Saturday, November 30, 2013

For the Holidays - The Gift of Simple Time and "Random" Services

If only I had thought about the suggestions in this post, a few weeks earlier! Even though it may be a bit late for this holiday season, the ideas in this post could still be possible for those already in the midst of coordinating other local holiday needs. If not now, some communities might want to plan for a later time to do so - by no means does the gift of one's time have to happen solely during the holiday season. I'm thinking here of organized gifts of "simple services" time by locals, which could be put together and calendared during the holiday season (and dreary Januaries are especially great) for folks who just need the presence of someone at their doorstep, more than anything. Indeed, some communities may have added this approach to their roster of holiday activities and I've just not heard any of the examples.

Individual approaches might also depend on the demographic and economic makeup of the community itself, and the institutions that would be willing to take part. Some individuals might need to be sought out in ways that they believe are trustworthy (in public settings), and those who seek them out also need a circle of trust they can feel comfortable within. On the other hand, some communities may not have a problem with the trust element and wish to try a different approach - say exchanging informal time with one another by drawing out of a collected group of time gift slips.

Who remembers those little stocking stuffer slips we used to make for our parents as young children: slips which indicated we were "good" for a certain chores perhaps, or other tasks we would willingly take on to save our parents the bother. I know, this kind of gift may not be familiar to all my readers because when I was young my stockings also included oranges and walnuts (!). Sometimes, parents were given the choice of activity, and what we "promised" was our undivided time and attention. Lots of parents appreciated these gifts and at least I'd argue they were thoughtful, even if money was not spent on the gift itself.

Visitors at one's doorstop was an ordinary occurrence, which people once took for granted in the U.S. And yet, this simple life pleasure is strangely missing in the present. What was once informal, simple assistance plus time spent with neighbors and friends, became either highly focused time, or time spent mostly alone. Many a retail provider also tried to make room for social time with their regular customers in decades past, before closing their doors. How might one revive an old social tradition in any organized fashion? So the idea in this post is to give the gift of time for random activities which are capable of easing our "worried" minds, more than anything. There are lots of things we sometimes wish others were around for, that don't fit well into a help wanted ad or of necessity mean "solutions".

A running theme for this blog as my readers know, is that all things monetary can be immensely helped by supportive social structures. Sometimes, strong economies are helped by cultural circumstance in that people don't have to rely on money every single moment just to get through the day. While our institutions try to fill in missing gaps, they are limited in their ability to do so re the minutiae of social interactions that act like glue for the bigger pictures of our lives. That can leave us too reliant on the prime social connections we have, and them - in turn - too reliant on us.

Thinking about this, I realized that a post dedicated to service time gifts could help explain some of what communities might regain through coordinated activities. In the holiday season, a lot of activities are coordinated between various non profits and local businesses for deserving locals: whether holiday meals, a patched roof, a new water heater or perhaps even a load of chopped wood for someone who is no longer capable of doing so themselves. Church members visit those who used to be referred to as "shut in" more frequently, and people try to check up more often on those who are alone and without family and friends nearby.

Still, there are big gaps in these caring informal networks, thus people attempt to rely on too few social ties, to feel secure in their ongoing endeavors. What's more, those who find themselves alone are not just the elderly or even those in poverty. Many such individuals also have too much pride to even tell others that they can't take care of everything on their own. Thus neighborhood efforts might completely miss them. Often, these are people who to the world appear perfectly capable of taking care of themselves, and yet the critical social and personal elements of their lives can fall away for these individuals as surely as anyone.

Perhaps the local grocery store is one of the best places for staging efforts, for even those who scarcely get out anymore, still need to eat! Plus, as volunteers and participants look around for beneficiaries there's something to remember: the ones who want to help, also need the same gift of simple time from others. Thus, those who put together such projects for their own community, will want to reserve a few gift slips for themselves, as well.

Friday, November 29, 2013

Progressively Tilting at Windmills

As I put this post together, it became apparent that the word "progressive" really didn't have any second meaning, for progressives and conservatives alike are not immune to tilting at windmills. Rather, some problems which we rant about are more "fixable" than  others. Even so, they continue to get lumped together with economic issues which require more consideration on everyone's part, to address.

This is also what has happened to the potential for nominal targeting, as it remains on the back burner of central banks which continue to dither over structural gridlock. However, the longer that nominal targeting remains on the back burner, other circumstance only become more convoluted than ever. And that makes it more difficult for some, to see why a return to total spending capacity was so needed in the first place.

No one is immune to the impulse to react, rather than seek real solutions. What's more, the ones who are ready to move forward in any given circumstance, are stopped time and again in their tracks, by those who are not. Some things that society needs, just don't have calendar dates which say, this in fact has become necessary...now! And the calendar dates of politicians tend to be concerned with other things. Meanwhile, as economic circumstance worsen, more people start to feel victimized by everyone else.

By no means are progressives the only ones who react as though victimized by any number of circumstance. Anyone who knows someone who's been "victimized" by governments, capitalists or even overly activist neighborhoods, just raise your hand...However I don't begrudge anyone who needs to vent anger or frustration - there's plenty to be had all around. Without a doubt, it's not always clear what the actual problem is or how, exactly, it began. So the real issue: is the present source of frustration yet another straw man, or something that really calls for the transformative action borne of initial anger? Do people just resort to the straw man, because it's the easy way out and the only apparent thing to do?

For instance, increasing incredulity regarding what the U.S. prison system has become, is starting to cross political lines. This is no longer about just prisons, it's about ruined lives throughout the social strata of both city and rural life. In retrospect, it is clear that the drug war never should have been started. But among all the countless problems the drug war has initiated, who would have ever expected a growing prison population to even connect with the problem of "livable" wages?

Apparently, some businesses in the U.S. are starting to quietly hire "next to nothing" cost prison labor. Mmm, not quite the "made in the U.S.A." result which people were expecting. Let alone the fact that everyone needs access to work...but is this form of labor actually a source of self respect for the inmates which perform it? This set of circumstance was borne of earlier convoluted circumstance, and it is no longer easy to face the problem of growing prison populations head on. Just the same, there are ways to focus on improving economic circumstance in other areas which - over time - would also reduce the present day problem of prisons in the U.S.

Likewise, the growing problem of antibiotic resistance cuts across multiple areas of life, and will ultimately affect healthcare outcomes in ways which go well beyond careful planning or focused efforts. Some of these effects will be anything but positive. And yet, perhaps in the long run it will allow approaches to healthcare which were long discarded, before they were even adequately understood or openly expressed in scientific frameworks. For instance many scientific studies do exist for alternative forms of healthcare, but they mostly remain limited to higher income populations instead of lower income populations which lost these options more than a generation earlier.

With examples and outcomes such as this, where does one begin focused efforts, towards a realistic and positive future? When is it possible to take action before things get out of hand? The second linked example was perhaps beyond anything that could have been done differently. Thankfully, there are still natural antibiotic elements in nature that can assist relatively simple circumstance. But they likely will not be a substitute for the kinds of surgeries which became taken for granted in the 20th century, with the advent of strong antibiotics.

These two sets of circumstance also serve to remind us that nothing is as certain about the 21st century as we would like to believe it is. It might be more beneficial to plan domestic summits, than to simply start preparing for a growing lack of participation in meaningful economic existence. As Shane Parrish says in this blog post, we fail for many reasons. What is "forgivable", and what is not so easy to forgive? According to Atul Gawande:
Failures of ignorance we can forgive. If the knowledge of the best thing to do in a given situation does not exist, we are happy to have people simply make their best effort. But if the knowledge exists and is not applied correctly, it is difficult not to be infuriated.
There it is: not only is a relatively simple nominal targeting rule possible right here and now, it would affect numerous other areas in positive ways. Why should nations remain stuck with inflation targeting and zero bounds if it is not necessary? After all, this is important knowledge which already exists, yet is not being utilized. Unlike some decision making processes, a nominal targeting rule does not involve a tremendous societal response or even high level of understanding to implement in the here and now. And in the time it takes for all to understand how spending capacity is being faithfully followed, a considerable level of economic balance could be achieved.

Perhaps when people start to complain, we could ask, is this a windmill or straw man, or is this something that can be tended to before the fire (will to succeed) is put out, yet again? For instance I know there are times I appear to be tilting at windmills, but I admittedly try to tackle things in a long term perspective. What's important is that the short term and long term need to coexist in rational and connect-the-dot-terms. Because some chose to tilt at windmills instead of facing real problems head on, economic bedlam ensues. Let's connect more dots, so that more progress can be made.

Thursday, November 28, 2013

Some Thanksgiving Thoughts

The pumpkin pie is cooling on the table, while the chicken/cornbread dressing and baked ham have a bit more time to go in the oven. So I'll try to make a restless cat sit down and quit distracting me from the keyboard. Some of you in the U.S. have been on the road in this crazy weather, while others are probably glad to be celebrating a quiet Thanksgiving at home, as I am with my Dad this year.

Perhaps one of the best things about Thanksgiving nowadays is that I'm a lot more relaxed about it, than I used to be. Many a holiday would find me on "overdrive" in the kitchen, even when it wasn't exactly warranted! A love of cooking is something I got from my Dad's mother, and she's been gone for decades already - so Thanksgiving has never been quite the same. Many people would probably agree - Thanksgiving is really about Grandma!

There are other nice things about Thanksgiving as well. The idea of thankfulness - of course - is like the spirit of Christmas which people say we "should" have all year long. Fortunately, thankfulness comes a bit easier for me now, than it did even a few years ago. For a long time, I fought earlier memories and some still can be unsettling. But other time frames are definitely worth the remembering.

Recently an "anchor" theme has been in my head: i.e. nominal targeting and Market Monetarism as a new kind of anchor in my life. Or, the theme can be likened to a window for looking out into the world. Sometimes I think of the actual windows I was fortunate enough to have nearby, in those years of office work. Some were pretty high up from the ground. The MM window feels like that, for it includes points of reference going back even to high school days.

Some readers won't be surprised to hear that I used to love to write letters. I am grateful for the blogging format - in part - because it takes the place of countless letters which friends received from me over the years. Of course now, many of my thoughts have become too abstract for the casual letter. Plus, I don't have the newsy kinds of daily events to write about, which seem such a big part of our lives when we are young.

At any rate, I want to thank my readers, who take the time out of their busy lives to come by and "visit" my little spot on the Internet. Even though I don't have extensive statistical records in the Blogger format, there's enough info for me to know which posts are visited on a regular basis, and what reader favorites are. That in turn helps me know what to respond to, and suggests the topics which could use more definition and focus.

Of course, it's sometime easier said than done, but try to just "be in the moment" and enjoy time spent with friends and family. No, everyone doesn't see eye to eye about everything. But that doesn't mean they don't care about us. And we care about them as well. Happy Thanksgiving!

Wednesday, November 27, 2013

Say's Law "Fail" in a Random Scarcity World

First, when did Say's Law ever function as a workable model? When people produced much of what they needed locally, the fixed scarcity of time use was still largely tied to local resources and commodities. However this had already changed before the 20th century. Even so, we all have the same amount of time at our disposal for production and consumption, and Say's Law was once a natural outcome of that fact. Only with the onset of technology and specific skill set designations, did that dynamic begin to shift. Whatever anyone felt about the transition, random resource scarcities which were unrelated to time, were expected to somehow make up for those who inexplicably had "no job to do". Only one problem, there remained no easily understood monetary link between those who still had economic access, and those who did not.

A simple microeconomic interpretation applies, in that most individuals held definable (producer) responsibilities in their environments except the very young and old. Some individuals were less free than others re choice of responsibility, but survival itself must have been a bit less confusing, just the same. Today, confusion as to survival for the marginalized, continues to confound everyone. That's why the Say's Law concept - failed or no - remains vitally important. After all, initial distortions in production and consumption at local levels only spread further with the passage of time, hence the issue is also important at a macroeconomic level.

In macroeconomic terms, the use of money keeps Say's Law from being possible in a strict sense. Plus, there is good reason for this. By necessity, money represents both the fixed scarcity of time use, as well as the random scarcity realm which may or may not be accurately considered, in accordance with time use (nominal targeting). What's more, fixed and random resource scarcities can have different growth trajectories, depending on the ways in which they intersect.

As a blogger, I believe it is necessary for Say's Law to apply for product flows in general, which I'll also try to explain in this post . Not only is nominal targeting capable of creating better equilibrium between different scarcity formations, but services between individuals can also be recreated at a microeconomic level with monetary representation. I did not appreciate Paul Krugman speaking of Say's Law as primitive, in a post earlier this year. This only shows a lack of consideration on Krugman's part, that random scarcities cannot be all things to all people, at all points in time.

One example of the present lack of balance in equilibrium flows, are increasing calls on the part of developed nations to create greater export capacity and step up manufacturing at home. Germany in particular is held up as a "good" example. So what's that all about? For decades, developed nations, in particular the U.S., were perfectly happy exporting skills sets, knowledge and technology to the rest of the world. What's more, doing so led to tremendous increases in global wealth.

Even if it were possible to bring back former manufacturing with vast economies of scale glory, that's not really the world anyone wants to return to. Who would fill their homes with manufactured goods now? What people miss is the capacity that former manufacturing once held for services generation. When manufacture left our shores, consumer as "economic savior" took its place. Both upper and lower incomes were expected to buy into the building construction wealth to services model, which demands a higher portion of disposable income than thirty years earlier. By no means did this process happen overnight - indeed it was like a pot coming to a slow boil - present day "bubbles" and all. What's more, managing the bubbles is a fools errand: services and employment are pounded every time "dangerous growth" is forced back.

While some high ranking citizens have questioned this outdated strategy for wealth creation in recent years, both government and private industry have been quite reluctant to let it go, because of the wealth and power it has extended to the entire group. With the relative decrease in manufacture, personal consumption took its place as the driver of services. One could say the consumption "product" was funding the services "product", a sort of Say's Law norm writ large - at least until the Great Recession.

For many, it's still too easy to think that money negates the need for any production flow balance. Certainly at a micro level there's truth to that for random scarcities. But the problem comes in monetary flows around the world, as the random scarcities of resources and commodities work at cross purposes with the fixed scarcities of human time. Even though people no longer needed physical product in a Say's Law sense, the need for their fixed scarcity time in equal measure, never stopped.

Why was it hard to see that the fixed scarcity of individual time for survival had become threatened? There remains a belief that random scarcities can somehow tend to all the necessities of life for everyone, even in recessionary times. Indeed, central banks remain inclined to look first to government budgets and finance considerations, before they consider actual spending capacity which is inextricably linked to the fixed scarcity of time use. This rationale of random scarcity wealth lies behind the confusion as to why we can't somehow feed a starving world with "excess" agriculture, for instance. Just as important, a lack of understanding re fixed scarcities means that nominal targets do not receive adequate attention in recessionary times.

It was the apparent wealth and plentitude of so many random scarcities, which encouraged local economies to build lifestyle expectations beyond the actual capacities of their residents. All too often it appeared that more would be able to benefit from the abundance than was actually possible. The same misguided directive applied to real estate valuations, pension expectations, and the local retailer who would get swamped with requests for community donations in the space of any given month. Small wonder that many resorted to hoarding money, so as to meet the unknowable service load one would inevitably face in old age, due to the healthcare structure which was the primary imbalance in the equilibrium itself.

How does one approach the broken link between fixed and random scarcities which underlies this problem?  Two conditions need to be met to create a more sustainable balance: Greater economic access in terms of physical product production, and in services production as well. Nominal targeting can especially assist the first condition, alongside innovation and regulatory reform. As for the second condition (services production), skills arbitrage can be utilized for a reformulation of Say's Laws in services at local levels.

The object for any society is not equalization of income, but to simply make certain that the monetary link between all citizens is not broken, so that the basics of life are always within reach. Monetary compensation for time arbitrage could provide the nominal connection between fixed and random scarcities. Allowing people to find and create their own supply and demand for services is neither irresponsible, nor an impossible luxury. Given the chance to choose between the vast proposals of the individual versus limited offerings as reduced by power struggles, most would take diversity of choice - if indeed they had the chance.

Midweek Market Monetarist Links and Summaries - 11/27/13

Scott Sumner put together a flurry of posts earlier this week, prior to a heavy travel schedule for the holidays. He may be putting up some older posts till the end of the year, as well.
Yes, we still need QE, duh. Calling supply side...calling supply side...Rick Santelli explains the real reason for QE3
Scott explains some logic about helicopter drops in It's all about the Benjamins
This post looks at one of the more interesting debates of the week: Aggregate demand - it's not what you think  Nick Rowe's response: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/does-the-invention-of-nifty-new-goods-increase-ad.html
Some things are harder to frame or put into context, than others: Is the zero bound the "real problem"  (i.e. the nominal problem)
Scott also provides a good Lars Svensson link: http://larseosvensson.se/2013/11/14/ekonomistas-zero-inflation-leads-to-higher-debt-substantially-higher-debt-english-translation/#more-1345
A beautiful picture of Mt. Fuji doesn't mean that a Japan outcome is desirable...Reasoning from a price change, on steroids
At least Bullard recognized the reverse causation: James Bullard on monetary policy in 2008
...or will the U.S. start to look like California? Memories of the Carter administration
Speaking of Bullard...from Andolfatto:
http://andolfatto.blogspot.com/2013/11/connecting-academic-and-policy-worlds.html

David Glasner - If prices are falling without output rising, something is very wrong: http://uneasymoney.com/2013/11/21/what-makes-deflation-good/

Miles Kimball cites an interesting quote from Ignatius Donnelly, re deflation:
http://blog.supplysideliberal.com/post/67821914166/19th-century-populist-and-monetary-dove-Ignatius

Name that target! Just don't expect it to be what the FOMC actually has in mind...(Marcus Nunes)
http://thefaintofheart.wordpress.com/2013/11/20/the-fomc-has-been-doing-a-lot-of-expecting-and-anticipating/
Pulling petals from daisies, that ought to work: http://thefaintofheart.wordpress.com/2013/11/20/love-me-love-me-not/
Take care of monetary policy, then tend to the details: http://thefaintofheart.wordpress.com/2013/11/21/theres-no-secular-stagnation-its-about-misguided-monetary-policy/
Unfortunately, monetary policy was a sidekick for White House planners in the 60s:
http://thefaintofheart.wordpress.com/2013/11/22/conservatives-praise-kennedy/
Contrary to popular opinion and politics, it really helps to keep an open mind:
http://thefaintofheart.wordpress.com/2013/11/23/kocherlakota-born-again-christian/
Central banks in the "kitchen": wrong cookbook, too many bubbles and not enough heat
http://thefaintofheart.wordpress.com/2013/11/25/all-central-banks-in-practice-are-acting-alike/
One gets the feeling sometimes that neither group wants money to normalize again. I want money to be normal:
http://thefaintofheart.wordpress.com/2013/11/25/deep-down-economists-are-mean-sobs/
High energy prices? Big mortgages? Not to worry, just take another chunk out of spending capacity:
http://thefaintofheart.wordpress.com/2013/11/26/who-to-blame-for-what/

Lars Christensen highlights a recent paper from Will Luther and Alex Salter:
http://marketmonetarist.com/2013/11/25/synthesizing-state-and-spontaneous-order-theories-of-money-2/
Lars uses a New Keynesian framework with Taylor Rule to explain a move away from the ZLB:
http://marketmonetarist.com/2013/11/26/a-scary-story-the-zero-lower-bound-and-exchange-rate-dynamics/

We don't have to settle for the ignorance, that some bureaucrats are inclined to leave us with (Bonnie Carr) http://dajeeps.wordpress.com/2013/11/21/fear-itself/
The post title says it all:
http://dajeeps.wordpress.com/2013/11/26/fresh-or-salty-framing-effects-distract-from-cause-and-effect/

(Yichuan Wang) Key counterfactual - What if the Fed hadn't done QE?
http://qz.com/150592/stop-the-taper-talk-the-fed-has-actually-done-too-little/

(Nick Rowe) If there is an excess demand for money, Say's Law fails across space and time:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/intertemporal-says-law.html

Britmouse posts the latest UK nominal figures:
http://uneconomical.wordpress.com/2013/11/27/uk-2013-q3-nominal-gdp/

The recurring mistake for conservatives has been an obsession with money not losing value (Lorenzo) http://skepticlawyer.com.au/2013/11/20/why-conservatives-dont-learn-from-history/
Lorenzo just posted a good intro of NGDP targeting for a lay audience:
http://skepticlawyer.com.au/2013/11/27/money-prices-assets-and-evasions-of-responsibility/

Tim Duy notes that the approaching taper is not data dependent:
http://economistsview.typepad.com/economistsview/2013/11/fed-watch-desperate-to-taper.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View%29

Will an increased target rate of inflation help us out of the present economic quagmire? Think again (George Selgin) http://www.freebanking.org/2013/11/21/four-old-fashioned-monetarist-heresies/
George reacts to another clueless response by Richard Fisher: http://www.freebanking.org/2013/11/20/deja-vu-all-over-again/

Labor share of income has an ever-moving and unknowable optimum. A thoughtful post from Kevin Erdmann: http://idiosyncraticwhisk.blogspot.com/2013/11/labor-share-of-income.html

Also of interest:

Derek Thompson provides a follow up to an earlier Emily Badger article:
http://www.theatlantic.com/business/archive/2013/11/your-brain-on-poverty-why-poor-people-seem-to-make-bad-decisions/281780/

Sometimes, "mortgage" is just another word for nothing left to lose:
http://www.aei-ideas.org/2013/11/how-mortgage-became-just-another-word-for-trouble/

Tuesday, November 26, 2013

What "Good" is GDP That Ignores Digital Wealth?

Some readers can be forgiven for thinking I've "danced around" a GDP that does not really account for digital wealth. Indeed, we may still be years away from having a better accounting in this regard. In an earlier post I provided a basic defense of GDP in terms of dynamism. What about the "potential" GDP of digital wealth? Might its reimbursement ultimately be as spontaneous as its origins, or will monetary compensation remain elusive? For one thing, there are many digital applications needed in both profit and non profit terms, which are waiting for societal forms of organization (let alone legalities) to catch up with the possibilities.

David Henderson (of Econlog) recently reminded his readers that GDP can not be a good measure of well being or welfare, which is what prompted this post on my part. While I linked two days ago to the Surowieki essay which Henderson referenced in that earlier post, I didn't link to Henderson's post or earlier essay, so they are both here.

There is one more link (earlier post) I want to include before reasoning out a few details. Familial responsibilities - which are also capable of providing incalculable well being - have some interesting parallels to the voluntary work that has created our digital wealth infrastructure, in terms of identity and personal choice. Just as digital wealth doesn't readily adapt to formal economic definition, neither do the work options we take on which our families in turn benefit from. In other words, the better part of the responsibilities we take on, are because of what those actions means to us personally.

If this voluntary work was in fact something which we felt compelled or obligated to do, would we still take it on? That answer varies somewhat. And if we did continue in our "obligation", would the work remain as inspired or even original as that which we had taken on voluntarily? While some familial and societal responsibilities are of course more mundane than the knowledge work that creates digital infrastructure, the underlying element of knowledge use and skills choices for identity are still paramount.

That doesn't mean we don't have good reason to work on the maintenance aspects of our lives at the same time. There are elements of everyday and special responsibilities, which fall into categories of personal fulfillment. However, we are far more willing to take on the tasks of the mundane, when we are also allowed a unique role in identity settings, as captured in both societal and familial imaginations. Particularly in family settings, our contributions to well being are still a matter of personal choices which align with the voluntary choices of others.

Once someone gets paid for what may start out as a special favor, a feeling of obligation may set in, causing the way an individual feels about that activity to change. After all, how does this recent addition factor in to the overall limited capacity of one's time? For all the work that digital infrastructure creation implies - for instance - the part that gets volunteered is generally not the ongoing drudgery and maintenance. People contribute to digital infrastructure and then set their mind on the next important priority of their choosing. But plenty of people remain well paid, for the kind of digital maintenance which demands the best part of their time on an ongoing basis. Indeed, digital maintenance is more important to GDP than some forms of maintenance, because of its integral nature to the digital structure.

Clearly, GDP cannot be all things to all people. Just the same, something is indeed presently missing from the measure, which needs to be seriously considered.  We cannot ignore the need for societal support which allows us to reach out to others. Nor can we forget that government is presently incapable of providing this for us through redistribution.

What matters is that individuals have some base of stability to work from, for the voluntary responsibilities they choose to take on for others. When individual families can't provide this, communities can create ways to help with some of the more basic missing links. In the same way that a person with limited means of support has difficulty contributing to the well being of their family, too little community support also means that many individuals have no way to contribute to the well being of society, at all.

Some infrastructure is planned ahead of time, while some is not. Just one of the unique qualities of the digital realm is that it was anything but planned, for the most part. Significant parts of the work we elect to take on in the future will likely remain uncompensated, in a monetary sense. Yet many of us will pursue that work just the same, if we can support one another in the ways that makes it possible to do so. Sometimes this will be the work of maintenance, because of the structures surrounding us that we care about. Sometimes, it will be the innovative edge of the knowledge prior, which adds to our own personal identity and life goals. The challenge for us is to make certain that the community and monetary base which allows such voluntary reaching out, is always within reach for those who desire to give freely of themselves.

Sunday, November 24, 2013

Local Options, Knowledge Prior Systems and Social Calendaring

Why knowledge prior systems? That is, methods of local services organization which would allow knowledge use and individual challenges to be a main priority. One element about knowledge prior systems which could give them a broader usefulness than "straight" guaranteed income plans, are the levels of societal integration which they could make possible over time. A supporting monetary base would serve to allow incentive for one's personal aspirations. That in turn could allow more flexibility, in terms of skills sets and knowledge use potential in local settings.

Some readers are probably thinking: knowledge prior systems as an alternative to guaranteed income? I continue to sort through recent ongoing arguments for guaranteed income, and their varying interpretations. Even though these discussions are presently widespread - as Scott Sumner mentioned in a recent comment thread, it's hard to imagine what would be politically viable. Hence, local options for economic experimentation, are far more reasonable.

And when one thinks of the Obamacare "rollout" I have to wonder whether any large program would currently be possible, given the broad population base of the U.S. Indeed, it seems that anything which is tried in the present would have to be on a more experimental basis, to see how it goes at local levels. Then, other areas could replicate what works, albeit with the lessons learned from earlier prototypes. Knowledge prior systems would be no different, in that they would encompass disparate elements both practical and (seemingly) not so practical.

What's more, the issue of economic access exists in multiple dimensions, and each story of adaptation would be unique. It's not easy to reinvent the wheel, but then when wheels quit turning... Therefore - contrary to what Chris Dillow suggested at the end of this post, sometimes it's better to create a better version of an existing wheel, than it is to force feed solutions based on competing morality concerns. Transformation means overcoming previously held notions as to one's "place" and identity.

Therefore, the best way to imagine knowledge prior systems? Multiple and unique visions, with interconnected local support for skills and knowledge use wealth. Otherwise, rationale for economic access would likely devolve towards benefits for one ideology or the other, i.e. livable wages or overcoming "rent seeking" welfare. Even as knowledge prior systems can serve as "scaffolding" for existing institutions, they would have more freedom to pursue what the basic institutions all too often cannot actually do.

Coordination of social calendaring can bring together disparate elements which otherwise can't be considered in the same context. And they have a recognizable beginning point: what are societies already trying to accomplish? Where do so many goals fall short, and why? New approaches can be tried on an ongoing basis. Not happy with one's local action calendar? Check out the calendars which other communities around the country are building, and find out which communities might be interested in matching (supporting) one's own skills aspirations and significant challenges.

In other words, local social calendaring could do more than create access for entrepreneurial aspirations. Social calendaring can create space for people to promote wide sets of interests to their fellow citizens on an ongoing basis, through participatory education. While this is already possible online, the up close and personal context is especially missing in the present. By the way, that wouldn't just be true for local entrepreneurial activist concerns. National representatives want to "sell" something? Fine...get them out on a educational travel circuit (just calendar it in), to convince locals that these "great" national interest ideas would in fact benefit more than special interests!

Not only would regular, year long services calendaring provide tremendous incentive for entrepreneurial activity, but also a means for the kinds of local democracies people could participate in directly. A better understanding of time use as a fixed scarcity and primary economic measure, also allows ways to reconsider the digital realm which otherwise has proved difficult to measure.

By finding their own unique balance between fixed and random resource scarcities, local economies would be able to completely refit education and ongoing work projects. That way, their residents would have the valuable option of staying close to home, yet reaching out to the rest of the world as well. Plus, the ability to capture and coordinate skills sets at local levels, would allow a far greater dispersion of knowledge use. That - in turn - would consequently allow the knowledge wealth of the world to make a very real difference, in the life of the average citizen.

Saturday, November 23, 2013

Random Scarcities Versus Fixed Scarcities

Several subject possibilities were "calling" to me this morning as I set about some notes organization. But the one which stood out, was that of the title. While I have touched on this area a number of times in past months, relative degrees of scarcity really deserve closer treatment. For while random scarcities involve resources which can also translate into positive and negative supply shocks in macro terms, fixed scarcities (such as economic time) lie at the heart of both nominal measures and basic life considerations. What's more, the fixed component of time interaction is required, for random scarcities to become economic realities in a dynamic sense.

As such, fixed scarcities are also the most vital concern for potential solution sets, in which random scarcities can be factored in after the initial conditions are recognized. Even though random scarcities can "come to the rescue" in certain circumstances, they don't really work out in the long run as "permanent" substitutes for limitations on fixed scarcities. Perhaps the best example in this regard: lack of flexibility in the fixed scarcity of skills use time, where too many artificial limitations create an unsustainable equilibrium.

Random scarcities can especially be thought of in global and national equilibrium terms, while fixed scarcities tend more toward local conditions. As such, fixed scarcities utilize different economic frameworks as well. If time scarcity is not recognized, the framework eventually goes out of balance. Even though scarcity lies at the heart of economic thought, I have struggled to understand scarcity on personal terms. So this post is the observations of a layperson about scarcity: observations which nonetheless are central to how I relate to economics in general.

When I began my project back in 2003, what particularly stood out for me were areas of potential abundance which remained largely untapped. Knowledge use in particular, appeared as the aggregate abundance which was possible, albeit in fixed scarcity terms. Over time, the random and fixed natures of scarcity started to make more sense, which in turn suggested substantial differences in growth trajectories. Something about being in an limited environment (where no clear course of survival strategy suggested itself) made me learn to look more closely, at the limitations and possibilities of environments.

Among some of the earlier resource possibilities I observed were the (random) scarcities which nature at times provided "too" freely, such as hickory nuts and wild persimmons around the property. After considerable effort to harvest these - with limited results - it wasn't hard to see why such options might be nixed (usually, anyway) for more desirable foodstuffs. While a person of higher income might pass these over for something more "delectable" at the grocery store, a lower income person might pass them over for the offerings at the food bank. Even if those offerings were less interesting, they nonetheless required less work to process!

In a larger sense, food certainly wouldn't be considered a random scarcity in many places - I am making an observation of what some might consider available choices in the U.S. Whereas in some places, foodstuff becomes a fixed scarcity in that life depends on whether one has access to it or not. In the U.S. food becomes a "random" choice to the degree one is always going to have some kind of option, whether or not it is desirable. Some food choice for random scarcity is also experiential - whether fishing, hunting, or my favorite - pecans.

Think of the contrast between diamonds and water, and how the paradox of value doesn't quite get at the primary nature of fixed scarcity. That's a problem, because sometimes it helps to know which fixed scarcities actually mean the difference between survival or "calling it a day". The concept of labor, unfortunately, seems to have reinforced the idea of time as a random scarcity in the value of exchange. However, the representation of labor is but a partial lifestyle option, which is also reflected by the partial lifestyle option which education ultimately became.

Random scarcities, while important in the sense that we choose among them (abundant or not) to augment basic survival , are not specific for life or death options. If nothing else exists in an environment for protection, one can alter the ground itself to create cover, if in fact they are allowed to do so. Again, whether one is "allowed" is more often than not the issue, because the saving grace of random scarcity (resourcefulness) can be lost with arbitrary definitions of product formation.

One of the most important points I can make, is that our time is always a fixed scarcity: which is just one reason why inattention to unemployment is not a realistic option. In other words, what we do with our time is primary for survival in a limited sense and macroeconomic definition in a larger sense. Whereas random scarcities are not necessarily so. So when we seek methods of coordination in any environment, one of the first things we need to ask ourselves is: are we working with fixed or random scarcity elements? Because the answer to that question makes all the difference for the solutions that are arrived at. Stability really depends on being able to match one's fixed amount of time use with other relatively fixed resource capacities, land, or both. That is something which local communities are really in a better position to create for their citizens, than governments.

Friday, November 22, 2013

A "Business" Multiplier?

When I started writing the recent post about Henry Ford, I wasn't even thinking in terms of the connections between innovation and economic gain which could lead to more aggregate demand. However, in my attempt to explain why Henry Ford was in a better position to reimburse his employees than Walmart is today, the positive shock which could be associated with growing auto use became apparent. That is, in terms of AD growth - providing nominal targeting is utilized. At any rate, it was just fun to "go there" and muse over the possibilities, such as Nick Rowe did in a post responding to Scott Sumner's reaction to a twitter conversation between Yglesias and Mandel.

Today, one might think of innovation gain with less confidence, because a substantial part of technological innovation has migrated to the digital realm. What's more, most innovation outside this area is captured by specific institutions rather than populations in general. Indeed that could be why innovation wouldn't be considered a true growth multiplier. Nick Rowe's post was somewhat indicative of this stance, in that the latest "nifty" product may simply take market share of another product - a pattern which doesn't change overall growth trajectories of AD.

Thinking about this, it's not hard to see why business wouldn't necessarily wish to promote private interests as a growth multiplier, even if they are disinclined to believe in government growth multipliers. After all, was there really any need to stress additional wealth creation, if it was mostly occurring within institutional walls? Hence, the easiest rationale might be to deny that a multiplier existed for either public or private concerns: in spite of what many economists believe to be possible on the part of governments.

In other words, private interests likely wouldn't have adequate reason to stress a growth multiplier in business based terms and governments certainly didn't have reason to. And yet, when governments created something that actually contributed to overall wealth gains, there would also be an unidentified business component as a result.  Probably the closest thing to an argument for business multipliers was thought of in fiscal terms for supply side measures. Even in the sixties, early versions of supply side economics suggested that tax cuts freed up growth which was otherwise held back by government. And yet...this was expressed in terms of a market supposedly free to do its thing, rather than the added benefit of consumer demand to make a recognizable whole, of the actual assertion.

Just the same, there is a random element for any investment, whether by government infrastructure support or business plans. All too often, a steady focus on aggregate demand gets lost in the mix of fiscal and business concerns. And yet, that focus could serve to smooth the rough patches where investments or infrastructure goals don't go as planned - as is so often the case. Certainly there are no guarantees as to potential multipliers on the part of government, especially in a timeframe when few can agree on what would actually help a sizable portion of any population.

Aggregate demand has not always been well accounted for in the monetary equation, unless of course it appeared beneficial to the outcome. All too often, monetary policy might be allowed to "step up to the plate", so long as other economic factors were functioning well. For instance, governments in the sixties handed over the punch bowl to finance as a sort of extra bonus. Monetary policy was somewhat in the background, seen as a lesser contender to fiscal and credit based options. The fact that finance was given too much power even then, makes it all the more difficult to reduce its power in the present.

While there are other pressing issues as well, three structural factors make it difficult for many to realize the central role nominal targeting needs to play for monetary stability: government fiscal policies, the ever present role of finance in the economy, and the uncertainties of technological change for employment in the future. The main problem is that these three elements overwhelm one another, so that it's difficult to know where to begin.

And yet it is necessary to begin with monetary stability through a nominal targeting rule. This is why some Market Monetarists don't have the luxury of discussing supply side and structural elements very often, even though they are often quite sympathetic to those concerns. It can't be said enough that even though a lot of things may be done right: if monetary policy is not sufficient, everything will still turn out wrong. For instance, tremendous innovation took place in the years of the Great Depression, which was not backed by adequate monetary policy for aggregate demand.

When nominal targeting is taken into account, staying true to income and consumption potential has the capacity to act as a shock absorber for multiple scenarios, whether positive or negative. That's true whether those scenarios are resource based or a result of political decisions. Sometimes innovation has the potential - for instance - to be a positive supply shock. But even here, one does not have to calculate potential growth or multipliers, because those possibilities are already factored into changes in nominal income, which in turn become total spending. In other words, nominal targeting greatly simplifies the process.

Thursday, November 21, 2013

Local Settings and Services - The Balance Within

In this morning's post, I pointed out the need for greater balance between different working parts of economic systems in somewhat broad strokes. So in this post I want to look a bit closer at an element one probably wouldn't expect to find in an economics text: interlocking components of local community which might be more amenable to coordination in the future, than simple wealth redistribution. Even though plenty of discussion abounds for taxation and redistribution, what's missing is an overall rationale as to how redistribution can actually accomplish what it sets out to do.

Because redistribution through taxation happens with limited knowledge and decision processes, many aspects of economic interaction simply fall out of balance with the passage of time. When this happens, sometimes it's best just to start over and keep things a bit more simple - only, wouldn't it would be great to be able to do so without the intervention of wars and calamity. So how might a better balance be possible between asset components and services at local levels?

When societies do not find ways to keep flexibility in living and working arrangements, unfortunately there's a good chance that imposed austerity will finally do the job for them. Yet no one really gains by the lower wealth valuations of bad deflation: neither is that a good recipe for greater inclusion. Rather, asset wealth to services scenarios need to happen within more flexible frameworks for participation. In other words, both environment and services could be transformed so that it is not necessary to be wealthy, to be able to access great services of all kinds (through time arbitrage). In particular, the choice of limited consumption responsibility could give far more time for greater services participation and options.

Presently, one doesn't just move to a neighborhood with great services unless there is plenty of additional income to provide one's contribution. What's more, good services require a stronger association with income, than was the case several decades earlier. Also, even if one's home is mostly intended for a good night's sleep, there is a good chance the dwelling's valuation includes nearby  services and amenities, whether one seeks them or not. Indeed that services consumption "package" approximates investment value as well. It's easier to think about the actual connections between income and services consumption in close up settings, than in settings which separate the activities of business and government, or public and private concerns. For one thing, it's easier for larger settings to obscure the important nominal concerns which are such a primary anchor for monetary activity.

Indeed, that is a big part of my appreciation for NGDP and nominal targeting, because they point to the significance of income potential in macroeconomic settings. Local economies have the ability to highlight how important per capita considerations actually are. Plus, local economic experiments in services coordination have the potential to illustrate natural experiments in this regard. The local economy is capable of providing up close - albeit simplified versions of regional or national settings. To do so also allows the observer to forget about government, finance and credit, long enough to ask: what is really happening with monetary flows between all elements and all participants?

With such consideration, it becomes easier to think how services have been funded until now. And for many communities, this distribution form needs to be altered so that services might take on a more primary role. A balance still exists between asset formation and services, but it is a precarious balance which no longer provides adequate jobs in services for actual community need. Even so, present asset formations sometimes present hardships for residents, as they try to maintain at least minimal redistribution flows through the use of the assets themselves.

While a significant part of this burden could be lifted in the future through technological innovations, this is still but a part of the answer. After all, were innovation to take place - in turn leading to less expensive living and working habitat - there would not be enough taxes from these less expensive and more efficient habitats to provide necessary taxes for services. How to think about this? For one thing, it's the first part of the balance adjustment, from which a services adjustment could follow.

A high tech environment would not only mean less expense for the costs of the environment itself, but also less time needed in the maintenance of the environment. Consider for example, the ease of transporting plastics as containers for consumption goods of all kinds, and the low costs of doing so. For a bit more money, better quality plastics could come into use, which would be adequate for many kinds of modular repairs for instance, instead of wholesale repairs on living and working quarters of the present which involve tremendous resources just to do so. What if recyclable plastics were converted to modular home replacements locally, for instance? What if some environments that are prone to natural disasters could choose modular components over traditional housing?

Such an approach to living and working quarters would free up an incredible amount of time for local dwellers, because it wouldn't be necessary to go to a high paying job all day just to pay for suitable shelter. That would leave more time to engage in skills sets, knowledge use and other important ongoing functions without the higher incomes necessary for more permanent forms of housing and construction. What this means is that the lower cost, resource use and maintenance can provide the setting for an alternative approach to services provision which would be inclusive of entire populations. Previously, it was only possible to reimburse a small fraction of those in communities for local services positions because of the additional responsibilities their dwellings placed on income needs.

Inclusivity for services responsibilities means looking beyond the bounds of institutions, for knowledge use. Not only would this provide ways for communities to reorganize their service needs, it would allow them to reconfigure infrastructures when they are no longer able to maintain earlier infrastructures which they previously relied upon. Communities can ask themselves, how can we - as a group - still achieve important societal goals? That is, when it is no longer possible to tax a limited group of citizens who are either stretched to the limits or simply said no.

Importantly, success stories for coordination in skills sets would not exist in a vacuum, in terms of monetary valuations. The fact that knowledge use has been successfully applied and contributed to the transformation of communities would also make previously low valuations start to rise. However, this would not necessarily be a negative in a broad sense, because it would be an indication for any community that smart skills coordination strategies could provide greater options and possibilities for multiple populations. Indeed, other communities would be inspired to follow earlier examples, where real social value was created - seemingly out of "thin air". That is, the skills capacity came first - and the money valuations ultimately followed.

There are many ways to go about such a process. Plus, the needed adjustments can become more income oriented overall, than present circumstances of limited workplace participation allow. The inclusion of whole populations also means that greater subjectivity for product definition is possible, which can be quite important for services provision. How might coordinated efforts become a more effective community tool, than redistribution? After all, coordination does not have the "finality" of redistribution decisions, which imply failures of all kinds when they are not done "properly" or simply become overwhelming. Coordination gives people ways to start over and try again, which can sometimes make all the difference .

AS and AD: Balance and Coordination are Possible

Granted, this may seem - to some - like a somewhat unusual argument to be making. How does one take a free market, i.e. our supply side realities, and expect them to take action with anything resembling the organizational capacity or focus of a central bank? After all, markets are supposed to be free to act on their own and uh...yeah, me too, much of the supply side doesn't look very free to do so, lately. That's just the point, for there is presently no shared purpose or vision to move ahead in spite of countless investments in knowledge and skills potential.

Many skills investments today remain in a holding pattern, in large part because of the outdated forms of institutional structures that skills use is expected to maintain. Mostly, everyone has been "free" to deny growth or opportunity to everyone else, in a struggle over tight money and long term indecision over growth paths. Not only has Washington been short on any substantial agreements for some time, but focus on combined AS and AD efforts (as needed by an entire population) for economic stability are no one's responsibility, right now.

After reading Scott Sumner's recent post, it would probably be helpful to explain what I mean by aggregate demand. Presently, the underlying structure of multiple product and asset formations are fragmented at a basic level, and that fragmentation stands in the way of economic progress. For instance, Washington faces gridlock by trying to factor in a percentage of the public to a healthcare system which was never designed for lower incomes or centralized mechanisms. Efforts to force this imbalance are not only making life more fragile for millions of individuals, but for businesses in general.

People with lower (or less certain) incomes will need to be able to create their own systems of economic access: systems which will not impose on the fought over systems of those in middle to higher income ranges. A major component of such systems would be to bring local economies (in terms of resource and knowledge use) back into better balance with global economic elements. Such systems would also need to keep AS and AD in balance through localized nominal targeting, so as not to suffer from the (endogenous) inflation spirals that local economies tend to otherwise create.

Balance and coordination are needed, which are also capable of matching the needs of various income levels and aspirations. After all, there is a sorting process in some regions and areas which makes it more difficult for all income levels to work within the same perimeters of economic access. Nor should everyone be expected to do so, as it forces too many square pegs into round holes and encourages political divisions which only work at cross purposes to resource use in general. While economists are not generally used to thinking in such terms, the traditional hands off approach has led to considerable astonishment, at the potential linear future trajectory which becomes more unsettling by the day.

Even though such coordination sounds "too complicated" to many, the fact remains that most governments are simply not ready to provide economic access to lower income or unemployed individuals through other means, and prisons need to be scaled back in the years ahead. There are just too many unresolved infrastructural issues that remain between the middle to upper income ranges, where in fact little progress is being made. In other words, individuals outside of governments could go ahead now and work on the tasks which are important to them, while Washington for instance is still attempting to take care of what it considers more pressing matters.

While representatives of aggregate demand (economists and individuals at the Fed) catch most of the heat these days, proponents of aggregate supply have mostly stayed out of the of the kitchen, even as they demand what meals are going to be served, and how said meals "must" be cut back (overall AD or NGDP). And increasingly the "meals" - while providing an adequate marketplace for those with higher incomes, leave too few points of economic entry for those at lower income levels. Hence, a marketplace all too often does not exist, except of course the default zone of prisons. How can anyone realistically hope for full employment, if there is not even a variety of marketplaces and infrastructure to represent all income levels?

Thus, the relationship between policy makers, Wall Street and Main Street has become ever more dysfunctional. Too many economic participants are not even able to come to the table, thus the economies of nations continue to fall further out of balance. It is past time for proponents of the supply side to acknowledge the very real role they have played - in combination with governments, of creating unnecessary limits of economic participation for all involved. This exclusionary strategy has created an unbalanced economy and a decrease in societal trust, yet too few have the desire to attack the underlying problems which keep it that way. However until people come to terms with this reality, more QE will be needed - in that more deflation would certainly occur, without it.

Regular readers here know that I have no qualms about being a "burr in the saddle" of some supply side representatives, who put most of the blame on the Fed in the present. Unfortunately there are also tight money advocates who are in the position of supposedly being proponents of aggregate demand, via roles in the Fed. Yet instead of finding ways to work with supply side interests throughout the nation to coordinate and balance AD efforts, they focus on shooting down potential solutions, instead.

Their demands for tighter money, and do-nothing attitudes towards structural problems and dropping workforce participation, are nothing but dangerous and irresponsible. What's more, the willingness of some within the Fed to encourage the public to view the institution itself with dismay, is inexcusable. Tight money advocates are presently adding on unnecessary blame, division, and confusion all around for their own short sighted goals. All of this is escalating into a problem which also means higher unemployment and more businesses losses in the future. How so?

Restrictions on the marketplace in terms of operating costs and regulations mean that neither businesses or individuals can meet the growing demands of the government. But instead of working together to undo the growing unbalance, both political parties continue to up the ante on the other, which only continues the economic conditions so intractable to begin with. The lack of a marketplace for lower income options in basic areas of life, is now leading to demands for higher minimum wages and "living wages". That in turn only puts more pressure on business which were already forced to factor in higher healthcare costs.

While it can be tempting for supply side interests to serve the needs of mostly higher incomes, that leaves society in general needing more liquidity for overall needs, than many in society are able to contribute to. However, when too much of the marketplace becomes defined for higher incomes over time, the liquidity which bears initially bears little risk, finally starts to appear as too much of a burden, and the lower bound begins to affect monetary policy in ways quite different from normal circumstance of multiple generations. Even though the process can be reversed by innovations at basic levels of product and asset formation, people are too entrenched in earlier patterns to be able to think of this as a solution.

Just the same, the way back to economic stability is to find ways to include people of all income levels in basic economic participation. While a straight, undifferentiated (national) level nominal target (NGDPLT) does not address lower incomes specifically, it is able to check the tendency of middle and upper range income levels re waging economic battles of constantly higher expectations. For when upper income levels do this for too long, they find themselves saddled with somehow finding provisions for the lower classes whose incomes are no longer adequate at the margin for basic economic needs. While government does shift incomes at lower levels in a number of ways, this argument is especially intended for the many who do not rely on any sort of government redistribution in a normal sense.

Part of creating balance is recognizing the embedded product formations and valuations which exist between environment structures, and the services which exist alongside them. Not only is balance needed between these local or traditionally non tradable elements of the economy, but also between global or tradable elements of the economy. Presently, the balance is broken in at least two important respects - between local and non local elements, and  between levels of local access utilization. While government redistribution presently obscures the differences between income levels and well being, the majority of government redistribution needs to be cleared out of the way, so that all income levels can once again become active contributors to both consumption and production in more understandable terms.

Wednesday, November 20, 2013

Midweek Market Monetarist Links and Summaries - 11/20/13

Needed: better quality Fed governors. Marcus Nunes also notes a new, downloadable e-book for forward guidance in this post: http://thefaintofheart.wordpress.com/2013/11/13/free-to-speak-out/
Is "pushing on a string" really working from the "right end" of the telescope? http://thefaintofheart.wordpress.com/2013/11/13/if-you-didnt-know-you-should/
Would a little deflation now be a "good" thing? Hmmm:
http://thefaintofheart.wordpress.com/2013/11/14/the-cato-conference-takes-off-and-crashes/
Marcus provides links for a Free Exchange roundtable:
http://thefaintofheart.wordpress.com/2013/11/15/unconventional-monetary-policy-ump%e2%89%a0easy-money-em/
Why does everything look like a bubble?:
http://thefaintofheart.wordpress.com/2013/11/17/when-you-set-out-to-control-a-bad-you-lose-sight-of-the-good/
Explanations in graphs, why the years prior to the crisis were not "easy money"
http://thefaintofheart.wordpress.com/2013/11/18/the-fixation-on-2003-05/
A guest post by Benjamin Cole - There's something about groupthink:
http://thefaintofheart.wordpress.com/2013/11/18/groupthink-plosser-and-the-fed-oblations-to-zero-inflation/
Marcus takes a look at Bernanke's legacy:
http://thefaintofheart.wordpress.com/2013/11/20/when-fiction-and-reality-clash-the-bernanke-legacy/

Hard to believe that hyperinflation could be a problem, in the same timeframe as deflation. From Lars Christensen: http://marketmonetarist.com/2013/11/14/venezuelas-monetary-craziness/
This is an important distinction which is sometimes missed by history:
http://marketmonetarist.com/2013/11/17/deflation-not-hyperinflation-brought-hitler-to-power/
Where Lars explains the EMH by jumping on a table in a crowd:
http://marketmonetarist.com/2013/11/18/the-crowd-lars-you-are-fat/

Department of "piling on", or Huzza Huszar - David Beckworth provides links for the tackle which Huszar received for his "apology": http://macromarketmusings.blogspot.com/2013/11/if-you-are-going-to-criticize-qe.html  Here's one from Bonnie Carr: http://dajeeps.wordpress.com/2013/11/12/oh-please-on-huszars-great-confession/
From Kevin Erdmann: http://idiosyncraticwhisk.blogspot.com/2013/11/evidence-is-optional-with-finance.html
Not done yet! http://andolfatto.blogspot.com/2013/11/andrew-huszar-confessions-of.html
Okay, I'll stop after this video: http://www.cnbc.com/id/101192690

David Beckworth notes that Janet Yellen should have been able to ask questions, too: http://macromarketmusings.blogspot.com/2013/11/three-questions-janet-yellen-should.html

James Pethokoukis puts Kevin Warsh in his place: http://www.aei-ideas.org/2013/11/do-fed-critics-really-think-the-us-economy-would-be-stronger-with-tighter-monetary-policy/

Some thoughts from Scott Sumner, on Yellen's testimony: Janet Yellen on monetary offset
Scott's Free Exchange post: http://www.economist.com/blogs/freeexchange/2013/11/unconventional-monetary-policy-2
Anders Aslund of FP could have used a bit more monetary logic: When you put the phrase "blind spot" in the title of your essay
Alas...Fire, fire, in Noah's flood: In the belly of the beast
Raising the minimum wage to $10 hour is questionable: Where does America rank in terms of top rate?
It's time to adopt a policy not inhibited by the zero bound: Focus on NGDP expectations not interest rates
Scott wants more clarity in discussions about Germany: I beg you all to stop talking about German Inflation
China's government wants to avoid the middle income trap - China: The glass is now 51% full
Scott highlights a good video: Rick Santelli explains the real reason for QE3
Deflation as testament that structural reforms are working? Memo to FT editors: Be as crazy as you like, but give us an explanation

Nick Rowe - Don't use the New Keynesian model to support raising government spending at the ZLB: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/on-understanding-and-spinning-nk-models.html
First and second best solutions in a hybrid model: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/optimal-fiscalmonetary-policy-in-hybrid-oldnew-keynesian-models.html
Barbie was right, math is hard! But think about a very simple Keynesian cross...http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/a-suggestion-for-simplifying-some-macro-math.html
However, this post does need a second year macro text: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/11/neo-wicksellian-indeterminacy-in-pictures.html

David Glasner looks at some of the issues surrounding QE:
http://uneasymoney.com/2013/11/18/the-internal-contradiction-of-quantitative-easing/

As smart as Larry Summers may be, he still misses the point - Ryan Avent, "The Solution That Cannot Be Named": http://www.economist.com/blogs/freeexchange/2013/11/secular-stagnation

Also of interest:

Good post from Alex Tabarrok: The FDA and International Reciprocity

You say bubble, I say fluctuating risk premia: http://www.capitalspectator.com/archives/2013/11/david_stockman.html

Monday, November 18, 2013

"Non-Sequiturs" and other Political Realities

This post serves to take note of some conversations which - for me - are "nested" in the larger issue of productivity reform. Already, productivity concerns had captured my attention this week (see last post). There's a couple of recent comments which deserve a closer look, before I spend some time with a more in depth perspective. Especially in that one of these is from an individual whose work I believe to be vitally important for the (potential) balance that is Market Monetarism: George Selgin.

Selgin was responding in turn to Mark Sadoswki at The Money Illusion. Mark was inspired by a comment from Bonnie Carr several days earlier, to a post by Marcus Nunes. Here I also have the chance to put in my two cents about Plosser: someone who is nervy enough to say in all seriousness"a period of mild deflation could at least in theory be positive". Charles Plosser, grrr, stick it where the sun doesn't shine, for you indeed know this isn't one of those times (given extremely low innovation where it is needed most). Yet he's reasonably confident that the public doesn't know the score, for major media hasn't really stepped in to help. Now, for the dajeeps (Bonnie Carr) comment, which was a nice slap at Plosser:
Depends in the source of the deflation on whether good or bad. The good deflation doesn't come from monetary policy, and so the central bank doesn't really have a reason to target it.
I mulled over her comment for a couple of days, and wasn't quite able to categorize it in my mind. Fortunately, Selgin's response to Sadowski (who had approached an earlier argument from Bonnie's point of view) took care of that:
A non-sequitur, Mark. Of course the CB cannot target productivity itself; but it can have an NGDP target such as would allow for good deflation. It's just a question of setting the NGDP growth-rate target at the trend rate of growth of weighted factor input. I made this recommendation and offer reasons in its favor in my 1997 pamphlet. The point of a "productivity norm", and indeed of any NGDP targeting scheme to some extent, is precisely that CB's should_refrain_from attempting to maintain a stable inflation rate in the face of productivity growth-rate innovation.
Perhaps not quite the non-sequitur Selgin imagined, for politics has a way of piling on layers of silt in seemingly easy points of navigation. Speaking of rough and muddy slogs, there is a swamp of economese in his quote which may present a few problems for some of my readers - indeed I had a little trouble as well. Still, swamps are fascinating places as anyone who has explored them (hopefully with groups) knows, alligators and all. So let's grab some poles, and take a brief excursion - just look to where the sun is shining through the trees...

When I returned to Scott's post (with Selgin and Sadowski comments) to link for this one, I was struck at the degree to which some of Thomas Sargent's (a Nobel winner) quotes are reminiscent of Plosser. Egad! Anyway, as Scott noted afterward in the comment thread, it wasn't really clear whether Sadowski and Selgin had any disagreement. But inquiring minds such as my own want to know: what about that "simple" question of setting the NGDP growth-rate target at the trend rate of growth of weighted factor input? I think sometimes that when economists are talking amongst one another, they don't always recognize the moments when the rest of the audience goes "Wait! Hold on! Can you really explain that to me in English?"

What it basically boils down to for us laypeople is this: are the indices in place completely adequate for the task at hand? And - if not - how can we help to provide indices which are more useful? In other words, are current measurements capable of showing whether good deflation can be measured, so that the impediments for its growth can be loosed? Especially in the face of bad deflation which would knock down the most productive and innovative processes, given the chance.

For we need this capacity, if in fact incomes are to be optimized for even those who rely on the least income of all. Whether or not such indices would realistically be taken into account, was of course duly noted by Bonnie Carr - and that's no small matter. After all it's difficult enough to get the most important elements of measurement right - let alone deal with the willing obfuscation of those who would just as soon it not happen.

Sunday, November 17, 2013

Of Course Henry Ford Was Able To Pay More!

That is, Ford was able to pay his employees much more in relative terms than, say, Walmart might reasonably expect to pay its employees. I know, I know, there's some "rich folk" in Walmart and so it "should" stand to reason...That doesn't mean all this "extra" money could flow to the bulk of Walmart employees quite so readily. Really, really wanting to do something and being able to do it are not always the same thing (see Obamacare, exhibit A). Sometimes it's too easy to forget why Henry Ford was able to spread the largesse around - let alone the good public relations that doing so, made for him in the process.

I've thought about Ford's production transformation any number of times, but this recent Robert Reich post gives me good reason to write about it now. What's more, my post is in no way intended to give Robert Reich a hard time, for I very much enjoyed his book The Work of Nations (but someone in this post will catch some flack - heh). I had to dig around Amazon a minute or two, because I thought I had read this first of two Reich bestsellers in the late eighties, but it turned out to be 1991. Which makes it all the more odd that I didn't vote for Clinton...

My main issue with Reich over the years can be summed up in one word - his "takeaway" for the problems of employment. I'm sorry but being the patron saint of anything doesn't always have to mean "crushing the opposition" in moral terms (or perhaps I'm just a fool for believing in reason). The late eighties to early nineties I also referred to as my "neither victim nor aggressor" timeframe: lots of notes and scribbles dealt with that.  Part of what bothered me about this familiar psychological stance, was the way it limited otherwise rational thought processes. Thus I felt that - by relying on a defense of the "victim", it was too easy for Reich to downplay some basic dynamics going on under the surface.

Of course, the story has been well told, as to why Henry Ford had such advantages in the first place. He was able to streamline production process, which in turn led to numerous other efficiencies in scale and wealth effects. All of which meant he was able to put out a much greater amount of product than his competitors, and the product also created a complete consumption shift on the part of the public. Thus, the increase in aggregate demand which Ford contributed to (through supply side innovation), was not really a product of reorganization and wealth "shuffling" such as Walmart generated.  Instead, it was an altogether new element of the marketplace.

How to think about this? While other auto manufacturers prior to mass production were able to build limited quantities of product through high labor input (think today's unchanged homes and other construction), Ford stepped well beyond that threshold. If only we had some enterprising Fords for construction based non tradable goods today, I doubt that anyone would be acting constrained by "liquidity traps" anymore, Larry Summers notwithstanding. What's more, everyone's incomes would go a lot further. (Larry I'm not done with you...)

Why can't something along the lines of the Chuck Norris effect work the same way for supply side participants, that it can for the Fed? That is, why can't we just automatically create more wealth by increasing incomes? When the Fed prints more money in relative terms, that represents more money in the economy in the aggregate. But if "living wages" are implemented without actual gains in innovation, incomes get shifted about, but not with aggregate wealth gain. Worse, without additional monetary support or representation from the Fed for said wages, a negative offset is going to exist elsewhere. Chances are, that may well be increased unemployment. Implicit in this thought process of course, is that the Fed would not have trouble recognizing and backing true innovation where it exists.

Henry Ford, with his innovations, was able to become a substantial part of an positive aggregate demand cycle in a number of respects. Indeed, the changes in consumer behavior of this time frame likely played a role in the gradual shift away from the gold standard. Also, unlike Walmart's retail employees, Ford employees were not separated from production processes - generally a plus for income. But what provides such interesting contrast between Ford and Walmart is that Ford was at the beginning of a long mass production process in tradable goods. Whereas, Walmart represents the end of a specific form of that process as it actually played out in the 20th century. Were higher wages imposed now at Walmart, management would likely have to undergo considerable change to adapt.

In some important respects, there is still ample room for continued mass production in the years ahead. However, it needs free reign in what has been mostly non tradable goods, for society to capture the wealth benefits that were possible in the 20th century. Just the same, some mass production is likely to change into more local and personalized production, and potential innovations in non tradable housing and construction could also be local in nature. Even so, such change is a very different direction from the long mass production cycle which Walmart was able to benefit from. Therefore, it may well involve different forms of ownership and resource use than those which Walmart adapted to. That is just part of why I question their ability to adapt to higher wages now.

While new forms of production are something positive to look forward to, much potential for wealth gain depends on whether innovation in non tradable goods will be allowed to happen. So when we hear individuals such as Larry Summers announcing that the liquidity trap will remain with us for a long while, that is not a good sign. He cannot help but know that new versions of Henry Ford in the non tradable sector could create a wealth gain similar to the rise of the automobile. Such gains would blast his so called liquidity trap right out of the water. The only trap that is real, is the worldview of the status quo which would not benefit from innovations in non tradable goods.

After all, the real wealth gains that innovation provides to income, are not in the interest of either government or finance. Both of these have gained extensive power, from selling and taxing the pre Ford versions of housing to the public - in spite of any crocodile tears for some budgets which struggle to meet craft guild terms. When Larry says bubbles are necessary, that's just code for "Deal with it, because none of us really feel like changing the status quo". But what if the public figured out it wasn't really necessary to go through decades of economic decline? What's more, if the public figures that out, the Fed will also have a chance to back up their improved expectations in a purposeful way.

Therefore, I just don't have a lot invested in discussions about "good" banks and "bad banks". Forget the endless hair pulling over finance regulation traumas: how about a serviceable income that doesn't require a high risk loan just to take care of everyday matters? Incomes can indeed become so, when products are - once again - fashioned so as to make life easier. In other words, are our lives actually improved by the product we are asked (or expected) to buy, or is this just the latest version of a supposedly "better" standard of living? Because those two quite frequently are not the same thing. So what do I want for 2014? I already know. I want housing and other building construction versions of Henry Ford. If they can even pay more, so much the better - that's just the icing on the cake.