, yours, or that guy over there by the window? And how do we suppose would be the best way to bring that about? Hey, you "go first" (knock down those wages) and someone else will surely go next...well, perhaps not so much. Looks like we could be seeking equilibrium for a long time, especially as this issue has been (once again) moved to the back burner with the better employment numbers of late. Plus, what may appear as a success story in this regard often turns out to be "shared" jobs which are now part time.

As mentioned in my last post, monetary policy has done a reasonably good job of addressing short term and cyclical problems. Over time, at least in the U.S., government is likely to continue decreasing overall its contribution to services as entitlements become more substantial, in the midst of continuing unemployment which has now become more structural than cyclical. While macroeconomic thought readily distinguishes between structural and cyclical issues, it nonetheless is better equipped to address the cyclical aspects. Consequently, structural unemployment realities tend to get "smoothed out" over time without any clear strategies. War is a lousy "strategy" that too often gets utilized as a result. When people ask, "Why do we tolerate war?" they really ought to be asking, "Why do we insist on looking the other way, when people don't have economic access?" Unfortunately, we still have the mid to long term scenario where money does not yet address many of the services which people will increasingly take upon themselves in the meantime.

One of the primary goals of this blog is to return monetary relevance, or equivalence, to many ongoing responsibilities which people know to be important, but don't yet know how to address in realistic terms. We just don't have good ways yet to address this important issue, in the present. Consequently a nation may decide to print money to encourage domestic spending when global cross border capital flows do slow down (60 percent from their 2008 peak) and yet it seems no one really has a clue what to do with that money at local levels, which isn't already being done.  Even though recent globalization flows have reversed, nations fail to see recent printing as efforts for the local stimulation that leaders are actually trying to provide, and no one is in charge who can realistically tend to such structural efforts in any organized way, even though structural issues are now clearly the problem.

First mover problems clearly show that such internal coordination will be  necessary for efforts at local levels to work, or local economies will only continue to drive potential workers away, instead of finding ways to create further wealth with what has now become excess markets of human skill. And yet, any institution that would reduce wages would find themselves in a first mover disadvantage, which is but one reason why this problem is so hard to address head on. Plus, reducing wages is simply another way of reconfiguring the pie instead of actually making the pie itself larger. There are many people with skills more than adequate for jobs who don't get hired in the first place, and were wages to decrease to reflect the actual existing pool, there would scarcely be enough left for one's financial responsibilities. That is also one of the problems with the idea of skills auctioning, which is why it not only would need subsidized backing by government in order to be realistic, but is really a back door retreat to subsidized welfare which doesn't address the issue of actual economic integration, in the first place.

A structural nature of economic realities is well reflected in both Austrian literature and ongoing dialogue. However, the still ongoing discussions of production, manufacturing and the efforts of privatization don't really address what people are facing in their circumstances at countless local levels, and right now that matters immensely. Therefore, in the dominant strands of both Keynesian and Austrian thought, I continue to search in vain for the missing human skill factor. Like the Austrians, Keynesian thought sometimes appears backward looking in that it too sees services primarily as both external and government driven, rather than capable of providing wealth creation in a self supporting sense. Cleary I agree with any Keynesian that services are paramount. My concern is that they take the existence of services for granted in ways that appear dangerous for the long run, especially whenever nations run into severe supply side issues, and it is all a government can do to "hold its head above water".

Austrians have much literature that is valuable concerning production processes for actual product that is separate from us and our own time factor. But where are the missing coordination and pricing mechanisms that could assist with the human skill factor so important in the present? This is what people need, to be able to utilize skills amongst one another when in fact their institutions no longer have room for them. Some in the Austrian economic community gave special consideration to Elinor Ostrom who was truly an inspiring individual. Ostrom did excellent work in her lifetime, part of which involved the study of spontaneous organization in communities for shared resources. But, again like so much of economic study, her work in these coordination mechanisms was also intended for actual physical resources which faced certain issues in traditional markets.

The only spontaneous coordination mechanism I have seen to date for skills - outside their primary uses in institutions and familial settings - is a very limited one in the form of time banks, where people are primarily trying to capture valuable skills which, alas, are already restricted in the marketplace to some extent and therefore already needed by others. In other words, the actual arbitrage potential one might expect to find in these time banks is blunted by those who primarily seek the specialized services of those who are already quite connected and busy.

All of this needs to be considered when the idea becomes, "well, if only wages weren't sticky". Are we talking about wages in the now somewhat limited world of manufacturing and production that is still at the center of so much economic dialogue? Or, are we talking about wages in services organizations, which remain set up for institutional and organizational needs, rather than actual market, individual or community needs? Small wonder no true pricing mechanism exists in so many of these organizations that actually corresponds with the realities of economic actors.

Where, then, are Market Monetarists in all of this? Hmmm, one step at a time (maybe you think it's fun to be a radical but to me it's extremely lonely and not fun at all, just, unfortunately, necessary)...I see the pioneers in this movement as looking toward the future in ways that other economists aren't quite as willing to do, and looking towards the future means moving away from the recent past of interest rate targeting which was structured for a much more product oriented and credit oriented economy than will be possible again for some time. I have tremendous hope for the Market Monetarist model because it acknowledges that in a diverse economy, real measurement begins and ends with the economic actor, which is also what skills wealth is about. 

Extensive credit use basically throws the idea of the individual (as integral to the economy) out the window. But people don't seek the same kind of product they sought even a decade ago. Today people look for product in ways that are more about people to begin with: more digital, experience oriented, knowledge and services based, and they do not have strong reasons to be tied to locations which do not promote economic opportunity. Even as I am also Market Monetarist and so promote their cause, I cannot ascribe some of my own positions in this blog to others, many of whom see Market Monetarism through a somewhat more expedient and perhaps practical framework than I do. Still, as a group, Market Monetarists are quite forward looking, especially in that they would provide a monetary rule that would also allow more productive forms of service coordination. In other words, I see Market Monetarists as being in the best position to be a first mover for positive structural change, even if the model is intended for aggregate demand. Therefore, I see Market Monetarists as capable of being first movers in ways which neither Austrians or Keynesians can adequately address, without altering their basic belief systems.

Tuesday, May 21, 2013

Stable Economies Encourage Steadfastness

...And steadfastness gives us the chance to exercise the character which we desire most to show the world: that part of ourselves we can feel good about. Sometimes when we see someone who appears as irresponsible, more than anything they are likely angry because they cannot be a rock for their friends, their families, and the aspirations they cannot hold onto. When we measure the economic value of our monetary systems, we are also measuring the degree to which it is actually possible for each individual to be steadfast, dependable and responsible.

The present good news is a continuing stability in the U.S. which needs  to be encouraged wherever possible, for this affects not just our present generations, but also leaves indelible imprints on those born after us, as well. As a way to commemorate my first month of blogging, it seems appropriate to reflect on the more encouraging aspects of what the United States has been able to maintain economically, in spite of a severe recession and its continuing aftermath. While the Fed could be doing better presently (especially with a simple nominal targeting rule), the fact remains that it has already done much to keep the U.S. from falling into a depression comparable to that experienced in the last century.

Relatively speaking, of course, our economic scenario is not even close to the dire straits that some parts of the world continue to experience: a fact that weighed heavy on my mind even when I started working on this project a decade ago. Who was I to "complain" about what must seem like trivial matters to others in the face of gripping poverty and desolation...others in the world who didn't even have the kinds of expectations that so many in the United States seem to have been born with? Yes, many of us young and old have had our dreams dashed to a degree, especially in the last decade. Yet in a sense our burdens are oh so relative. Just the same I want to speak of how it also matters for mature economies to remain stable, for not every voice raised in a strong economy is raised in a manner so as to keep it so. Just as it matters for developing economies to find their way to stability and prosperity, it also matters for developed nations to make certain their own economic and social foundations still work as well as ever. In some ways, the paths of the two merge more than they may seem, especially in terms of maintaining economic access and integration.

Recent economic improvements have been quite encouraging. It is somewhat odd to hear talk of new "bubbles" as though people haven't really figured that scenario out, but we can be glad that there are deserving people who will at least get out from under mortgages on homes which had them completely immobile. Others are also breathing easier as loved ones are finally gaining work, as well. Perhaps the best part is that life doesn't feel quite so unsettled or uncertain, as it did only recently. Capitalism doesn't feel quite so fragile...but then that's just me, possibly being too concerned occasionally about an economic system which is still strong in many ways. Some people don't like capitalism particularly; others perhaps boast about its largesse more than necessary, but capitalism is not what sometimes makes the world a less than rewarding place to be.

This is also a good time to remind my readers that "I don't always know" the answers, so I just voice opinions like all of us! I welcome any rebuttals that come from a place of one's own thought processes, as well. It's only when we voice the ideas of others without our own "take" on those ideas, that the dialogue does not necessarily move ahead. For me, the part that is important is simply hashing out the possibilities instead of walking away from them. There are plenty of moving parts in this picture and it is worth my while to see how they might fit together, especially in that the process of doing so is quite intriguing. Ultimately this is why I'm here online in the first place: simply, to take part in this important dialogue of life and its possibilities. Again, thanks to all who have encouraged me to blog, and I look forward to many more days in this space we all share.

Monday, May 20, 2013

Who "Owns" NGDP?

That is...as an idea, of course! Most would agree that Scott Sumner has the interpretation which most readily associate with the concept. He has especially promoted what has come to be called Market Monetarism, in terms of what central banks could realistically provide with tools readily available at their disposal. Some supporters of Market Monetarism also see nominal targeting as something which can be accomplished equally well by free banking. It may well be that - given a growing understanding of the basic tools (and a simple rule), free banking could carry out  nominal targeting, should central banks play a smaller role in coming decades. Lingering questions for free bankers include how the role of a nation's government in economic life might actually continue to evolve over time. Some also point to the nature of a nation's economy, as considerable economic diversity is needed for nominal targeting to be effective on its own.

How could the mechanism of a simple rule such as NGDP level targeting cause so much consternation? After all, it is supposed to be an impersonal measure; one that would also stop  constant adjustments on the part of central banks in response to changing economic conditions. And yet some remain convinced that such a rule nonetheless could be "hijacked" by the wrong groups or parties just the same. On the left, ongoing struggles reflect interpretations regarding government's role for aggregate demand. And - on the right- even though aggregate demand is the primary mechanism of the central bank, supply side concerns are especially important for expectations in general. In fact, potential growth relies not just on better supply side policies, but the willingness of a public to undertake them. Those who publicly worry about inflation, are frequently the ones who have the ability to increase economic access so that inflation is not a result of monetary policy. What tends to unite some on the left and the right is the belief that credit is central to the economy. That belief makes it all the more difficult to convince people that the zero bound can be overcome.

In the present, the fact that monetary policy has remained too tight since the Great Recession tends to give some the wrong impression as to what nominal targeting should ultimately provide as an ongoing monetary balance. There is the concern that the rule would simply fly out the window for instance, should economic conditions improve to a point that more want to jump on the bandwagon before "the punchbowl gets taken away from the party" so  to speak. So each side is afraid the other may somehow "own" the punchbowl, even if the nominal targeting rule is supposed to be impartial. Clearly there is a lack of trust involved! Of course it's clear who owns the punchbowl in this time of inflation targeting: yet the odd part is that the party which doesn't, would rather wait for their own renewed chance at control, rather than simply assign this vital role to an impartial rule.

Also, about that punchbowl: Is it just me, or does there seem to be a trajectory for fiscal versus monetary activity in nations that changes over time, in terms of efficiency for one or the other. Clearly, when a nation is rapidly growing and in the midst of infrastructure coordination amongst its citizens, fiscal can be a tremendous boost to such efforts. But as an economy matures and becomes more complex, many fiscal efforts seem to get lost in the overall mix. Or, fiscal efforts may distort the character of the mix itself, just as with definitions of housing that were outsized and outdated for those below mid income levels. Central banks have to look at aggregate demand in an overall sense, in order to overcome fiscal policy deficiencies in a mature economy. Taking the relative composition of their citizens into consideration only means greater stability.

Unfortunately, the idea of a simple and impartial rule remains caught in the crosscurrents of conflicting expectations and visions of the near future. A primary example of those crosscurrents is the continuing high numbers of unemployed, and there is still a lack of understanding as to the importance of this issue, to Market Monetarists. Anyone, who follows our blogs regularly, knows the degree to which continuing unemployment is a prime motivation for so many in this movement to give freely of our time, knowledge and resources. However, given the technical nature of so many dialogues and the finer points of the discussions themselves, the passion and commitment that Market Monetarists feel is sometimes missed, especially by those who quickly surmise the salient points of nominal targeting.

To be sure, NGDPLT is not a complete solution for unemployment by any means. However, it is an optimal approach for achieving the fullest degree of employment possible, given present day circumstances. How much so? Part of this depends on the degree to which definitions of productivity in general might remain captured by special interests (see my last post). But the fact remains that transparency matters, and nominal targeting has the potential to provide transparency in a way that interest rate targeting does not always choose to utilize. Too many central bankers are still willing to hide from the public the fact that - when monies are not sufficient to account for the activity of all economic actors, someone loses out, as Scott illustrates in the musical chairs example. Perhaps it doesn't matter to some that the person who loses out is the boss or self employed rather than the employee, but the overall effect is still the same: an economy that is less than optimal in many respects.

Can NGDP really create greater growth and prosperity in the future, should it be adopted in the countries with sufficient economic diversity to sustain the measure? Part of the answer depends on the degree to which populations actually understand its significance, and how it could directly impact the natural inclinations people actually have in economic activity with one another. It's one thing - for instance - when economists understand the implications of protectionism, but vast portions of a country's media will skew that understanding so it does not actually filter to the populations which sway the decisions of their leaders. To what degree can nominal targeting overcome the special interests that have little use for transparency? One way to think about this is what occurs in everyday life, when we really want to help someone who is close to us. Our ability to do so depends on them, and their desire to help themselves. It is the same for a nation. Greater stability through nominal targeting? Yes. Is nominal targeting an excellent tool, capable of clearing considerable confusion? Yes. Greater prosperity? It all depends on the degree to which a nation desires to help itself.